Loan shark: Super Testnet's non custodial, bitcoin only borrow and loan tool \ stacker news ~bitcoin

Loan shark: Super Testnet's non custodial, bitcoin only borrow and loan tool youtu.be/EJICv6P48wU

11.9k sats \ 79 comments \ @supertestnet 30 Dec 2023 bitcoin

62 sats \ 31 replies \ @TheWildHustle 30 Dec 2023

Funny to think, plebs morphing into the bankers in the age of the sovereign individual.

885 sats \ 0 replies \ @supertestnet OP 30 Dec 2023

Funny to think, plebs morphing into the bankers in the age of the sovereign individual.

"Be your own bank" is a pretty old saying in bitcoin

It mostly refers to keeping your money in your own custody, but you can do the borrow-and-loan part of a bank too, if you want to

I think it's cool that anyone who lends money in loan shark gets guaranteed income if anyone takes their offer, with these caveats:

you can lose money if your hardware/software stack is compromised (which is pretty likely, given that loan shark currently uses a web wallet -- it's self-custodial but it's still storing your private keys as cookies that other people can sometimes read, e.g. browser extensions can read your cookies)
you can lose money if miners censor your transactions
you can lose money if you lose your transaction or wallet data and don't have a backup (there's a nice backup button to help with that though)
you can lose money if you neglect to broadcast certain transactions when their timelocks expire (though if you just visit the website and upload your backup data, it will try to do this for you automatically)

0 sats \ 29 replies \ @supratic 30 Dec 2023

yes, true... and playing the same dirty game bakers do with bitcoin! In this video, like in the real world, the main problem are the taxes! Why you even consider them? Why are you still playing your gov game? F*ck that, and this tool too!

120 sats \ 28 replies \ @supertestnet OP 30 Dec 2023

the main problem are the taxes! Why you even consider them? Why are you still playing your gov game?

Because I am happy to pay taxes for services rendered

I am also happy to reduce my tax burden so that I do not overpay for services rendered

10 sats \ 26 replies \ @Nuttall 31 Dec 2023

I'm not happy paying taxes and it is shit because inflation is an invisible tax.

That being said, I think what you are doing is very good because people who are happy paying taxes, or are not happy but do it out of fear of the monopoly of violence, need a way to beat inflation. Especially if you run a public facing business and do not want to sell bitcoin that is on the books. If you are an anarchist (looks in the mirror) you don't care but if you have a public facing business then the monopoly of violence can ruin your business because they have been given permission to do so.

So...

I like your tool. It is free market in a surveillance state. This would encourage business to hodl Bitcoin and have an out if one needed to get funding. It is better to not be in this position, but saving is all about access if you need it and getting fucked by the IRS is not what a business wants and it is what can happen if you have to pay capitol gains tax on matured UTXOs.

Yes the IRS is bullshit, but that doesn't mean the IRS does not exist. Taxes are evil and wrong. It is theft. On the other hand a clever business person is very visible, squeaky clean and he can use a tool like this and show others how to do the same. This eliminates the necessity for financial engineers who love fiat. They can do usury with Bitcoin. Eventually the deflation of Bitcoin will eliminate the need for lending and also on a Bitcoin standard eliminate fiat crime which is government.

Hard money fixes a lot of machinations. Unplug the USD and plug in Bitcoin. Anyone who has even a small amount of Bitcoin will be able to leverage to businesses who need liquidity.

10 sats \ 25 replies \ @supertestnet OP 1 Jan

inflation is an invisible tax

It seems rather visible to me

I think what you are doing is very good

Thank you :)

Taxes are evil and wrong. It is theft.

I think it is theft when taxes are too high. When taxes are reasonable, paying them is a duty, a debt, something owed to the government and binding in conscience. As such, it is not theft for the government to collect taxes when the amount taxed is reasonable.

They can do usury with Bitcoin

I hope they do not, usury is bad

Some people will probably do it anyway though

10 sats \ 22 replies \ @Undergotten 2 Jan

I think it is theft when taxes are too high.

And who determines that? You are still trusting a central authority, and that's the main thing Bitcoin is trying to avoid.

0 sats \ 21 replies \ @supertestnet OP 2 Jan

And who determines that?

I think this is pretty much the same thing as asking "how do you know if someone is overcharging you?"

