Toward Cryptocurrency Lending
Lending has been posited as an application of blockchain technology but it has seen little real deployment. In this paper, we discuss the roadblocks preventing the effortless lending of cryptocurrencies, and we survey a number of possible paths forward. W
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Concordia University, Montreal, Canada [email protected] 2 Deloitte, London, UK
Abstract. Lending has been posited as an application of blockchain technology but it has seen little real deployment. In this paper, we discuss the roadblocks preventing the effortless lending of cryptocurrencies, and we survey a number of possible paths forward. We then provide a novel system, U.gw.o, consisting of experimental smart contracts written in Solidity and deployed on Ethereum to demonstrate how a decentralized lending infrastructure might be constructed.
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Introductory Remarks
Lending has been posited as an application of blockchain technology but we have seen little real deployment of lending. In Sect. 2, we discuss roadblocks and possible paths forward. We do this in service of other researchers who might want to look at this issue—we view our own contributions as an initial look and not the final word in this complex area. We outline our agenda in a few steps: (1) we review the role of lending in a modern economy, (2) we identify the key tensions between cryptocurrencies like Bitcoin and Ethereum and lending, (3) we review proposals for lending, and (4) we suggest how to move forward. In Sect. 3, we present our lending infrastructure U.gw.o which incorporates the points we discuss. U.gw.o is designed to be flexible and extensible; traditional fiat-based lending is not one-size-fits-all and consists of a patchwork of loan structures, instruments, and intermediaries. We show some basic types of loans and basic types of risk mitigation as examples of what could be added to U.gw.o to support an infrastructure for lending.
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A Research Agenda for Cryptocurrency Lending The Role of Lending in a Modern Economy
It is difficult to overstate the role of lending in a modern economy. Take, as an illustrative example, the role of a central bank; one of the main national institutes (along with the treasury) that cryptocurrencies aim to displace. First and foremost, a central bank is an actual bank, providing accounts for its member banks to deposit money and earn interest. Member banks provide interestearning accounts to the public. Interest is paid to the public because banks use c International Financial Cryptography Association 2019 A. Zohar et al. (Eds.): FC 2018 Workshops, LNCS 10958, pp. 367–380, 2019. https://doi.org/10.1007/978-3-662-58820-8_25
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M. C. Okoye and J. Clark
the deposited money to form loans. Because central bank interest rates are low, banks prefer to lend to other banks any excess cash they hold at day’s end instead of depositing them (other banks borrow to meet liquidity requirements). These loans earn interest, and central banks target this specific lending rate when they intervene in the economy. The most common intervention is the buying (circulating new money) or selling (removing circulating money) of government bonds, which are interest-earning loans from investors to the government. Central banks will also provide loans (of ‘last resort’) to banks unable to secure loans from other banks, ty
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