Concept: tokenizing debt
No doubts, debt is the necessary part of any efficient economy. And in that perspective it becomes important how liquid, accessible, transparent and fair the lending market is.
Not going into too much detail, it can be said that borrowing/lending may be:
1) Short term money market for margin trading purposes / REPO market
2) Long term debt market
In the current crypto economy we see a major inefficiency in that field. Today the most common incentive to borrow money is margin trading. Though the demand in financial servises in crypto space is only going to grow, there is still no solution that would answer the requirements even for the trading purposes. The most crypto money market solutions are centralized black boxes, others are inefficient in terms of interest rate, customisation, other rules.
The most fair money market possible is peer to peer lending with the market to decide the current annual interest rate, like the ones you can find on Bitfinex and Poloniex. But these markets are centralized and you can not spend borrowed crypto elsewhere besides this exchanges, which brings serious limitations. You also will be a subject of all possible verifications, you take risks of governance, external theft and other typical centralization risks.
Lets imagine the situation, when you have no one between you and your counterparty, all actions are transparent and the rates/prices are defined not by any middleman but by the Ask/Bid equilibrium. Yes, that is DEX as it is. And on that DEX the debts wraped in tokens are traded among individuals, funds, crypto banks (yet to come, ex. www.depos.io), spot exchanges (which lack of instant liquidity of particular asset, REPO like) and all that in one decentralized place. Avoiding for now any “how” quiestions, lets focus on “what”.
Сonsider the borrowing process as the personal bond issue: you borrow some money and give the lender a token, that reflects all information on how and when this debt will be paid back. How do you do it? You just put your bond sale on the market and receive money from the buyer. Since your debt now has physical form (hence, price) it can be traded on the secondary market, which provides a new level of portfolio management and liquidity. Basically, in fiat world it works just the same.
Since everything is done on-chain via smart contract, you receive the loan on your wallet and may spend it as you wish.
No doubts, this approach is way more transparent, effective and promising. But how to make it work? That is what we work on, building free and open source protocol dBonds on EOS blockchain. Please, visit www.dbonds.org for more information.
By the way, this approach is much more, than just peer to peer decentralized lending. It can work in both micro and macro scale: it does not have any middleman or governance risks and all hapens only via smart contract, so it may be used in institutional purposes to raise large amounts of money without any risk to be hacked or robbed. It can also work for an intraday or a decade term equally fine.
One more note here. Usually, when user locks collateral for the purpose of borrowing other coins, these coins circulate in economics, while collateral is locked apart and do not participate in any kind of activities. In case you borrow coins with crypto collateralized dbond, these coins, again, circulate, but the collateral value isn’t washsed away. It, at least partially, still is a part of economics being represented by the valuable dbond token, which goes the rounds again and again untill redeemed. So debt tokenization efficiency may be challenged also from these perspective.