My answer is "think about it a little, you can do this"

10 sats \ 0 replies \ @npub1q67p49masrcjf__d7qaq6mwh0q 2 Jan

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10 sats \ 18 replies \ @Undergotten 2 Jan

No, that's not the same thing at all. Taxes are not voluntary. They're mandatory. You have no choice. You are placing your trust in a central authority.

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10 sats \ 0 replies \ @Nuttall 2 Jan

Here we circle back to usury. I don't care what the financial engineers call it usury is the monetary charge for using money. Use. This principal only exists where money is clearly manufactured by one party and paid or lent to another. Where the usury comes in is that the money is:

Taxed - In order to use my money where I am not producing anything (because if I was I would not need to confiscate your money) I need to take a portion of your labor. Furthermore I am going to violently threaten your customer (boss) to make sure he confiscates your wages and his before you both are paid and give those funds to me. If you don't have enough money I will lend you some.
Inflation - This invisible tax is part of the scheme where I see the free market working and I introduce by inflating the money supply with new currency that I declared as money by fiat in order to confiscate the labor and goods of the free market without actually making anything useful.
Usury - My friends who I give money to have a bounty of this cash and they will lend you this money so that you can build a business and pay us back as a percentage of your earnings. Once you have paid this back we will continue to confiscate your earnings by taxes and inflation of the money supply.

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0 sats \ 1 reply \ @Nuttall 1 Jan

If they are adding money into the economy and charging taxes then it is double taxation. Income tax is also an abomination because that money is confiscated before the worker gets his wage. Then he is taxed again on other items.

But I don't want that debate to color your tool. Fact is that there are taxes and arbitrage is helpful.

10 sats \ 0 replies \ @supertestnet OP 1 Jan

If they are adding money into the economy and charging taxes then it is double taxation

I agree, but I don't think that's bad by itself. To me it doesn't matter if taxes are collected via inflation, a wage tax, or both, what matters to me are these two things:

(1) The taxpayer was robbed if the government charged him more than his share of the government's total costs (including reasonable salaries for government employees).

(2) And he was also robbed if the government intentionally spent higher-than-reasonable amounts of money so as to hike up the taxpayer's share and make him pay a higher-than-reasonable amount too.

If a government would just avoid both of those pitfalls then I wouldn't mind if they used inflation and a wage tax to collect value from taxpayers. To me, either method is fine as long as the government's expenses are reasonable and they collect the same share from each taxpayer to cover those expenses.

Fact is that there are taxes and arbitrage is helpful

Agreed

0 sats \ 0 replies \ @supratic 3 Jan

So let me better understand, you are happy to pay taxes but you're looking to find ways to arbitrage and pay less and less?

It does NOT make sense at all mate, just get out of that shity system you're playing in and start living a better life! ... you still having time!

172 sats \ 3 replies \ @kevin 30 Dec 2023

The amount of people not watching the whole video is too damn high!

10 sats \ 2 replies \ @supertestnet OP 30 Dec 2023

To be expected. The video is 15 minutes long, repetitive, and confusing.

0 sats \ 1 reply \ @Nuttall 31 Dec 2023

No, it is very good and I'm a producer so that makes my reasoning morebetterest (sic). But serious I liked it and it was good. It could be edited down. Hopefully you might be able to get someone to volunteer some talent to do this video again. If not, don't worry. It was very good and I learned something from it. You might as well get feedback and don't look back. Keep going.

This tool you are making is something financial engineers would love. Yes, the very ones mentioned in The Creature From Jekyll Island. Keep working on this. Also as you make milestones. Please update in a new discussion on Stacker news so that we can send you sats.

I for one would love to see you succeed! I followed you on github. I would like to learn how Bitcoin works and you are doing the script stuff which is fascinating. The swaps seemed to work very quickly and I am curious about how that is dealing with the on chain fee nonsense. If there is a layer 2 or layer three marketplace then this would really pop! One might also be willing as a lender or borrower to pay the mempool estimate. Discount for the borrower if he pays the fee and courtesy for earning yield or if the lender pays the fee because he, the lender factored in the fee in his risk of lending like a contractor would in a bid. Then the Mempool / Miner fees are no longer an issue as long as the usury and fees are less expensive than the monopoly of violence.

