I was just thinking about something that might be possible once B&C Exchange is complete.
As we often talked about, one of Nu’s business models might be lending.
A customer might want to lend NBT to fund something. A contract between Nu and this customer is created, granting this customer NBT for an amount of time x for a fee of annually y%. At the end of the contract the lent NBT get paid back including the fee.
How to collect securities and handle them was so far one of the bigger issues. Nu would simply not like to lend NBT that are never paid back and have no securities for that.
Fast forward into the future; scenario:
B&C Exchange is created (not only the blockchain, but important transaction messages as well ).
Nu offers lending.
Nu takes BTC, BKS or something else (NSR, but that is a special case) as security!
A contract is made, a security deposit is sent to a multi signature NSR address and the customer receives NBT.
If they don’t get paid back, the security deposit get seized and sold.
I think the standard custodian approach can be used for that. Only I’m not sure about how to handle the multi signature security deposit address - how to remote control it in case the contract ends and they need to be sent back of seized?
The more I think about that, the more I get confused.
I think a technical discussion is as necessary as a philosophical and an economical one
Why would customers do that? And why would Nu do that?
Customers of that business model could simply sell the security deposit and have the money they need without that fancy contract stuff using a decentralized exchange.
But they would lose their security deposit doing that.
Maybe they don’t want to sell the security deposit but still want to be liquid?
Nu should be interested in that because it earns Nu money.
The fee is an income.
And transforming security deposit temporarily to NBT is something intriguing.
I haven’t thought much about the risks and drawbacks. But first I wanted to know how that sounds overall.
Last year I was writing about credit custodians, custodians who would operate Nu’s loan business.
A lot has happened since then.
Nu is in even better position to start loan business.
With B&C Exchange it might not only be less complicated, but possible at all!
Using NSR as security deposit is a special case, because NBT and NSR are tied to each other
One risk that applies only to NSR as security deposit spawns from the “parked” NSR: they don’t mint (and they must not mint!).
They don’t secure the blockchain.
They increase the risk of a >50% attack (I know that a >50% sounds silly, but I think that risk needs to be avoided, because it poses attack vectors).
So there need to be thresholds for the total percentage of NSR that can be used for that.
But even with that threshold it can start the whole loan business.
A risk in general is the risk of the security deposit losing value. At a certain point it’s cheaper for the customer not to pay the NBT back and get the security deposit seized. More than the current value of the lent NBT as security deposit is required to mitigate this risk.
If it’s still not enough, because the value of the deposit drops far, it would be Nu’s loss.
In fact the customer is in a situation he can only win:
- if the value of the deposited funds drops big time, the customer is better off keeping the NBT
- if the value of the deposited funds rises big time, the customer can get it back by giving back the NBT
That needs to be reflected in the ratio between the security deposit and the lent NBT.
To give an extreme example: maybe it’s necessary to require 10000 USD in BTC as security deposit to get a loan of 5000 NBT. The ratio would then be 2 and I doubt that will attract many customers
Doing that with NSR as security deposit doesn’t even require B&C Exchange: the NSR that are received as security deposit are burned and created by a grant once the contract is completed (and given back if the NBT are sent back or auctioned (depending on the liquidity situation) if the NBT are not sent back).
I don’t know how to automate that. With a “smart contract” comes to my mind, but that is just another way to still say the same