Paolo ArdoinoVerified account

Because that centralized custodian is what prevents mass defaults.

No. Law is what prevents mass defaults In the case of collateralized loans, banks are typically required to hold the funds, essentially serving as "escrow" If the collateral is digitally "native" (Bitcoin), you can replace the bank with a contract

Like I said above, the use case for borrowing when the borrower already has that amount of money is extremely limited. People generally borrow money when they don’t have any, not when they do.

In the pleb world, that might be true. Then again, partially collateralized loans are very common to decrease default risks, even at the bank level. In finance, that's absolutely wrong. It's probably a trillion dollar business with all products accounted for

Can you explain what benefit this provides to financial institutions? Why would they borrow money (and pay interest) if they don’t need to?

To gain exposure to an asset/security or seize a business opportunity wherein returns > interests. You seem to be suggesting that only broke people need loans?

Collateral is a pillar of financial markets really, and to suggest that a digitally native asset like Bitcoin doesn't create opportunity there is pretty naive if you ask me.

Collateral makes sense when it’s a house, a car, a business. Collateral doesn’t make sense when it’s money. Borrowing $100,000 to buy something when you already have $100,000 doesn’t make sense.