How would an ideal currency for education lending work? Are these type of loans different than business or housing loans? What works in our current system and how can blockchain technology help solve the problem of rising costs and debt without bankrupting lenders?
I went through the article and learned alot regarding the ideas of a student loan. The author showed the history and growth of student debt in the US. Then proposed an idea of a Defi yield to maximize the loan and both parties will benefit from it.
Here is what i think. The Defi sub industry and the general crypto industry is still young for some ideas looking at how many of the Defi yield giving platforms fail in the recent winter.
I would be curious if a stable coin has any value or just recreates the same broken market. At that point it’s just a normal loan? I think the idea would be to have smart contract triggers tied to education and employment hurdles, and potentially even loans that target emerging countries and pair them with low cost high quality programs.
A stablecoin is a type of cryptocurrency that is pegged to a specific asset or basket of assets, such as a currency, commodity, or basket of commodities. The purpose of a stablecoin is to reduce price volatility, as the value of the stablecoin is tied to the underlying asset or assets and is not subject to the same level of price fluctuations as other cryptocurrencies.
Stablecoins can have value in a number of ways. For example, they can serve as a medium of exchange, allowing users to easily and efficiently buy and sell goods and services without the need for traditional banking infrastructure. They can also serve as a store of value, allowing users to save or invest their money without the risk of depreciation due to price fluctuations.
In terms of using stablecoins as loans, it is possible to design smart contract triggers that are tied to education and employment hurdles, as you suggest. This could potentially provide a way for individuals in emerging countries to access low-cost, high-quality education and training programs, as well as other types of loans or financial services. However, it is important to carefully consider the potential risks and challenges associated with such an approach, including the potential for fraud or other types of abuse, and to put in place appropriate safeguards and protections to minimize these risks.
There are a few companies and projects in the crypto space that are exploring the use of blockchain technology for student loans. These projects generally aim to improve the efficiency, transparency, and accessibility of the student loan process. Some examples of projects in this area include:
SALT Lending: A platform that uses blockchain technology to allow users to leverage their crypto assets as collateral for cash loans. Users can borrow money to pay for things like tuition, while using their crypto assets as collateral.
NEXO: A platform that also aims to help users borrow money using their crypto assets as collateral. They claim to offer instant loans and also credit lines.
Bitbond: A German based platform that uses blockchain technology to connect borrowers and lenders from around the world, aiming to make it easier for students and small business owners to access loans. They also claim the loan process is faster and cheaper than traditional banks.
Figure: A lending platform that uses blockchain technology to speed up the mortgage process, but also looking to apply for student loans.
Overall, these projects are still in the early stages of development and it’s unclear how widely they will be adopted. Some are still in the testing phase, so it’s hard to say with certainty if they’re going to be successful in solving issues related to student loans and accessibility. In general more use cases are being explored and added to blockchain technology as the space advances
Fascinating, how does the value of assets and loan get generated? Like if I have an NFT collection with current value 20 eth and I borrow 2 eth for a student loan and the collection falls to a value of 4 eth does the underlying interest or payback rate change? Also if I am getting a student loan I probably dont have much to start with so can I borrow 5 eth against like a .1 eth collection?
Just curious how this works if you know would love to learn more (technical or generally how terms are derived).
I think this question is part of a larger discussion regarding uncollateralized loans, i.e. consumer credit, in DeFi.
In my view, uncollateralized loans such as student loans are not possible under any existing protocols for loanable funds. The reason simply being that uncollateralized loans require either trust (which can generally be assumed away in financial environments) or legally enforceable contracts in the case of defaulting on payments. Neither of these are currently present in DeFi, and will require a legally enforceable coupling between real-world assets and DeFi-assets before it is feasible.
Please challenge me on this view, if you can envision a different implementation of student loans, or uncollateralized loans more generally.
I think this is the interesting part. So if I am a teacher currently my upside is my fixed salary as a professor. Most teachers are not getting much let’s call it 2k USD on average per class per semester. In a student loan it seems to me that a loan provider could enforce the payment end quite easily (teachers/schools get paid a portion of loan as student completes class and both student and teacher perhaps can validate). Now the tricky part is loan repayment. Student likely has two choices: one pay after school and two pay as they go. Most students cant afford to pay thus why they took the loan. With that said if the loan provider could then tie the loan to an employment contract and actually get repaid on paystubs they facilitate we now have a way to collateralize the loan. If student fails to get a job or tries to get a job with a provider not connected to the loan payer then we can forgive loan (in case of failure to complete classes/jobs) or pursue repayment (this is where the legal action becomes tricky). In theory though no money would have to go into the student account it would be triggered outflows to teachers in the protocol and inflows from employers with interest. It would likely keep all members of the ecosystem honest and incentivized and in the case of medical schools is actually pretty easy to do since the employment and education tracks are very connected already.
This would be certainly a pretty closed ecosystem loan to start but seems to me could be a better way to go about it then predatory loans that put burden to pay teachers/schools and then repay loan givers solely on the individual.