Say I own 1 bitcoin at $10k/BTC. I want to go buy a mining rig for $5k. I could sell 0.5BTC and buy the rig. BUT, I believe that BTC is going to $20k, and I don't want to sell. So I go to person X and say lend me $5k against what is currently $10k of BTC. He has 2x collateral coverage... so he makes the loan. if BTC falls to $7500, he may have the option to sell and recover his loan. I get my money so I can create more "money" out of thin air (or rather electricity and metal). When BTC goes to $20k I am rich. RICH.

This can easily be done on CME futures market, we don't need dharma for this. Futures can be used in multiple ways to swap inherent volatility with a fixed stream of return.

What happens if after immediately getting his $5k BTC I buy a sweet rig for $15K BTC and the price of bitcoin drops to $4k?

I guess I can’t spend the collateral in the first place?

This can happen on the stock market too. When bitcoin drops to around $5k, you get margin called and bitcoin will get sold on the open market.

This happens quite regularly in the world of margin trading.

Imagine the following:

1. I own ETH, and want to hold my ETH position so I can enjoy price increases, but I need liquidity to live my day to day life and, well, it's hard to pay for things with ETH. 2. Instead of selling ETH and exiting my position, I put ETH up for collateral and borrow a stable-coin (like DAI) against it. That way, I maintain my price exposure to ETH, but have liquid cash to use for my day-to-day needs.

Oh! So this is not about lending buying power. But about lending in the context of betting on currencies.

A lends 10 Xcoins to B. B puts 11 Ycoins into escrow. A will either get back 11 Xcoins or 11 Ycoins.

If Xcoins rise in price relative to Ycoins, B is happy and A is sad.

If Xcoins fall in price relative to Ycoins, B is sad and A is happy.

And if you don’t use coins for day to day living expenses?

You could cash out the borrowed coins for cash.