ETH: Peer to Peer Lending and Cryptocurrency
As the global P2P loan market is expected to grow at a CAGR of 53.06% during the period 2016-2020, the need for a secure, Blockchain based way of lending is growing steadily. Moreover, lending between participants from different parts of the world is now accessible.
ETHLend, a 100% decentralized peer to peer lending platform, is a decentralized application (DAPP) developed upon the Ethereum Network and they believe they can reduce friction in the global lending market.
ETHLend.io introduces decentralized lending on Ethereum network by using ERC-20 compatible tokens or Ethereum Name Service (ENS) domains as a collateral. ETHLend solves the problem on reducing the loss of loan capital on default. On healthy loan relationships the loan is paid back. However, the pseudo-anonymous nature of Ethereum blockchain network opens the possibility to avoid repayment of the loan since the lender might not have all the necessary details of the borrower to enforce the debt in the borrower's jurisdiction. Moreover, enforcement in a decentralized environment, where the parties can be from any part of the world, might not be efficient. ETHLend provides decentralized solutions to avoid loss of capital and to make one true global lending market available.
Peer to Peer Lending and Cryptocurrency
Risk of default as a barrier in decentralised crypto-currency lending. There are no obstacles on lending crypto-currency as such. Any crypto-currency could be lend to anyone anywhere, and it would be a simple transaction. Then again, how do we know that the borrower will repay the loan? In FIAT economy, if you do not pay a loan back, your credit score or rating declines and legal consequenses may follow.
This means that you might not get another loan from the market. However, in decentralized blockchain environment, securing the repayment of the loan needs more creativity in working solely on-chain.Securing the repayment of decentralised loans. As transactions in Ethereum network are conducted by address-to-address traffic, so is the lending. Therefore, it would be impossible to know whether the borrower that the lender has sent Ether would pay the loan back in a situation where the lender and the borrower do not know each other.
Since we are working in a fully decentralized environment, the solution should be on-chain as well.Represented value as a collateral for borrowing. Contrary to what might occur, Ethereum-based ERC-20 tokens are perfect to use as a collateral. First, all popular Ethereum-based ERC-20 tokens are traded on exchange. Therefore, we do not have to roll the dices to form a price on most common ERC-20 tokens. Secondly, since we have a price, we usually have the price history as well. This means that we can calculate the volatility of the ERC-20 token and take the volatility into account when we are pledging the tokens to attract lenders.
Benefits of Decentralized Lending
Decentralization provides more security and trust by design. Decentralization is a method to organise anything in a way that does not require trust on third parties. The trust is eliminated by executing code that does not require central government, management or central servers.
Decentralization changes dramatically the architecture of lending. By decentralizing lending, we do not require banks or any other intermediaries for conducting a loan transaction. Decentralization means also that borrowers and lenders do not need to trust even ETHLend once the Smart Contract is deployed to the Ethereum network.
These Smart Contracts provide a trustless and transparent lending environment, which is not available on todays FIAT lending market. Trustless means that no one can interfiere, stop or manipulate the loan once deployed. Transparent means that anyone can see the deployed transaction on blockchain ledger by using a blockexplorer. There is no equivalent power on found on centralized environment.
Tokenization
Tokenization of value is what fuels ETHLend. ERC-20 compatible tokens are used as a collateral to secure loans on ETHLend. When a token has value, the token can be pledged to secure the repayment of the loan. This practically means that the borrower promises to give up of the pledged token for the lender if the borrower does not pay the loan back. Pledging is quite common in the finance industry. Most commonly used collaterals are real property for mortgage or pledging shares of a listed stock company.
Tokenization is growing. Today there are few dozens of ERC20 tokens that have significant value and are traded in crypto-currency exchanges. Each week new token crowdsales are launched and there will be even more tokens that are open for trade. This effects that there would be more tokens that one could pledge for a loan at ETHLend.Future of tokenization and lending. Today the tokens have many different representations. One of the interesting one is tokenization of commodities such as gold. At some point, it can be convenient to place a house or a new solar power plant as a token and trade the token or pledge the token to receive finance. Actually, tokenization is quite reachable today and the barriers lies within the formal requirements such as real property deed registrations and such. Therefore, even now one could issue ERC-20 compatible tokens that represents the shares of a company and agree on the shareholders agreement that the shares are represented on Ethereum-based ERC-20 compatible digital tokens. From that point, the share could be used as collateral for Ether loan for funding the company’s ventures or the shareholders’ needs.Once the tokenization is widely adopted, the uses cases are beyond imagination. Borrower from Brazil could agree with the home seller that the borrower can place the house on ERC-20 token and pledge the house to obtain a loan to finance the purchase. Instead of resorting to Brazilian banks for mortgage, the borrower has full access to the global lending market.
Moreover, infrastructure projects are another example. Contractors could first issue a crowdsale of ERC-20 compatible tokens and after the crowdsale, the contractors could have even more access to liquidity by pledging the tokens that are left from the crowdsale and get more funding for the project. The opportunities and the use-cases are only limited by imagination.
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Website: http://ethlend.io
White Paper: https://github.com/ETHLend/Documentation/blob/master/ETHLendWhitePaper.md
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