How would you go about doing this? As an example, if you loaned someone 167 monero to buy a car and expect them to pay you back in 7 years like a bank does you would be requesting 167xmr*6.02% (to counter xmr inflation) for a total of 177.053xmr. 177.053xmr/84 (months in 7 years) would be 2.107xmr a month. At the moment that is fine, but if the usd price of monero rises and the borrower is being paid in usd then they are going to default and you will loose the xmr. The only way I could see to counteract this would be to lower the Monero payments per month, but then that would take even longer to be repaid.
Typically in multi-currency contracts, the payment schedule is denominated in the same currency as the asset. So if the car is purchased in Vietnamese dong, the repayment schedules denoted in Vietnamese dong. You could accept xmr for each individual payment, with some specification to the conversion rate.
If you don’t denominate the payments and the asset in the same currency, you run into situations where one moves and the other doesn’t, and one party is left holding the bag. So if you believe XMR is going to go up you are incentivized to denominate the repayments in XMR, but if you bet poorly, you better have a hedge available.
Most jurisdictions require payments to be accepted in the local currency. So even if you specified an XMR repayment rate, the person could still pay you in the local currency.
Not to mention when you add foreign exchange to transaction now you’ve got weird incentives going on. If XMR crashes, one party would not want to get paid in XMR. And if XMR rises too much, they would prefer to default and give you the vehicle instead of paying you the XMR.
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But if you pay out Monero for the loan and then you peg it to Fiat and they pay you back in Monero with that amount of Fiat, then you will lose Monero as the price increases. So you will turn say 177 Monero into say 100 Monero. That is something you don’t want to do.
Well you don’t want to lose Monero and you don’t want to lose fiat, but you can’t have both. XMR isn’t a stablecoin.
If it matters more to you that you get your XMR back, then require XMR payments. You need to include the XMR volatility as part of the interest rate calculation.
If it matters more that you get your fiat back, then require fiat-equivalent in XMR payments.
Or, demand you get either XMR or fiat back, whichever is higher. But I don’t think a borrower would like this. Tesla did this when they let you pay in BTC; Tesla reserved the right to refund you in whichever currency was cheaper. For the consumer, it a bad deal.
I don’t care if I lose Fiat, but I do not want to lose Monero.
Then you need it factored into the interest rate you decide upon that volatility may cause the price of XMR to get so high that your debtor would rather default than pay the debt.
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What do you mean you’d be left with more value? If I loan a hundred and seventy-seven Monero and I only get a hundred Monero back, I am down value. I want the loan amount denominated in Monero and I want the loan payments to be repaid in Monero. I don’t want somebody to tell me I need to borrow a hundred thousand dollars. I want somebody to tell me I want to borrow a hundred and seventy seven Monero.
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Oh, I think I see the disconnect. I want the Monero, not the dollars. So, even in that scenario where I lose $50, I don’t care, because I now have 200 Monero, which is what I wanted.
Edit: I am not after the number of dollars to go up. I am after the number of Monero to go up. I want to see my wallet balance increase from 100 Monero to 200 Monero and don’t give a fuck about the US dollar price.
Don’t ever loan cash or cash equivalent to friends unless you’re okay with never getting it back.
Oh, I know. I’m talking about a business that would loan money to people and vet them like current banks do with credit scores.
The only way this would work is to peg it to fiat or commodity. Or expect that your ROI will either be nothing or an insane amount.
Right, and doing this means that short-term loans work fine because the price isn’t likely to change that dramatically in a year and the amounts would be low enough that you could just lower the payments and still get your monero back. But for long-term large loans such as houses and cars, people would not get loans to buy those items.
XMR PRICE (2/4/24) $165 (4/13/24) $115That’s a 30% decrease in about 2 months. As an aside, 30% is the APR for most high-interest loans.
The idea is there, but something like DAI would be better to look at, although it remains to be seen how long crypto will be used and accessible (especially once CBDC rolls out and legislators getting even more heavy-handed with non-CBDC coins.)
Something makes me think that crypto will be used even in a world of CBDCs. Primarily because it’s still highly divisible. It’s hard to pay in gold because it’s heavy and amounts useful for paying things would be untenably small. One gram of gold would pay for my internet, but would be serious overpayment for my Starbucks latte.
Edit: off chain gold i guess. I give starbucks 1 gram of gold and they give me lates the next 15 times i come in. (Prepaid accounts)
When gold was used as currency, it would be shaved off using a scale to confirm the weight (gold is a very soft metal, easily ‘sliced’ off the coin/bar. Shopkeepers had their own scales but wary customers could carry gold pocket scales to confirm the weight.
Just like you can spend fractions of a cryptocoin, you can spend fractions of a precious metal coin.
Are your local regulations okay with that or is it a grey area where you would have troubles legally collecting on defaulted loans?
I do not believe we have the price stability to be useful in lending applications, but if I were to do it, I’d be sure to take possession of collateral enough to completely repay the balance of 177 Monero. Otherwise, you’re just asking to be taken for the fool. Signing over the title to their car might serve as collateral, where you hold a paper title that’s he’s physically signed over to you, then you just don’t register it in your name, so the DMV still thinks the car is his. If he breaks the loan contract, you register the car in your name and have it repossessed legally. Still, I’d only do that if you know he can’t move away easily. Interesting application, though, I’d like to hear more real world applications like this.
That’s definitely a thought, but I’m wondering if even repossessing the car would be enough to get you the rest of your Monero back when it was sold.
Edit: Effectively, when you borrow money to buy something now, you are shorting the currency you are borrowing, and shorting Monero is a really monumentally stupid idea.
I think only XMR-denominated collateralized short-term Lombard KISS loans (keep it simple stupid) will work. I can loan anyone minimum 100k XMR to maximum 5M XMR against appropriate physical or digital collaterals e.g. marketable NFTs, crypto tokens, staked tokens, authentic paintings of masters, sculpture, modern kinetic arts, NFTs, diamond jewelry, solitaire polished loose diamonds with GIA lab certificates, timepieces like Rolex, Ulysse Nardin and Jacob & Co and physical gold bullion of 999 and 995 purity.
Loans in XMR/BTC could make synthetic bitcoin for holding somewhere and then withdraw after volatility periods
Some financial alchemy would help. The borrower would need to buy some derivative that pays off if monero goes up, like a call option. Impossible to find today and possibly expensive for low amounts.
I think eventually Haveno could be made capable of doing this.
