What is our hypothetical Web2 equivalent of Protected Perps?
Imagine a world in which I can take a loan from a bank to buy Reliance stock without giving up anything of mine as collateral.
So I would borrow 1Cr from the bank to long Reliance stock.
The bank would keep the stock as collateral.
If I make a profit, I would pay back 1 Cr + interest and take the rest as my profit.
If I make a loss, the bank takes the Reliance stock. I get nothing and I pay nothing to the bank.
Now using the previous thought experiment of everything has a price, the bank would willingly do it if the interest rate was 100%.
They get to double their money if Reliance goes up.
And they lose 20-30% if Reliance doesnt, because Reliance isnt going to zero.
This deal has positive expected value for the bank.
Now if we reduce this interest rate and ask the bank to do it at 90%, it probably still will.
If we keep on reducing the the rate, there will come a price which at if will be EV=0.
And that actually is the exact price of this payoff.
Now this seems hypothetical, but if we extend this argument to a wider area, banks giving out personal loans without collateral are infact betting on the person's ability to pay it back (instead of betting on reliance/ETH).
If the person does good in life, the loan gets repaid back with interest.
Otherwise the bank loses everything.
This is not same as a VC investment, because in a VC investment, the VC makes a part of the upside.
But the bank only gets the interest.
Bank accepts full or partial loss of lent amount in exchange for interest.