Dumb Money vs Smart Money: Using Debt to Get Richer

User profile photo
By Connor
Estimated reading: 4mins

If you are somebody who cares about money (everybody does, even if they say they do not), then you must understand the difference between dumb money vs smart money. One of the cornerstone difference lies in understanding what debt is and how to use it properly to enhance your finances.

On the one hand, debt has the ability to help you achieve financial freedom. But if used incorrectly, it can make you an indentured servant to a growing monthly payment schedule.

The difference between dumb money vs smart money is also a mindset.

What is dumb money? Dumb money hears the word debt and immeditately has a negative association.

What is smart money? Smart money hears the word debt and immediately recognizes the potential to make more money and delay taxation.

Let’s take a deeper look.

What is Debt?

Debt is the borrowing of money from one party to another so that they can buy something they otherwise could not have afforded. For example, debt is often incurred by people who wish to buy a home, but cannot afford to pay it upfront in cash. A lender will front this bill, with the expectation of a percentage return from the borrower in the future.

1. Smart Money Uses Debt to Avoid Taxable Events

What is a taxable event? Essentially, it is any occurrence that results in a tax liability. The most relevant example for crypto is when selling digital assets at profit. In crypto, dumb money can find themselves holding wealth that they are not used to. As a result, they sell it hastily, and now have to paycapital gains taxwhich can be very costly depending on your jurisdiction. Instead, the smart money avoids the taxable event of selling, by never selling, and taking a collateralized loan off of their asset.

2. Smart money Uses Debt to Avoid Losing their Best Appreciating Assets.

When you sell, you don’t just incur a taxable event, you also lose ownership over an asset that has appreciation potential. You see this in the stock market, in crypto, and in real estate, the individuals who perform the best are those that hold their appreciating assets for the longest periods of time, through both bull and bear markets.

3.Smart Money Responsibly Uses Debt as Leverage to Buy More Assets.

This method is not so relevant to crypto due to its volatility, but is more applicable to real estate for example. Smart investors will take a loan out from a bank, and finance a home using ‘other people’s money’. This gives them the ability to buy an asset that they could not afford before. And with a little luck and a lot of skill and research, they can start building equity in an asset that is both appreciating over a long time horizon and spitting off cash flow on a monthly basis.

4.Dumb Money Uses Leverage to Buy Liabilities.

It’s a tale as old as time. An average person will take out a loan on an item they don’t need, with an interest rate that is too high. They think the new house they bought or the new motorcycle is an asset, when in fact it is a liability, in either expenses or in depreciation. The smart money refuses to use debt to buy liabilities.

5.Smart Money Steers Clear of Predatory Lenders

Signs of predatory lending include high interest rates, high fees, unclear terms and conditions, and seizable collateral. Dumb money will often hastily make decisions about their financial future, and not do their due diligence to vet their lenders.

Smart Money in Crypto

So how does Liquid Loans fit in with these principles? We think that PulseChain and its token PLS are going to be very successful. Therefore, users need a way to extract value from their PLS without the need to incur a taxable event or decrease their coin count.Our protocol allows users to mint USDL stablecoin by locking up their PLS in a vault as collateral.

In addition, the debt that users have is in the form of USDL, a productive asset when used in the stability pool. Users are encouraged to not use Liquid Loans as leverage, i.e. taking out USDL and converting it to another volatile crypto, in hopes of reaping extra gains.

Finally, Liquid Loans is NOT a predatory lender. We have a zero percent interest rate, no repayment schedule, and transparent rules. The Liquid Loans code is locked and immutable, meaning nobody can change the rules once it is deployed.

Join The Leading Crypto Channel


Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.

User Avatar


Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.

Search The Blog
Latest Video
Latest Youtube Video
Latest Podcast
Latest Podcast
Newsletter Subscribe
Share This Article
The LL Librarian

Your Genius Liquid Loans Knowledge Assistant