Sooner or later, in order for DeFi really to compete with banks, people will need to be able to borrow more than what they own currently. For example, if I want to take a loan to buy a house for a couple of hundred thousand dollars. Right now, we need to own collateral in crypto worth more than the loan we take. Almost no one owns that much. If they did, they could just buy the house directly. There is also a great risk that it gets liquidated prematurely.
The reason this works in CeFi is that there is a certain level of trust between the bank and borrower: The bank knows that the borrower has an income and is probably able to repay the debt, they trust that they can take possession of the house that acts as collateral, they can see a history of the borrower’s financial standing etc etc.
So my question is, how will DeFi completely be able to replace the current financial system that relies on trust, value of physical assets and regulations enforced by institutional authority?
And also, what solution will TomoChain be able to offer to solve this?