Disruptive Financial Innovation on Ethernet - Lightning Loans
Disruptive Financial Innovation on Ethernet - Lightning Loans
Blockchain has always claimed to transform the financial industry, but often what it does is simply move the traditional financial industry to the chain, but recently a new type of lending smart contract burst into flames - "flash loan (flash loan)"
The reason for the explosion is that two geeks used the lightning credit feature to make two arbitrage transactions.First arbitrage amount of $350,000, , ,Second arbitrage of $600,000.
Every transaction is done at 0 cost and instantly, that is to say, in a single Ether block. Doesn't that sound amazing!
This is Lightning Lending, a type of smart contract done through EtherZero Risk Loans.
How can I take out a loan with zero risk?
Imagine if you had a mine in your family and were rich enough to open a bank, what would be the risk to your money when lending?
The first is the risk of default: the lender may abscond with the money.
Second is the liquidity risk: if you are careless for a moment to lend too much money to the bank, encounter unexpected circumstances depositors have run, then it is a minute will collapse.
Lightning loans can avoid both of these traditional lending risks.
This is because it works on the basic principle of lending the borrower the amount needed in a single transaction. At the end of the transaction, however, the borrower must repay no less than the amount of the loan. If the borrower fails to do so, the entire transaction is rolled back and revoked, as if the loan never happened at all. (Yes, smart contracts can do that!)
Therefore, lightning loans can allow anyone to borrow billions of dollars directly without any collateral, because after borrowing, the loan will definitely be paid back in full at the same time, no matter what the loan is used for.
It sounds really counter-intuitive, and apparently, something like this can only happen in a blockchain.
The 0 cost advantage of lightning loans
Think about it, why do we pay interest when we borrow money from a bank?
Because the bank bears the risk (default and liquidity), as well as the opportunity cost of lending the money itself (e.g., the bank could have used the money to buy Treasuries for 2% interest, so the borrower must pay a higher rate than the 2% risk-free rate of return).
Lightning loans are different. There is no risk and there is no opportunity cost in flash lending! Because borrowers "freeze time" during the flash lending process, the system's funds are never at risk, never blocked, and have no opportunity cost in the eyes of anyone else.
This means that there is no cost to become a Lightning Lender. So there is theoretically no cost fee to use lightning loans. The current dydx protocol on Ether supports flash lending with 0 interest.
What does the Lightning Loan do?
Most of the flash loans you see today are being used for arbitrage trading. For example, borrowing a sum of money to buy coins from one exchange, going to another to sell them at a higher selling price, paying back the loan, and the rest is a 0 cost arbitrage gain.
Is that all? The emergence of lightning loans means that everyone can control billions of capital at 0 cost through blockchain, and everyone is a capitalist! What kind of disruptive applications will be born in the future based on Lightning Loan? I don't know, but for sure, it will be beyond everyone's imagination!
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