Interesting. I agree, Bitcoin can't be used in any arbitrarily large amount as a backing asset. "Layering preserves the cryptodynamic principles of decentralization, while "backing" is full abandonment of them." Have you considered the PoV that Lightning is a derivative?
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A fully-collateralized loan is not a productive loan. It's a trade of property for a period of time, and then a trade back. Only the uncollateralized portion can be considered productive. It's an example of the risk-free return fallacy.https://github.com/libbitcoin/libbitcoin-system/wiki/Risk-Free-Return-Fallacy …
Trillions of dollars worth of collateralized loans are made every year: mortgages, ship loans, car loans, airplanes, etc. Both sides of each of these apparently think it is productive.
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You are using a colloquial definition for productivity. Production requires capital that can be spent. Where do you get the capital to collateralize your debt?
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Collateralized loans are quite often used to fund capital investments in plant, equipment, real estate, etc. I don't know what planet you are living on or what language you are talking in, but until you want to start making sense, muted.
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This is the problem with empirical economics. Observation leads one to false conclusions. If a company that raises investment and uses that money to collateralize a loan, that money is entirely non-productive. All interest earned is offset by that paid.
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This is why the interest earned on secured debt is lower than that earned on unsecured debt. The portion that is secured is not earning any interest. Net of all costs of liquidating the collateral, this is a simple formulation, as expressed in the cash collateral scenario above.
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Note that the observation of common use doesn't attempt to refute the statement that the collateralized portion is non-productive.
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I spent some time on this today, and I realized that
@NickSzabo4 and I are talking past each other. From the comments above it should be clear that I'm talking about collateral as money taken out of productive use, as with a "loan" under covenant (linked above) or a money-cert... -
This because I've time recently refuting these as productive capital (not actually lent). But he is referring to capital that remains in production. And in that case I fully agree, both the loan capital and its collateral are productive. It was my mistake to conflate the two...
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The higher rate on an unsecured loan can only be accounted for by the risk premium. WRT the original question, providing better property registration may in some way reduce risk in lending, but given necessary reliance on custodians and legal systems, it's impossible to evaluate.
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I think I understand what he is saying in that, in a perfectly efficient world, collateralized loans shouldn’t exist since the productivity of the asset shouldn’t exceed the going interest rate available on that asset
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Given that rates are different for secured and unsecured debt, this is the case in the real world. It's not that they *shouldn't* exist, it's just that the loan has less productive value to the extent of the real cash value of the liquidated collateral.
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The reason for collateralization is to extract the equity of goods as cash. This is a sale of the good (or a fraction of it) for a period of time. Then it is purchased back. This is not credit, it's two trades.
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Eric is a pillar of salt. Muted a long time ago
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