More BTC is transacted on the Ethereum network in the form of tokenized Bitcoin than on the Bitcoin lightning network. In fact, about 140K BTC are locked up and tokenized on ETH now: https://defipulse.com/btc
Personally, I am bullish on the use of crypto for decentralized finance: https://defipulse.com/ That is product/market fit for crypto, and this past year has proven out some of those smart contract models.
https://badger.finance/digg is working on an elastic supply pegged wrapped BTC product called DIGG that is backed by a DAO.
Already has over $600m TVL into the project in just about 5 weeks. The movement in this area is phenomenal. The team is great. The community is strong and active. Super interesting times.
> I also don't understand the use of some of these. You can borrow crypto against other crypto?! What is the use case for that?
I am sure eventually you'll be able to borrow / lend / put as collateral not just other cryptos, but tokenized assets as well. That's why Ethereum is so exciting to me personally.
>How do the oracles work with these kinds of smart contracts?
It depends. Many exploits are based on asymmetric oracle data, or asymmetric trades using flash loans. Mainly oracles will be used for aggregated price feed data from centralized exchanges, thus making the prices an average across the board. This keeps it even for everyone involved that integrates the same oracles that everyone else does, and a proper oracle network will keep bad actors at bay by mitigating excessive arbitrage opportunities. Well-meaning oracles are critical for these kinds of decentralized finance opportunities.
>You can borrow crypto against other crypto?! What is the use case for that?
If I put my tokens up for borrowing, I'm providing liquidity into a pool. It allows me to leverage my own money into a series of "IOU's" from smart contracts that pay out dividends by collecting small fees from people who borrow from this pool as a payment for providing this utility.
To answer your second question: The use case is ultimately adding liquidity to the market, and getting paid for doing so, while also being able to leverage the IOU's (in some scenarios) into more dividends payouts.
It sounds more complicated than it is. Boiling it down looks something like this:
Provide - ETH-BTC to a pool || Receive - aETHBTC tokens (an IOU)
Provide - aETHBTC to a pool (an IOU) || Receive - aETHBTC tokens (an IOU)
Provide - yaETHBTC to a pool (an IOU) || Receive - yyaETHBTC tokens (an IOU)
... etc.
It's interesting and affords a lot of opportunities, but you should be careful to read every contract and only enter positions that have none or little "impermanent loss". I'd recommend you find the fee structure for a pool, find the market demand and study what the pros/cons are of lending your money. You may lend out a token and it may drop in value while those IOUs become worth less while you're trying to cash them out. Or, you may borrow an asset against your assets to market sell and effectively short the borrowed token, only to be liquidated when the token rises and you need to pay back your loan.
Just be careful of your gas bill while you're learning :)
Thanks a lot for the detailed answer. I'm presently not interested in using any of these services, but I am trying to keep up with the developments of crpytofinance.
Absolutely. It is the digital version of a gold dealer where you go to exchange your currency for local money. Imagine you travel to Vietnam, you can get local currency from your ATM and get a terrible rate... or you can take USD to a gold dealer and buy the local currency "on the black market". They give you a rate, take a cut, use it to hedge against their gold. Almost always a better rate than the banks.
Now it is happening online for people who want to say switch between various ETH tokens. This is what DeFi is all about. $20b is locked up into this stuff already and growing. Things are moving insanely fast.
If you want to dip into the more regulated version (CeFi), take a look at BlockFi or Celsius.
Personally, I am bullish on the use of crypto for decentralized finance: https://defipulse.com/ That is product/market fit for crypto, and this past year has proven out some of those smart contract models.
See: Synthetix (derivatives), Aave (lending), Stable coins (Maker DAI), Compound (lending), Uniswap (trading), etc.