Whereas if the loan and payment data were on a public blockchain (with personal details hashed), records wouldn't get lost and courts could easily verify them.
You could argue that we should reform our centralized systems, but that's hard to actually do, which is sorta the point of removing the need to trust them in the first place.
But here is a different use-case -- keep records well. Traditional systems are actually pretty bad because of the incentives. My bank statements for example are often very confusing, and online data only goes back 18 months, because the bank has little incentive to do better.
And that is in a relatively benign market. Title deeds, and the kind of loan documentation you are talking about create positive incentives for abuse.
For stronger privacy we'd need ring signatures or zksnarks, so a person can't be identified by the flow of payments, but those technologies exist on various blockchains already.
Imagine if you thought that it would be a great idea to create decentralized payment system on the internet where people can accept and make payments in a peer to peer manner.
Except, this is 2001. There is no such thing as a blockchain. You face the problem of double spend, and soon enough, you come to the realization that you could create a peer to peer accept/send online payment system much better if it is centralized.
Thus, Paypal is born.
But does that mean a blockchain based decentralized payment system was completely useless? Not really, it is clearly demonstrated by the popularity of bitcoin in a world with capital controls, WikiLeaks payment sanctions etc.
The real reason behind this effect is that the tech world is excited about decentralization, but it doesn't fully understand that there are a lot of missing components required to create say "a censorship-resistant online forum" or "decentralized blah blah service".
On the top of that, nobody except for the people who are being actively censored or prevented from doing things by the centralized institutions truly need the decentralization.
Most SV technologists would be really excited by the idea of a decentralized, censorship proof forum. Except, you will only attract the alt-right (as of now) to it. Why? Because the non-alt-right is perfectly fine with the censorship, as it favors them currently.
Everyone I know that is remotely interested in Bitcoin is interested because it may increase in value, it's not popular at all as a payment mechanism outside of illegal circles.
> Most SV technologists would be really excited by the idea of a decentralized, censorship proof forum
Is this really exciting? It sounds like a formula for a cesspool. It seems to me that the challenge in getting anything interesting to happen there is not in the technology, but in the design of the service. There are already tons of places where you can discuss anything that's not actually illegal, including being alt-right. It's just that they're seedy, so nobody normal goes there.
It's already trivial to build those clones without blockchain if users give up a small amount of trust, and that amount of trust is basically irrelevant to the overhelming majority of users. And the advantages of non-blockchain development, in return, are huge.
1. An ability to trustlessly hold and release digital collateral on an entirely peer-to-peer basis. This entirely removes the necessity for a whole class of middlemen that seek rent for existing lending agreements.
2. An ability to trade one's ownership in a loan as a cryptographic token -- again, something that necessitates various paying agents / clearing houses / intermediaries in the traditional capital markets ecosystem.
Re: decentralization -- that's a fair point. Right now, Dharma is functionally a centralized code base controlled by a centralized set of contributors. In the future, however, we hope to transition to a decentralized governance model so that the protocol can serve as a piece of common, shared public infrastructure -- unfortunately, we don't have robust enough decentralized governance models quite yet in the crypto community.
Now just waiting for the smart contract that bundles a bunch of your tokens and sells structured tranche tokens :)
For point ,: you're correct in that we (as in the crypto community in general) have yet to come up with good on-chain governance mechanisms, so its likely that robust decentralized governance systems are at least a few years away.
Underwriting is a heavily regulated process in most countries with licensing requirements.
You could claim that you do not underwrite yourself,so don't fall under regulatory purview. Interestingly your model will fall under the P2P regulations of India and China - where there are specific models where the marketplace does not underwrite, but risk is assumed by lender.
Or - you have to make sure that the underwriters are regulated entities.
P.S. I run a lending startup in India. We primarily look at the Blockchain as a means to solve the credit history problem in India.
How fast can you get lending users to put $100 million to a billion into your non-blockchain platform? Maybe 5 years, with VC money for marketing?
Now compare that with how fast you can do it with a blockchain crypto platform. And it's still very early days = "small" amounts of money being put into crypto compared to what it's going to be 5 years from now.
Do you mean a stock sale? Once it's passed all SEC certifications and so on for going public and done your IPO, a company can do that in as simply as filing a form with the SEC and directing the sale of the stocks.
