A lending platform is an online market where people can give and borrow money from each other or from a pool. So, it helps to avoid going through standard financial institutions like banks or any other third parties. The method has been shown to be useful in both traditional markets and markets for cryptocurrencies.
With the help of DeFi, crypto lending companies started to get more and more money. So, we want to share what we’ve learned about making a P2P lending blockchain platform from the start or adding blockchain to a P2P lending solution you already have.
Blockchain In P2P Lending Platform
Peer-to-peer (P2P) loans are a well-known way to borrow money from other people directly through the Internet. Through the application interface, the platform brings together lenders and users, which is good for both sides of the deal.
Peer-to-peer lending using blockchain can be done with the help of blockchain technology. This gives the lending process more security and openness.
First of all, it gives lenders better interest rates and gives users more time to pay back their loans while giving them lower return rates. But even though the system has a lot of benefits and advantages, p2p loans are often called “unsecured loans” because there is no collateral and there isn’t enough tracking and openness.
Blockchain can help with this.
If blockchain is added to the current peer-to-peer loan system, it could lead to a number of benefits. Blockchain peer-to-peer loans can help with the following problems:
Since most peer-to-peer lending services are centralized, the company handles both the application process and the loan transfer. In blockchain peer-to-peer loans, the main job will be done by a smart contract, which gets rid of the middleman and lets the program run more automatically.
Blockchain technology makes sure that data is flexible and can’t be changed. The main benefit of this feature is that once the information is put into the system, it can’t be changed or taken out. This can make peer-to-peer loans a lot safer for the people who use them.
When distributed ledger technology is used to store data, it can create openness and decentralization in an environment where there is no trust. So, adding blockchain technology to your current peer-to-peer loan service could make it easier to track data and give you the most open service possible.
How To Add Blockchain To Your Existing P2P Lending Platform
In this section, we’ll tell you how to use blockchain development solutions to make a lending site more secure. These are the main steps you need to take to make a Blockchain P2P loan platform:
Clear Your Business Case
Researching the exact business goal of the case helps to set the right scope for development and support the use of blockchain.
In terms of integrating blockchain into the current solution, the platform already has its own business case, and the developers’ job is to figure out how to translate or transform it to the blockchain.
Select The Best Blockchain
It will probably be hard to pick just one or two of the best blockchain systems. Mainly because each project has its own set of needs and tools, so each one needs careful study to figure out what the best solution is.
Based on what we’ve seen, we can say that the modularity of the Substrate framework makes it a good choice for building a blockchain P2P lending tool. You can also look at the R3 Corda blockchain solution as an option. Its permission access and chain code structure can add to the security needs of p2p services in more ways.
Smart Contract Development
One of the most important parts of adding blockchain to your current peer-to-peer lending is building the first smart contract architecture.
The main goal of making smart contracts for a peer-to-peer lending site is to figure out which data are stored on-chain and which are stored off-chain.
For example, if there is a lot of faith in the platform, the on-chain part can store transaction IDs, user IDs, and transferred amounts. This is because the main part of the data is stored in the database and can be given at any time by the platform itself. In a blockchain tool for peer-to-peer lending, a p2p lending smart contract can automate the lending process, make payments, and make sure the terms of the loan are met. We suggest storing as little as possible on-chain, but all data saved should be able to be checked.
Since all data is saved on-chain and is easy to verify, it is easier for debt collectors to collect debts and for people with past-due debts to make deals. On the other hand, the biggest challenge is to set up this process with KYC so that private and sensitive client information doesn’t get out, since blockchain (in most cases) lets anyone see all information on-chain. In this case, it is very important to say what the exact amount and style of on-chain data is.
DeFi Crypto Lending Platform
As we’ve already talked about, peer-to-peer lending services may offer a wide range of loan funds and ways to handle them. So, building a peer-to-peer lending blockchain platform or adding smart contract technology to an existing one opens up the following loan options:
- fiat to crypto and crypto to fiat (MyConstant)
- crypto-to-crypto (Lendoit)
DeFi, on the other hand, focuses on crypto-to-crypto loans, where stablecoins are the most preferred assets. The other thing that makes DeFi lending unique is that the borrower has to put up other coins as collateral for the loan.
ETH (or Bitcoin) is often used as collateral, but many sites also accept DAI as enough insurance. Most loans in decentralized finance have a high loan-to-value (LTV) ratio, sometimes as high as 60%. This means that the borrower will get less than 60% of the crypto they need based on the security they provide.
But the best thing about DeFi lending groups is that they are not centralized, people can remain anonymous, and you can get a loan quickly. Also, this kind of loan makes it very easy for people who like to do margin trading to borrow money.
Because of how quickly DeFi has grown, it has drawn a huge amount of liquidity, which has helped some protocols become the absolute market leaders. AAVE, Maker, Compound, and dX/dY are just a few of the best DeFi apps that give their users the chance to borrow money.
How To Develop A DeFi Lending Protocol?
With more and more successful projects, it’s getting harder to get into the autonomous finance market. In this section, we’ll tell you how to start making your own site for lending crypto.
To make your lending dApp successful and helpful, you need to do a business case study. A project is likely to fail if it doesn’t have good business logic and use case justification.
Architecture Planning And Development
It can be hard to make a peer-to-peer lending tool based on the blockchain, especially if you don’t know how the blockchain development process works.
During the early stages of planning a DeFi loan protocol project, it’s important to decide on the type of lending pool and how interest will be calculated.
There are two main types of pools: those that are isolated, like the trade pairs on Uniswap, and those that give you access to all the coins of the protocol, like Compound, so you can use any coin as collateral for any asset. The next step is to decide between fixed (Torque) or floating (Compound) interest rates and plan ahead for the best design.
One of the biggest problems that developers face when making DeFi loans is the cost of using smart contracts. Even a good and dependable smart contract could fail if the details of a decentralized finance project, like gas optimization, make it too expensive for users to pay for gas.
Testing And Launching
The DeFi lending protocol has to do with a lot of swaps, which means that a lot of money is at play. The main goal of testing is to make sure that there is no way to stop the pool, which would make it impossible to get back the collaterals.
If there are problems with the transfer, the user’s collateral could be blocked or lost. This is very painful because the collateral is always worth more than the loan itself. Also, the team should make it impossible to use shitcoins as collateral, so that the user can’t trade something useful for something that isn’t needed.
This article shows you how to make a DeFi lending platform or add a blockchain solution to your existing peer-to-peer lending business. As you can see, the development method can be different and should include an analysis of the main business goal and the use case.
Before starting the first growth, you should carefully look at the pros and cons of each method.