Here is another rabbit hole. Maybe miners would like this tool and favor these transactions over ordinal turds.

10 sats \ 0 replies \ @supertestnet OP 1 Jan

You might as well get feedback and don't look back. Keep going.

That's how I look at it too. It's good enough to get the job done and the more I do these videos the better I will get at them.

Please update in a new discussion on Stacker news so that we can send you sats.

Good idea!

I for one would love to see you succeed! I followed you on github.

Thank you, thank you

you are doing the script stuff which is fascinating

I think it is fascinating too, I'm so glad I get to do this stuff every day, and show people stuff they never thought was possible on bitcoin

The swaps seemed to work very quickly and I am curious about how that is dealing with the on chain fee nonsense

Depositing money into the contract address happens in one atomic swap transaction, in which the borrower pays the fee. The swap works like this:

(1) The borrower tells the lender a utxo he intends to deposit into the contract address as collateral (2) The lender picks a utxo to send to the borrower as principle, and creates a bitcoin signature. This signature is valid for a transaction with two inputs (the borrower's utxo and the lender's utxo) and three outputs: (a) the first output will fund the contract address with the amount of the collateral. (b) The second output sends the borrower's change back to him with three variations: the amount of the collateral is subtracted from this utxo's value, the mining fee is subtracted from this utxo's value, and the amount of the principle is added to this utxo's value. (c) The third output sends the lender's change back to him minus the amount of the principle. (3) The lender sends the signature to the borrower along with info about the utxo he used as input to the transaction (4) The borrower validates that the signature unlocks the lender's utxo for use in this transaction, and if the signature is valid, he creates a second signature, valid for the same transaction but unlocking his own utxo (the one he picked in step 1) rather than the lender's utxo (5) Then the borrower adds both signatures to the transaction and broadcasts it. The signatures make the transaction valid, so miners mine it.

So I deal with the fee by having the borrower pay it

If there is a layer 2 or layer three marketplace then this would really pop!

I think there is a way to make it work on lightning, I will consider this further

Discount for the borrower if he pays the fee and courtesy for earning yield

I decided the borrower should pay the fee because he is essentially purchasing a loan contract from the lender. If he doesn't think the fee plus the interest rate is worth it he can just not take the offer. Free market decision making should find an appropriate rates for these loans.

Maybe miners would like this tool and favor these transactions over ordinal turds.

I hope so, I suspect they will prefer whichever transactions pay them more money

32 sats \ 1 reply \ @OT 30 Dec 2023

Pretty cool!

Personally I don't think I'd use something like this. Why would I borrow sats when I already have sats. Maybe on the other side as a lender could be a possibility.

132 sats \ 0 replies \ @supertestnet OP 30 Dec 2023

Why would I borrow sats when I already have sats

Tax arbitrage. More details here:

#371778

I also made a little comic book outlining how you can use loan shark for tax arbitrage, and I go over the comic book in the video at timestamp 10:07: http://tinyurl.com/ye2avw7j

I expect most plebs would rather lend than borrow. Borrowing makes sense if you have a lot of old bitcoins and are currently living on them, spending them day to day and incurring big tax penalties.

32 sats \ 3 replies \ @justin_shocknet 30 Dec 2023

Whats the use-case where the collateral is the same as what's being lent?

Maybe could use this to provide liquidity for trusted (batched) swaps or channel factories?

31 sats \ 2 replies \ @supertestnet OP 30 Dec 2023

Whats the use-case where the collateral is the same as what's being lent?

Tax arbitrage. More details here:

#371778

I also made a little comic book outlining how you can use loan shark for tax arbitrage, and I go over the comic book in the video at timestamp 10:07: http://tinyurl.com/ye2avw7j

10 sats \ 1 reply \ @justin_shocknet 30 Dec 2023

I'd think that very niche, but true... and that could also be used to add privacy between you and exchanges.

31 sats \ 0 replies \ @supertestnet OP 30 Dec 2023

I'd think that very niche, but true... and that could also be used to add privacy between you and exchanges.

