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Certain advancements in the cryptocurrency ecosystem are revolutionising financial mechanisms, which no longer fit the traditional paradigms we have been used to (let alone the Sages before us).

One example, is decentralised borrowing markets on blockchain, where you can put the money in and earn interest on it, while other people borrow at an interest. The difference between this and the classic borrowing scheme is that no one is making any deals here (offering or accepting a loan at a particular interest rate), instead we simply interact with a certain "vending machine", which exchanges money into redeemable coupons. These coupons can be redeemed at any point and the "interest" is earned because the exchange rate is ever-growing (so, maybe because of this we wouldn't actually consider this a loan at all but rather an investment; unlike traditional loans, one has no obligation to repay these "loans" ever once the collateral is liquidated).

Not sure if this particular point is relevant but the interest rate isn't decided by anyone explicitly, it is a direct consequence of the ratio between the capital of lenders and borrowers (as well as the total reserves, managed autonomously by this vending machine in order to create a stable market).

All this logic is open-source and available to anyone so while certain markets were launched to operate completely autonomously, some actors create their private semiautonomous markets where they can exert certain types of control (liquidity rates, reserve factors etc.). Also, not sure it makes a difference in terms of what this is considered to be according to Halacha.

https://docs.compound.finance/v2/ctokens/#ctokens

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  • In regular banking outside of Israel these issues are generally dealt with leniently - like holding a term deposit at a Bank. Why wouldn't the same thing apply to cTokens?
    – zunior
    Dec 26, 2023 at 23:50
  • When dealing with a "non-Jewish bank" it is the bank alone that is responsible for paying interest, the fact that the bank itself might be making money by lending money to Jews at interest does not matter because the two activities are not connected directly. In case of cTokens, you could in theory follow every cent and see that it goes into a particular wallet. Based on my very limited knowledge of how the Jewish law works, I don't think there would be a problem anyway but it would be great to understand the line of thinking when to comes to these types of issues.
    – rudolfovic
    Dec 27, 2023 at 10:37

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I am not going to give a Psak but here are some observations:

From Halachipedia

"It is forbidden to charge or take interest from an individual Jew or group of Jews. Some poskim allow borrowing or lending on interest to a partnership of Jews and non-Jews if the non-Jews comprise at least half of the group to which one is lending or from which one is borrowing"

https://halachipedia.com/index.php?title=Corporations_and_Partnerships_with_Respect_to_Ribbit

Now with respect to your point about the traceability to certain addresses, presumably that would not matter as in Compound they are still pools.

Also further on the same Halachipedia page:

"Some poskim say that it is permitted to lend or borrow on interest from a corporation even if it is owned by Jews because halacha views the corporation as a dummy entity that isn’t Jewish."

One could certainly argue that because the ctokens are non-recourse to the borrower you could treat the smart contract as an entity.

The definition of an entity in today's world is that they are bankruptcy remote . Compound's Smart Contracts are similarly bankruptcy remote.

Meaning - if Compound cannot recover the value of the loan to the borrower they will not knock on their door.

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