Author: esnierde 2020-07-21 05:23:00
Published on: 2020-07-21T05:23:00+00:00
The email thread discusses a proposal for non-custodial coordination of small investors in lending money to businesses. The traditional banking system provides more than just custodial holding of funds, including matching long-term investments with short or variable term deposits and sophisticated risk analysis systems. The proposal suggests using features that allow for a non-custodial coordinator of multiple small investors who remain in control of their funds until transferred to the lendee. The coordinator takes on the risk of default, reducing the risk relative to a centralized custodial solution. Investors need to trust some bank in addition to trusting the businesses taking on loans to start/expand their business, but this proposal removes the necessity for custodial holding of funds. Prior to investors signing the loan-out transaction, they prepare a loan-payback transaction, which is signed with a SIGHASH_ANYPREVOUT signature. If the business is actually able to pay back its loan, the coordinator is never in custodial possession of funds. Investors may prefer to spread their risk by investing sub-sections of their savings into multiple different businesses, and each business can be given a loan-payback address controlled by the investors that extended their loans. The proposal also mentions collateralized loans, where a Cryptographic Relay would allow multiple small investors to act as the "loan shark" in the example. Ownership remains controlled by individual investors, eliminating any custodial issues. However, coordinating the sale of collateral amongst multiple small investors in case of default may be harder. An additional service may be willing to pre-allocate Bitcoin funds into a timelocked contract, earning by arbitraging time preference. Overall, the idea removes the necessity for custodial holding of funds, in the way traditional banks do.
Updated on: 2023-06-14T03:07:28.844047+00:00