Motivation For the Lenders This is lightly mentioned in Make | LibreCharts

Motivation For the Lenders

This is lightly mentioned in MakerDAO's documentation, but if borrowing against an asset is the equivalent of going 'short' on that asset (assuming that you sell immediately after you do so for the raw underlying USD value).

*Example*

A) I want to borrow 10 BAT tokens ; they're worth 10 USD each ($100)

B) Luckily I can put up cDAI (which I recently obtained for my DAI). Let's say 2 cDAI = 1 DAI (one cDAI = $0.50) ; that means that I need 200 cDAI for this transaction (assume no collateralization for simplicity sake)

C) If I want to get my 200 cDAI back, then I need to return those 10 BAT tokens that I borrowed.

Short Seller Play

I could sell those 10 $BAT immediately once I receive them (again, there would be collateralization in a real-world scenario - we're just simplifying shit down here to make it more digestible).

That would give me $100 cash outright.

Now let's say that $BAT dumps...hard. It goes down to $2/token. That's awesome for me. I still just need 10 $BAT token to get those 200 cDAI back and since DAI is a stablecoin, we'll assume that the value of that exchanged asset (for collateral) is the same as it was originally $200.

This now has enabled me to essentially liquidate the position up to the fullest extent (i.e., collateralization rate), enjoy those funds, then use a fractional portion of them (20% if $BAT dropped that dramatically), to re-obtain the 10 $BAT necessary (i.e., from an exchange or anywhere...like Uniswap maybe).

That only cost me $20. Perfect, doesn't matter. I can still exchange that back (in theory), get my cDAI back that were collateralized and still worth $100 USD (saving $80 in value, giving me a total of $180 USD now vs. $100 that I started with ; total appreciation of +80%).

Of course, my cDAI was gaining interest (in COMP) during that time, so I'm going to want those rewards too - no problem; I'll just exchange this synthetic derivative for its underlying base asset (i.e., $DAI) + my interest rate fees, which make allow me to gain another hypothetical +$20 because the markets are bullish as all fuck.

Now I'm up to $200 total (instead of the $100 that I started with). Oh, and Ethereum has appreciated by 50% as well. Good for me though because I can take those 200 DAI and purchase WETH with it (since I think ETH will keep raising), and re-stake that back into MakerDAO and get even more $DAI than I originally did before.

If I'm smart, then I can wash, rinse, repeat this situation with extraordinary ease (making free money almost and providing a near infinite faucet to pump the price of $ETH with the demand that I'm generating)