You can also use it to get rid of Mt. Gox coins, toxic change, and other undesired sats

Take out a loan, put up some of your "ordinary" bitcoins as collateral, and pay off your loan using your "undesired" bitcoins

Now the lender is stuck with them instead of you, and you get back your "ordinary" bitcoins as a bonus

There's a cost (e.g. a 10% interest rate) but if you're stuck with coins you can't spend in any other way, it might be worth it

10 sats \ 2 replies \ @Car 31 Dec 2023

🖍️ gosh wish you were at the lab so I could redo those drawings for you, my friend

451 sats \ 1 reply \ @supertestnet OP 31 Dec 2023

Aw, Car, that's very sweet

Btw I don't think I need to be at the lab for you to redo some drawings

0 sats \ 0 replies \ @Car 31 Dec 2023

🤣 idk those drawings were pretty bad

jkjk

10 sats \ 1 reply \ @stargut 31 Dec 2023

I tried sending some bitcoin on testnet but it didn't show up in the wallet: tb1pl4hexvjqw7yj3vd4jrw77qmmd689sle835tkfqtzfqcf8z088jlqkhhmvm

60 sats \ 0 replies \ @supertestnet OP 31 Dec 2023

It's on mutinynet, not the regular testnet

Use faucet.mutinynet.com

10 sats \ 1 reply \ @nerd2ninja 30 Dec 2023

Well its appropriately named.

0 sats \ 0 replies \ @Nuttall 31 Dec 2023

LOL!

10 sats \ 0 replies \ @TheBTCManual 30 Dec 2023

Interested to see if a market for this would develop, and how the different tax codes would interpret this,

Wait till ordinal bros figure this out and start to try and make loans against their monkey jpegs oh goodness on-chain leverage will be going nuts

10 sats \ 2 replies \ @DiracDelta 30 Dec 2023

I think the most significant application could be as a USD yield product. One party puts a 1 bitcoin loan out, and then they get a dollar yield on the principal from someone who wants to take a leveraged position. The borrower puts up 5 bitcoin collateral, and then they are more or less 1.2x leveraged. The lender gets 10-20% yearly in USD, and as long as the price of bitcoin does not go too low, the lender does not get liquidated. (JW Weathermen posted a google doc with an idea like this).

If you make the term 5 years, AND make it so there is no intermediate liquidation, perhaps contingent upon partial repayment in dollar terms yearly, it then becomes a decentralized version of the bitcoin layaway product I wanted to build. (Faucet21.com)

The important thing to realize here is it goes well beyond simply wanting less than 100% bitcoin -- this is a vastly more secure way to know that you will be able to get your dollars. Usually, dollar exposure requires you to be a bank creditor and as SVB showed, your money can disappear in a moment. This is basically a safer USD savings account.

20 sats \ 1 reply \ @supertestnet OP 30 Dec 2023

they get a dollar yield on the principal from someone who wants to take a leveraged position

I don't know how to do this part without introducing additional trust assumptions. Bitcoin only knows how many sats are sent in a transaction, now how much they are worth in USD. So if you want to say "you have to send the lender $50 worth of BTC next month" I don't know how to set up a contract where "bitcoin" enforces that, because when the payment is due, bitcoin won't know how much BTC is worth $50. You can fix this by bringing in additional counterparties, e.g. tether corp or an oracle, but then it's not a bitcoin only product anymore -- it's bitcoin plus "trust this third party."

AND make it so there is no intermediate liquidation

That part is already true

0 sats \ 0 replies \ @DiracDelta 31 Dec 2023

Yeah, I think it might require DLCs with price oracles.

10 sats \ 16 replies \ @TonyGiorgio 30 Dec 2023

I don't think your tax benefit assumptions work here, and thus I don't see a reason for this project without introducing a stablecoin.

Tax laws have changed and there's various accounting methods for how you want to choose how you account for the taxes on your coins. There's even a method that disregards the actual "utxo" spent.

You still have to pay back the loan with some bitcoin. If you spent the loan on a fridge to "save money on taxes", you no longer have those fresh coins to pay back the loan. So you need to reach for some older UTXO's to spend to pay off the loan, thus incurring additional tax liability. And like I said, all of that's pointless when you can decide on an accounting method that doesn't work like this.

50 sats \ 12 replies \ @supertestnet OP 30 Dec 2023

You still have to pay back the loan with some bitcoin. If you spent the loan on a fridge to "save money on taxes", you no longer have those fresh coins to pay back the loan.

