Premise:
Borrowing against bitcoin short term
Ideas from the edge:
Hodler stores Bitcoin in their own cold wallet.
Bitcoin bank cannot access the Bitcoin
But the bank needs assurance the debt is tied to the hodlers Bitcoin
The idea:
A decentralised remote escrow instrument
The instrument facilitates a charge for the bank to guarantee the loan
And allows the hodler to remove the charge, when the loan is repaid
This is my wandering imagination, just thinking out loud, this is conceptualising as a dreaded smart contract
So maybe not
But ideas 💡 can bloom other ideas
What do you think?
I believe there are time lock bitcoin transactions that exist now that can be used in escrow situations. If I'm not mistaken there are already companies exploring this idea.
"decentralized instrument" is not technically descriptive, this is how DeFi scams and Fake L2's come to be... sounds good conceptually until reality is considered
Also there's no such thing as a smart contract, there's always some externally oracalized information tantamount to a signer
You can't simultaneously secure a loan with Bitcoin and maintain unilateral self-custody, either the lender has rights or they don't. 3rd party escrows enter the chat for trust distribution, a borrower could "self-custody" 1/3 signatures for example that really only serves for them to know the lender hasn't yet colluded with the escrow to steal the collateral.
Facing those realities, the best option for borrowing against bitcoin while maintaining price exposure is margin loans against ETFs in a brokerage setting. Institutions will surely start to offer non-ETF margin loans but its effectively the same thing (if like-kind exchanges are permitted under tax law then even those become unnecessary). P2P "DeFi" loans could use the 2/3 escrow scheme, but are likely to cost more because people will pay it for non-KYC platforms.
Thank you Justin, excellent explanation
👌👌👌
Lava does something like this.
Excellent 👌