But collateralizing with digital assets created on-chain is a really interesting approach, obvious in hindsight, but perhaps requiring the prerequisite of real implementation of unique collectible digital assets that retain value. Collateral can be cryptographically locked up and payment enforced in the event of default, all trustlessly. Are you guys the first to do this or are there any others doing this too?
Regarding you second comment, what's cool is that we can collateralize not just collectibles, but any ERC20 token as well, which makes the protocol substantially more attractive.
There's roughly 9 million USD worth of outstanding dai tokens at the moment, all representing a form of debt to the MakerDAO system with ETH as collateral.
The first version uses only ETH as collateral, with a high degree of overcollateralization. The next version is supposed to use different collateral types.
One interesting type of collateral is tokenized gold, as will be issued by the Digix project.
If these crypto "assets" like Kitties are rather unfungible for crypto "coins", then I suppose it would make sense, but then I'd be confused why the lender would accept the collateral.
Close, you can abstract "utility" one layer higher to "demand", or more accurately demand relative to supply. The thing you collateralize needs to be in demand by enough people to ensure it remains valuable over at least the life of the loan, but realistically much longer (so the lender is assured it will always be perceived by the market to have current and future value over any period during which the lender may need to reposses and resell the collateral). Utility gives things value which gives them demand, but it's really the demand that matters. There must always be a ready buyer for the collateral. Scarcity, like with Cryptokitties, gives things value too (rationally or not, but welcome to the human race).
So we think a really interesting use case in the short term is margin lending of crypto assets. Say you have 10 ETH and want to short-sell a different ERC20 token. You could lock up your ETH as collateral in a loan denominated in the other token, and then sell those tokens. If those tokens depreciate in value vs. ETH, when you buy back the tokens you'll have made a profit.
I get a loan for 20 magic bean coins, secured with 1 eth when the exchange rate is 20 magic bean coins for 1 eth. (Do I have to pay interest on this? Do I forfeit it at some point? Iiuc Dharma seems to be just a framework for setting up these schemes, so this might be controllable by the person creating the eth-mbc loans?)
Then I sell my 20 magic beanstalk coins for 1 eth.
A week later, magic beans have massively depreciated because there was a critical vulnerability discovered, code-named GIANTS and now I can get 40 magic bean stalks for 1 eth.
So I sell 0.5 eth for 20 bean stalks, and use that to pay off my loan?
Regarding your parenthetical questions:
1) yes, you'd pay interest on this. you'd negotiate this interest rate with the person lending you the magic bean coins
2) yes, there are a couple scenarios where you'd forfeit your collateral: a) if you were wrong, and the price of magic bean coins appreciated beyond the value of your collateral; b) if even if you were right and the price depreciates you forget to pay back the loan
3) that's correct, Dharma is just the protocol for the creation of the loans, so the terms of the loan would be determined by the constituent parties (the borrower, lender, and underwriter)
Verifier would allow a person to take a token of some sort from a website, and send some eth to the Verifier. Now the service knows that the person has put in some stake, and can grant them an account (this is as a sort of abuse protection).
If the person wants they can take their money back, but the website can find this out and cancel the person's account.
What happens if the cryptokitty loses 10% of its value? And how does the contract know this loss in value?
Or is the idea these contracts live within the broader fiat systems? I suppose you can use a crypto currency with a growing money supply.
Perhaps unfeasible to appraise given that CryptoKitties haven't coalesced around any sort of stable value, but it'd be interesting to see what the volatility of NFTs like CryptoKitties is in comparison to normal tokens.
Your point is well-taken and definitely a risk. What lenders plan to do, for loans collateralized by crypto, is overcollateralize substantially.
So, for instance, in order to take out a 50k USD loan, you may need to put up 2.5-3x of the value in ETH, say 150K USD worth of ETH. This protects against some of the volatility (though definitely not completely).
I havent read the whitepaper yet (i will this weekend), but it seems like the collateral is essentially locked up in the contract, so you lose any interest or other opportunity cost.
Even with only current instruments you could synthetically create this loan for cheaper: sell the BTC collateral for USD, buy futures to cover the BTC, invest the unused USD to collect interest..
The problem is that the collateral is locked in the contract and that collateral is another liquid currency.
Why on earth would someone borrow $50k if they have $150k on hand?