Question while studying about legally binding

Hello! I think Terra and Luna will dominate finance. So I invested in Lunacoin and I’m thinking and studying hard enough. I contacted you because I had a question while studying.

1.In the case of anchor protocol, I would like to ask if the principal and interest are guaranteed at the same time regardless of the price drop when the price of Luna, the collateral, falls.
2.I’d like to ask if the deposit is legally binding.

I think it is a system that makes me feel touched the more I study. Thank you for giving me economic freedom.

I don’t think “legally binding” and “guaranteed” apply here. The only “law” in this space is the code and how the protocol is programmed to work. The protocol may have flaws and there is a real risk of its being exploited and depositors losing money. I’m not a developer so I’m not commenting on the safety of Anchor protocol in particular, but just Defi applications in general.

Here is my attempt at answering your questions.

  1. The collateral mechanism for borrowers (200% minimum requirement) lowers the risk of depositors losing their money. However, it does not eliminate this risk. There is no entity that guarantees your money. If the collateral value drops quicker than the protocol can handle and the borrowers default, then depositors will lose money, unless the Terra treasury steps in to guarantee the funds. This may or may not happen, but I wouldn’t count on it. There is also risk of an exploit.
    With MakerDao, the holders of the Maker Token bear the risk of under collateralization of the system through dilution. ANC tokens having equity-like characteristics may mean there is some exposure to downside risk in this way. I don’t see this explicitly referenced in the documentation, but I may have missed that.
    Some people are working on an insurance protocol, so that may be helpful for people who would like more security.

  2. I’m not sure what you mean by legally binding. Legally binding means you can sue someone in court to make them give you money, or make them do something according to the agreement you have with that person when they breach that agreement. If you lose your money I’m not sure who you would sue.

In short, my take is: there are no guarantees.

I hope this helps.

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