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10 sats \ 16 replies \ @TonyGiorgio 30 Dec 2023 \ on: Loan shark: Super Testnet's non custodial, bitcoin only borrow and loan tool bitcoin
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.
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
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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.
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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
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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?
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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.
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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.
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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?
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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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Thank you for clarifying that. The lender would need to somehow back himself up but the borrower is not affected.
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.
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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.
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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. ;)
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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
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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.
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