Blockchain Collateral Management Learning

Blockchain Collateral Management Learning

Short Answer Questions

Explain the role of "controlled wallet accounts" in cryptocurrency-secured loans.

How does the described system address the issue of cryptocurrency price volatility?

Briefly describe the advantages of smart contracts in managing loans secured by cryptocurrency.

Explain how the loan servicing system interacts with the blockchain computing platform to create and manage loans.

What role do price oracles play in a cryptocurrency-based loan system?

How does the described system ensure the integrity of loan collateral?

Describe how a trusted execution environment can be used to improve the security of such a loan system.

Explain the role of Merkle trees in a blockchain computing platform.

How is homomorphic encryption used to address privacy issues in blockchain-based loans?

Briefly describe the advantages of integrating a payment processor system into a blockchain-based loan system.

Short Answer Questions

A controlled wallet account is a blockchain account to which the borrower's ability to transfer assets is restricted and requires the lender's consent. This mitigates the risk that the borrower will transfer the cryptocurrency used as collateral.

The system addresses this issue by monitoring the price fluctuations of the collateral value relative to the loan denominated currency. If the value of the collateral drops below a set threshold, the system automatically calls for additional collateral or takes other actions to reduce the lender’s risk.

Smart contracts do this by automating the terms of the loan agreement, such as payment schedules, default clauses, and repayment conditions. This automation reduces the need for human intervention and trust while increasing transparency and security.

The loan servicing system interacts with the blockchain platform to create and deploy smart contracts that contain the terms of the loan. It also interacts with the platform to monitor collateral, process payments, and execute the logic defined in the contract.

Price oracles act as a trusted external source of information, providing the blockchain platform with real-time price information of cryptocurrencies relative to other assets, such as fiat currencies. Smart contracts use this information to determine the value of the collateral and perform value-based actions.

The system ensures collateral integrity by leveraging the tamper-proof nature of the blockchain. The collateral is locked in a controlled wallet account that can only be accessed and managed through smart contracts, creating a transparent and verifiable record of transactions.

The trusted execution environment is a secure, isolated environment that runs within the main operating system, providing an additional layer of security to protect sensitive data and operations. By running loan-related operations in a trusted execution environment, the system can prevent malware and unauthorized access.

A Merkle tree is a data structure that allows for efficient and secure verification of large amounts of data. In blockchain, Merkle trees are used to summarize transactions in blocks, allowing for efficient verification of the integrity of the blockchain.

Homomorphic encryption allows for computations to be performed on encrypted data without the need for decryption. In blockchain-based lending, homomorphic encryption can be used to encrypt loan information while still allowing smart contracts to perform necessary computations without compromising the privacy of borrowers.

Integrating a payment processor system into a blockchain-based lending system allows for seamless and automated loan payments. Payment processors can pay loan proceeds directly to borrowers' accounts and collect repayments from borrowers, streamlining the loan process and reducing the need for human intervention.

Glossary

Term Definitions Blockchain A distributed, tamper-proof ledger that records transactions and is shared by multiple participants in a network. Cryptocurrency A digital or virtual currency that uses cryptography to secure transactions and control the creation of additional units. Smart Contract A computer program that automatically executes the terms of a contract, stored on a blockchain and automatically executed when predefined conditions are met. Controlled Wallet Account A blockchain account whose control is shared between the borrower and lender to ensure the security of the collateral for the life of the loan. Oracle A program that connects the blockchain to external data sources, providing real-world information to smart contracts. Loan Servicing System A system that manages loan processes such as origination, payment processing, and account management. Blockchain Computing Platform A platform that supports the creation and execution of decentralized applications, including smart contracts. Tamper-proof A property that prevents data from being modified without authorization, ensuring the integrity of information. Homomorphic Encryption A form of encryption that allows computation to be performed on encrypted data without decrypting it, thereby preserving privacy. Merkle Tree A data structure used to efficiently verify the integrity of data in large datasets, commonly used in blockchains.