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There’s a plethora of lending platforms in the crypto sphere, but LendingBlock is unique in allowing four use cases no other lending platform is directly addressing. In this series of medium posts, I will describe each one of those use cases.

Before we get there, let’s summarize what LendingBlock is all about: crypto-to-crypto lending. Say you have some BTC and want to get some ETH, one way would be to sell your BTC for ETH, but say you don’t want lose your BTC, another way would be to use LendingBlock and create a loan request to use your BTC as collateral in exchange of ETH. Sounds simple enough?

The loan request is fulfilled by another user on the platform, the agreement includes the length of the loan, the number of repayments, and the interest on the loan. At the end of the loan, you get your BTC back, and you send the ETH back to the lender. Sounds simple enough, right? But you might be asking why? What would be the point of temporary holding a token?

It might not make sense at first, but this is actually enabling four major use cases, and the first amongst those: short selling.

Short selling risk vs reward.

Short selling is when a trader, believing that the price of an asset will decrease, takes a short-term position, then sells the asset at the current market price, only to buy it again at a future date, with the hope being that it will be at a much lower price. The difference between the price sold and the price bought again at a later time is the potential for profit or loss. The margin on both sides, can be quite consequential.

Short selling is a financial operation that often gets a bad rep, as it seen as rooting against a company or asset, but is in fact one of the main tool for a market to become efficient (we’ll leave the rational argument aside for the time being). Below are three reasons why short selling is necessary:

Cheerleaders and Naysayers

A market made of only cheerleaders only reflects the optimistic support of some traders and the potential upside of a asset, but the price will fail to express the potential risks and short-comings seen by other traders in the market. Not investing in an asset is not the same thing as being able to express the belief in the short-coming of an asset. Belief (cheerleaders) and disbelief (naysayers) are both necessary for the price to reflect all the available information on an asset. Short selling is how naysayers, skeptics and non-believers get to express their beliefs.

2. Prediction Games (The known and the unknown)

Tell me the future, tell me what you see, the shape of hopes and dreams soon to become real. Embedded in market prices are predictions, and traders are really players in a prediction game, with one eye on current events and information (the known), and one eye on forming pictures (the unknown). It’s one thing to see all the information on an asset, it’s another to compute the data, and turn sight into insight. Insight is the name of the game. Insight is how gains or losses are made, reputations build or destroyed, strategies folded or deployed. Two traders provided with the same information will come to different assessments of the same situation. The ability for them to act on that assessment when positive and negative, is a necessary incentive mechanism for any efficient market. Short selling is part of the collective intelligence that help shape accurate predictions of the future.

3. Walk the Talk

Gates, Buffet, Dimon, Shiller, and countless other big names of the financial world have publicly staked their reputation on the future downfall of Bitcoin and crypto in general. Their bloomy predictions and large reputations cast even larger doubts on the crypto markets. One of the most frustrating aspect is not their lack of belief or understanding of the space, but the absence of consequence of their predictions. Non-players should not be able to affect the outcome of a game. What’s the value of a prediction from agents without any skin in the game? What’s the value of words when they are pronounced with no consequence to those who utter them? Currently those words have had an impact on the crypto markets. One way to correct that would be for those big names to back up their big words with even bigger stakes. If they are so confident in their doomsday tales and predictions, let them walk the talk.

To conclude:

Short selling is available OTC and in some ways via ETF. But LendingBlock is an on-chain solution that will significantly facilitate the participation of short sellers in crypto markets by giving them the same tools available to them in more established markets.

In part 2 of this series, we will focus on another use case: hedging. To find our more about LendingBlock, go to their website here, or follow them on Twitter here.