Coming from a finance background, done the initial due diligence on comp, while the process seems safe, i just cant see the real world benefit. Can someone please explain to me:
In the traditional lending business (simplest use cases), borrower receives some type of liquid money and in return pays an interest, a fee, and put up illquid collateral (ie: real estate, mark to market type assets, certain type of thinly traded bonds)
In compound, in order to borrow coin, borrower needs to put up liquid collateral of the same type of coins supported by compound. But if the borrower ALREADY has the liquid coins to put up collateral, why the hell would he/she ever wants to lock it as part of collateral, only to pay interest and borrow the coins again? Why not just use the coins they put up as collateral DIRECTLY for whatever purpose. It makes no sense to me, why borrow wants to trade 1 type of coin for another type of coin, pay interest, reduced amount due to collateral factor, and take on system risk in case something goes wrong with the compound framework.
What’s the point? why do all this to borrow some coin, when you already have very similar type of asset to start with?
I get the spread trading angle, to make some money off borrow/lender interest rates + paid out compound coins, so dont need to explain that. But for the use case where compound was designed for…to lend money/coin, how does it make sense as the collateral requirement ensures the only people who can borrow the coin already has the same type of coins. Ie joe sixpack - a small business owner / first time home buyer / insert any real use case…can never borrow from compound system, as they dont have the liquid coin/money needed to put up a collateral. And if they did, they will just use the money directly instead…
dont understand. thank you