If you borrowed 5 bitcoins and used .035 of them to buy a $1500 fridge, you still have 4.965 btc left over. If you owe 5.5 btc on the loan, you still need an extra 0.535 btc to pay off your loan. You can obtain that by purchasing it using whatever source of income you have, thus avoiding the need to reach for some older UTXOs to pay off the loan.

all of that's pointless when you can decide on an accounting method that doesn't work like this

If you have 10 bitcoins from 2010, .5 bitcoins from after that, and want to spend 1 bitcoin, I don't know of any accounting method you can use to avoid a massive capital gains tax. But you can use loan shark to do it

10 sats \ 11 replies \ @TonyGiorgio 30 Dec 2023

You can obtain that by purchasing it using whatever source of income you have

Cool then you have enough to buy the fridge anyways and have the same tax liability.

31 sats \ 10 replies \ @supertestnet OP 30 Dec 2023

Cool then you have enough to buy the fridge anyways

your income might not immediately cover the cost of the fridge, meaning you can't afford it without using some of the bitcoins you have from 2010

loan shark lets you borrow against them, avoid the tax penalty of selling them directly, and take up to 12 months to pay back the loan -- time enough for your income to save the day by gradually accumulating over the course of several months until you have enough to pay off the loan

31 sats \ 7 replies \ @TonyGiorgio 31 Dec 2023

Okay, it's a weird model but that's something that I can see being possible.

How do you enforce that the locked up collateral is released from the loan shark back to the user after they paid back the loan? Are you doing something similar to a coinswap?

10 sats \ 6 replies \ @supertestnet OP 31 Dec 2023

Before the borrower deposits their collateral they get a signature from the lender that uses tapleaf 2 to send the collateral back to the borrower. But this signature is only valid for a transaction that sends the principle plus interest to the lender. So if the borrower wants to take back the collateral he can do it at any time but only by using that signature plus one of his own, which means he can only do it if he pays the lender the agreed upon amount.

10 sats \ 0 replies \ @TonyGiorgio 31 Dec 2023

signature is only valid for a transaction that sends the principle plus interest to the lender

That's interesting, didn't know it was possible to enforce something like this but it makes sense.

0 sats \ 4 replies \ @Nuttall 31 Dec 2023

Here is where a dead man is a risk to the borrower? Does this risk mean that a lender needs a dead man script that returns the collateral if there is not a signature available for acknowledgement of repayment after the duration closes?

10 sats \ 3 replies \ @supertestnet OP 31 Dec 2023

The death of the lender is not a risk to the borrower because he gets the signature he needs before any money gets deposited into the contract address

The signature is created by the lender in advance and shared with the borrower, and it is valid for any transaction that meets these two criteria: (1) it spends the utxo the borrower intends to deposit into the contract address, which the borrower tells the lender when he accepts the loan offer (2) it sends the lender an amount equal to the principle plus interest

So if the lender dies mid contract it has no effect on the borrower. He can still pay off the loan using the signature he already has, and send the collateral to himself. If he uses the signature he already has, the transaction will be valid as long as the transaction also sends the principle plus interest to the now-dead lender (which is exactly how it should be -- those were the terms of the original agreement, and bitcoin doesn't know the lender died)

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0 sats \ 1 reply \ @Nuttall 31 Dec 2023

A risk here can be that in order to buy Bitcoin fresh the fiat price may be astronomical and you may not have enough fiat to buy back the bitcoin you need to cover the loan. Also, what if no one wants the fiat anymore.

This is probable even if it looks like a small risk now. I like the Loan Shark application, but I also like to flush out risks, too. Maybe it's a FIDO situation? Fuck It Drive On.

From my experience I bought two bitcoin miners from a vendor using bitcoin. 6 months later the sats I paid were buying double the USD. The miners were to be used at a location and the location was no good. I was given the opportunity to get a refund. I wanted my BTC back but they only paid me the Fiat value in BTC plus I had to AML/KYC. It was bullshit. I lost on the deal.

The reality was in me using bitcoin that I would have gained more fiat value by not buying those miners. Even in the earning from mining I would have lost because my cheap sats today will always cost more tomorrow in the melting ice cube.

I wanted to throw away my Time Value Money calculator but maybe I shouldn't.

