After the 2008 global financial crisis wreaked havoc on the world economy, it became much more difficult to find forms of capital and to secure financial loans. In order to overcome this problem, Peer-to-Peer (P2P) lending came into play. P2P lending, in its simplest form, is defined by obtaining funding by having other individuals loan you money, instead of going to a bank.
Cryptocurrencies revolutionizing P2P lending
According to Morgan Stanley, the global P2P lending market will be $490 billion by the year 2020. Enter Bitcoin and blockchain technology. With the rise of the technical revolution of blockchain, P2P lending has found a new home for crypto enthusiasts. By utilizing blockchain technologies to facilitate P2P loans, it helps drive down price, whereby increasing availability, and providing a trustless way to interact with users on P2P lending platforms.
One of the new names in cryptocurrency based P2P lending is Ethlend.io. ETHLend is utilizing the Ethereum blockchain in order to add another radical change to the process of P2P lending. While traditional lending simply makes you “trust” that the user will pay back their loan, ETHLend will allow the user to know their loan is protected through collateral based loan requirements.
This solves a two-fold problem. The first side is that users will be able to obtain a loan against their cryptocurrency collateral, without having to sell their coins on the open market. The flip side is that users who have fiat money to loan will be able to rest secure in their knowledge that the loan they are giving is protected with crypto collateral in case of a default.
With this background let’s dive into three specific use cases and how the platform will apply to each. The three perspectives we will discuss in this article are one of a lender, a debtor, and a programmer.
— ETHLend (@ethlend1) October 10, 2017
The ETHLend platform will help allow the user who is looking to invest in peer-to-peer loans unrivaled access to a variety of loans options. By using the ETHLend platform, the lender will be able to scour a marketplace full of different opportunities.
Inside of the lending market place, the user will be able to see which loans are currently available; how much they are for; how (and with what) crypto currency they are secured; and what their public “credit rating” profile is. All of these functions together will be able to give the investor a detailed insight into potential loans.
For example, if a user only wishes to invest in loans backed by Ethereum, they can do that; or if they wish to only invest in ERC20 token backed loans they can do that also.
After the user has invested in a loan, they can rest assured the collateral and contract is protected because it is on the blockchain. This introduces a trustless system in which the user can be assured of protection against default via collateral holdings.
If a crypto currency follower sees a new Initial Coin Offering (ICO) they wish to invest in, or comes across a situation in life in which they need fiat currency, they normally have to sell some of their token holdings on the open market.
With the breakthrough technologies of ETHLend there is now another option. Instead of having to sell their holdings on the open market, the person in need of funding can loan against their holdings. By obtaining a loan against their holdings, they are able to obtain the funding they need, while also being able to receive their crypto currencies back after they have repaid the loan.
Not only will they rest assured that their coins will be returned at the end of the loan contract, they can also be reassured knowing that if something happens in which they are not able to repay the loan, their coins on collateral will be liquidated to pay their debts.
As was previously discussed, by introducing the blockchain into the P2P lending business, a trustless system is created. The debtor only has to focus on being able to make their agreed upon payments, and be assured they will be returned their coins at the end of the loan terms.
The ETHLend platform will make available API in which users will be able to code bots to automate lending processes. For many users this may not be exciting news as they may not have the skills needed to create automated lending bots.
However, to those more tech savvy individuals, by having API keys they will be able to create bots and programs to do work for them on the ETHLend markets. While the website will have the options for users to filter loans by certain criteria, the API will allow bots to automatically screen out certain loans based on the parameters in the code.
This will greatly increase the availability for users to watch the market place. By having these bots in place, users would be able to easily screen loan criteria, and then automatically invest a certain amount in every loan that meets their criteria. Or, if an extremely favorable loan is found on the market, the bot can initiate a loan as soon as it is available, even if the user is asleep (how cool is that).
As is apparent from the sample use cases, the ETHLend platform will be enticing to a wide range of individuals. Users in need of capital will be able to use their own coins as collateral to obtain funds, while knowing they will be returned upon completion of the loan.
Those who are looking to diversify outside of the traditional crypto sphere will have the opportunity to invest in collaterally backed, trustless loans on the blockchain, and programmers will be able to send their bots into the marketplace to automate every aspect of their investing for them.
The P2P lending market is growing at an unprecedented rate, and thanks to blockchain technologies, ETHLend will be able to capitalize on this growth and position itself as the go to P2P lending platform for crypto enthusiast.