ie. So they can have cash while continuing to be speculatively exposed to eth.

I think that ethereum might have great applications, but a loan backed by more collateral than it is worth doesn't seem like one of them, unless Dao starts allowing for the use of collateral that is less liquid than eth.

The issue is that contracts don't have any way of "calling in" to the legal API, so you can't put up your house as collateral.

They also avoid capital gains tax which would be pretty significant. They can use the money to hedge their bets against crypto by buying traditional markets if they wanted.

For house mortgages, there are companies that are "tokenizing" houses on the blockchain, so putting it up collateral would be as simple as depositing that token. That said, I think this is far from becoming reality anytime soon, just because there's lots of legal issues, etc. Nonetheless, the future is pretty exciting!

I believe that technically, any conversion between crypto assets is still a taxable event. If you want to follow the (silly) rules, you have to pay taxes on your gains once you purchase something using your borrowed stablecoin.

So yes, you'd pay capital gains tax on the DAI that you've borrowed when you transfer it back to USD, but DAI is a stablecoin that's pegged to 1$ and the volumes are pretty high on many exchanges.

Once you include your exchanges fees in your cost basis, you actually lost like 30-40$, so it's a taxable event with capital gains loss.

This is more applicable to liquidity providers or things like AAVE and compound where your crypto is actually loaned out. With maker, your crypto doesn't move anywhere and isn't loaned out to anyone.

For what it's worth, if you use AAVE or Compound, you also have to declare interest income on what you've earned.

With maker, you'd be responsible for capital gains if it was liquidated because you fell below the 150% minimum ratio.

Admittedly, I am not familiar with maker I will have to go take a look.

I guess the difference between me and someone who would use these DeFi apps, is that they are using crypto as a speculative investment (which is fine, I speculate with other assets all the time). But most people do not have a significant portion of their net worth in crypto tokens. For me, it is much cheaper/easier/safer to just get a traditional loan.

Presumably the point is to avoid triggering capital gains tax with the low cost basis of your coins by borrowing someone else's coins to make purchases.

AFAIK, this isn't how MakerDAO loans are being treated right now.