Blockchain-Based P2P Lending — The Qidax Model

Traditional P2P lending models are facing many issues. For example, the cost of onboarding customers remains high, so investors are wary of this kind of investment model. Besides that, this area is heavily regulated by the securities commission in most countries. While a handful of P2P companies have been approved to operate their businesses, many more P2P operators who failed to obtain a license are facing the nightmare of shutting down

Traditional P2P lending cannot allow borrowers and investors to directly match financing but rather needs to be handled as a credit intermediary through the P2P lending platform. The financing cost is increased because of the need to pay the agency fee. Other issues include the limited scalability of P2P lending services on an international scale. This is due to the aforementioned problems of loan repayment guarantees, as well as to regulatory issues (rules and regulations vary from country to country). There is also work to be done on accelerating the process of granting loans and so on.

Although P2P lending platforms are supposed to be operating in a decentralized manner, they are still largely operating in a centralized model. Data is usually stored and maintained on a central database, which might lead to human errors and manipulation of data.

On the contrary, data stored on a blockchain are stored on the decentralized and distributed network, where every stakeholder has access to a copy of the same ledger. Furthermore, data on the blockchain is immutable, so no party can alter and manipulate the stored data. These characteristics of the blockchain will greatly enhance data security, increase transparency, and instill trust amongst stakeholders. Therefore, blockchain is the perfect solution to solve the woes of current P2P lending models. Indeed, a dozen companies have started to deploy blockchain-based P2P lending platforms.

Blockchain-based P2P businesses are broadly divided into two models, the hybrid model and the pure cryptocurrency model. The hybrid model involves using cryptocurrency and fiat money while the pure cryptocurrency model uses only cryptocurrencies.

The Hybrid P2P Lending Model

1. SALT

To sign up as a member of SALT, a borrower needs to purchase SALT tokens, the cryptocurrency of the SALT platform. SALT is minted using an ERC20 smart contract. After signing up, borrowers have to deposit a certain amount of crypto assets (cryptocurrency) as collateral into the platform’s unique, multi-signature wallet address created by SALT’s Secure Automated Lending Technology. After the terms of the loan are agreed and approved, the lender will make a deposit in fiat money into the borrower’s bank account. The borrower will be obligated to make repayments in fiat money or stable coins (currently accepting USDC, TUSD, and PAX) on a regular basis before the 15th of the month. In the event of a default, his or her crypto assets will be transferred to the lender.

In order for an asset to be qualified as collateral on the SALT Platform, it must meet certain eligibility requirements. First and foremost, it must be a blockchain asset. This means that the ownership of the asset must be recorded on a public or permission blockchain. Digital assets will be onboarded based off community demand.

Examples of the current eligible collateral include Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), Litecoin (LTE), Dogecoin (DOGE), Dash (DASH), TruUSD (TUSD), USD Coin (USDC), Paxos Standard Token (PAX), and PAX Gold (PXG).

2. Nexo

The loan approval process is fully automated. A credit line becomes instantly available to the borrower once the application is approved and there is no credit check. The borrower can spend money instantly with a card or withdraw money to a bank account. Spending on the credit line will incur an APR from 5.9% of what the borrower uses. Some advantages of NEXO compared to SALT is there is no minimum repayment, no hidden fees, and the interest is debited from the available limit. Besides that, the borrower can make repayments at any time. On top of that, the Nexo website states that it is the only insured account that lets you borrow instantly in 45+ fiat currencies and earn daily interest on your idle assets. Furthermore, NEXO makes its loans available worldwide. Anyone who holds cryptocurrency can take advantage of a Nexo loan. And since the loans are fully collateralized there’s no need for borrowers to worry about credit history or approvals.

Though the use cases for Nexo loans will be somewhat limited since they’re collateral-backed, the use of cryptocurrencies as collateral makes for an attractive alternative for those who hold cryptocurrencies and don’t want to sell yet and give up future gains, but still need fiat currency for immediate use.

At the moment, more than twenty cryptocurrencies including BTC, ETH, NEXO, XRP, TRON, and more can be accepted as the collateral. Any loans taken can be repaid using cryptocurrency, fiat currency, or the Nexo token. They have made it as easy as possible to repay any loans. In contrast, SALT only accepts loan repayment in fiat currency, which is an inconvenience for the borrowers.

Pure Cryptocurrency P2P Lending Model

1. ETHlend

The lending process at ETHlend is quite simple. When creating a smart contract, ETHLend requires borrowers to send ERC-20 tokens as collateral for ETH loans in the event of a borrower’s default. Currently, ETH, BTC, LEND, and more than 150 ERC20 tokens are accepted as collateral. There is no limit in the loan value, as the amount you can borrow depends on the value of your collateral. Borrowers can borrow up to 50% of their collateral value and up to 55% if LEND is used as collateral. This means the borrower needs to send to the smart contract 200% of the value of the loan in crypto assets. To become a lender, you will need to register on the platform and send it to your in-app wallet some Ether and any of the currencies accepted in order to fund a loan or create a loan offer. The accepted currencies are ETH, LEND, DAI, and TUSD. This also means borrowers will receive the aforementioned cryptocurrencies as loans.

The borrower needs to repay the loan in accordance with the contract, plus interest on the loan, and send them to a smart contract. The lender receives their ETH and interest from the smart contract, and the pledged tokens are unlocked and sent back to the borrower. In the event that the borrower cannot repay the loan, the lender will get the payments plus a liquidation fee from the collateral.

2. Elix

The uniqueness of this system lies in the fact that Elix offers a peer-to-peer lending program based on mutual incentives for the lender and the borrower. In Elix, both the lender and the borrower are incentivized by the system to meet the terms of the loan. When applying for a loan, participants can choose a mining period in order to receive system rewards in the form of a new token, “Token P”.

If the borrower pays the loan on time, the reward is divided between the lender receiving 65% and the borrower who receives 35%. If the borrower has late payments, the lender receives 100% of this fee. Token P will have a fixed maximum supply that the team expects to achieve in only a few decades.

The Qidax P2P Lending Model

USING A COMBINATION OF BTC, ETH, USDT, AND QP AS COLLATERAL

The loan approval process should be fully automated with no credit checks. The credit line should become instantly available to the borrower once the application is approved. Repayment should be flexible too. I propose that we use a wallet for borrowers to access the credit line offered by the P2P Lending platform and receive the funds once the loan is approved. Besides that, the borrower can repay the loan using the same wallet. Lenders can also access potential borrowers’ information using the wallet and deposit fiat money to be used as loans. It means we need to integrate the wallet to the P2P lending platform via an API.

I propose that 30% of the profit generated from P2P lending to be deposited into a dividend pool and distributed to QP holders. This way it incentivizes people to buy and hold QP.

References

Blockchain Architect

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