10 sats \ 0 replies \ @supertestnet OP 1 Jan

you may not have enough fiat to buy back the bitcoin you need to cover the loan

Yes, a borrower who spends their principle essentially goes short on bitcoin. They must hope the price of bitcoin doesn't rise so high during the loan's term that they are unable to pay it off at the end of the term. Conversely, the lender essentially goes long on bitcoin.

Which is interesting, it implies and demonstrates that you can execute long and short contracts directly on bitcoin without touching any other currency. Timelocks are very powerful tools.

I like the Loan Shark application, but I also like to flush out risks, too.

I greatly appreciate your thoughts on this and your feedback, thank you

I lost on the deal

I am sorry for your loss. At least it sounds like you learned something.

10 sats \ 2 replies \ @fluff_stack 30 Dec 2023

Another method, not shown in the video, is a loan which the borrower decides to default on, and never repay. In this scenario, from what I understand with limited research, is only one payment is ever required to prove it was a loan in good faith. Some loans default. Credit markets are a bitch. ;)

30 sats \ 1 reply \ @supertestnet OP 30 Dec 2023

I actually do show a loan default in the video, peep the timestamp 6:47: http://tinyurl.com/368cj3vn

You are correct that the lender only needs 1 transaction to take the borrower's collateral in case of default

0 sats \ 0 replies \ @fluff_stack 1 Jan

Nice. Thanks for the clarification on that point! There are a ton of loop-holes and "outs" written into their convoluted tax code. It was written by insanely wealthy robber-barons; for robber-barons.

10 sats \ 6 replies \ @premitive1 30 Dec 2023

What are potential use cases of collateralized bitcoin only loans?

166 sats \ 4 replies \ @supertestnet OP 30 Dec 2023

Tax arbitrage.

Suppose Bob got some bitcoins in 2010, he lives in the USA and wants to use his bitcoins for daily expenses, but he doesn’t want a massive tax penalty. He can use loan shark to borrow against his “old bitcoins” to obtain “fresh bitcoins” for daily expenses.

This idea relies on the fact that bitcoins obtained recently, close to the current price, appreciated less than bitcoins obtained when bitcoin’s price was low, and therefore, at least in the USA, you don’t have to pay as much in capital gains taxes when you spend them. Bob just has to put up some of his “old bitcoins” as collateral and then he gets some “new bitcoins” from the lender.

Bob does well if the interest rate he pays on his loan is lower than the capital gains tax he would owe if he spent his “old bitcoins.” The lender does well too, because she just gives Bob some bitcoins (perhaps she lives in a jurisdiction that doesn’t charge capital gains taxes on bitcoin) and then later she gets back the same amount plus interest, or, if Bob doesn’t pay off his loan on time, she gets his collateral, which is more than she was owed anyway.

20 sats \ 0 replies \ @premitive1 30 Dec 2023

thank you @supertestnet I think it's awesome.

10 sats \ 2 replies \ @SpaceHodler 30 Dec 2023

But is that how CGT works? Isn't Bob's entire stack treated the same, taxed on a cost basis? Regardless of which UTXO he's spending?

558 sats \ 0 replies \ @supertestnet OP 30 Dec 2023

I think in the USA you're allowed to use LAST IN, FIRST OUT when calculating your capital gains taxes

https://coinledger.io/blog/cryptocurrency-tax-calculations-fifo-and-lifo-costing-methods-explained

0 sats \ 0 replies \ @siggy47 30 Dec 2023

No.

0 sats \ 0 replies \ @premitive1 30 Dec 2023

1 sat \ 1 reply \ @Nuttall 31 Dec 2023

Wow! This is very interesting. The financial engineers should love this. I'm not saying it is bad at all. I have always felt that if you like civilization you just need to unplug the USD and plug in Bitcoin sat for dollar. 2.1 quadrillion things to play with and 2.1 quintilian on L2 Lightning.

I don't fully understand how the swaps happen. I also understand that I need to use testnet and just stack. I've been working with Bitcoin "learning" and it's painful. School of hard knocks.

Very nice presentation. I'm going to share this on Nostr.

10 sats \ 0 replies \ @supertestnet OP 1 Jan

if you like civilization you just need to unplug the USD and plug in Bitcoin sat for dollar

I feel similarly

I don't fully understand how the swaps happen

I explain it here: #372997

Very nice presentation. I'm going to share this on Nostr

Thank you :D