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I am trying to understand what the idea behing a site like ETHLend is.

IIUC, I can borrow coins for an interest, the same way I could borrow a traditional currency from a bank. That part is easy to understand.

But - again IIUC - they require that I block the collateral for the load - where they will only accept cryptocurrencies - upfront through the smart contract.

Translating to traditional terms, this would be as if the bank says:

Transfer 10.000 USD to us. Then we will borrow you 10.000 EUR which you can pay back in installments plus interest. After you will have paid your credit back in full, you will also get your 10.000 EUR back, otherwise we will just keep them.

What do I miss?

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    This question should be closed, Questions seeking product or service reviews are off-topic because they tend to attract subjective, low-quality, and spam answers. On the other hand, offerings in the Bitcoin space are still evolving rapidly which often renders answers outdated quickly. – Adam May 11 '18 at 15:17
  • Sorry, but I object to closing the question. Despite the fact that I am asking about a particular service here, the question is not if the service is good or bad, but about the underlying concept. I agree that maybe the questions could be reworded to say "a service like", but I think that questions about business models or trust models in this case are not necessarily out of scope. – TorstenS May 11 '18 at 15:18
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+100

Your assessment is correct.

But think of it this way: to get a mortgage, you put up your house as collateral, where value(house)>value(mortgage). Same idea here.

Some response to your concern in their FAQ here

Why would I borrow when I can just sell?

There are a variety of reasons you may want to borrow and unlock the liquidity of your tokens rather than selling, some include:

Borrowing Ether to participate in different ICOs, Purchasing other tokens from the exchange for different investment strategies without the need to sell tokens, Lending altcoins and tokens for short selling or hedging, Financing mining expansions, Finance for blockchain startups, Buying market dips.

This list is expanded even further when we include USD Pegged Etheruem loans:

Holding more ETH in a bullish market, Purchasing assets with $ while keeping your crypto portfolio safe,

Future use-cases could include tokenisation of property, shares, intellectual property, and other physical objects (Cars, boats, power plants, art, etc)

  • Thanks for the confirmation. I just wanted to be sure I did not miss anything like "on providing XX ETH I can borrow XXXX ETH" or something of that nature. But this isn't the case obviously. – TorstenS May 14 '18 at 8:29
  • Where the traditional mortgage example falls short is: If I provide my house (or maybe even a car) as collaterial for a loan, I can usually still use it (live there, drive it) for the duration of the loan. But I will not be able to spend my ETH somewehere else or use them for anything else as long as they are locked up in a borrowing contract, can I? – TorstenS May 14 '18 at 8:31
  • You can't spend your house while it's mortgaged. But you can live in it, which I think would be similar to unlocked a feature of a Token. I don't think many tokens have features yet, but I could imagine a scenario where only addresses that signed say 100 Tokens are allowed to post on a website under a certain status. Maybe. – Paul May 16 '18 at 0:34

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