Peer to Peer (P2P) lending is quickly becoming the to-go market for personal finance goals. P2P lending platforms are beneficial for all parties. Those in need of finance turn to the P2P marketplace to obtain such finance, and, on the other hand, investors can use P2P lending platforms to diversify their investment portfolios and earn competitive interest rate.
P2P platforms are great for smaller loans (i.e. paying off credit cards or repairing a damaged car), but they might not be as affordable and available for larger purchases (i.e. a home purchase or a new car). Especially in developing markets, such larger finance goals might be out of reach due to the lack of credit scoring systems or access to capital in the first place.
Now, how could ETHLend be used to fulfill this market? Let us imagine that a bank or an institutional financer is looking to finance asset backed loans. They have a minimum loan amount of $100,000, and because of this they will be unable to accept loan terms for smaller loans. These banks and institutional financiers would be able to go onto the ETHLend platform, and offer their liquidity to another investor (wholesale borrower) who has large amounts of digital tokens (cryptocurrency) to pledge as collateral.
The investor (wholesale borrower) can then take that $100,000 they got from the bank and turn around and offer loans on a smaller scale to people on the platform or in their local markets, whom do not need to pledge collaterals. However, since these parties can create their own contracts, and choose whom to fund, they can charge a higher interest rate than what they are paying on their loan from the bank. Hence, making a margin by providing additional liquidity to local markets, where the interest rates are high.
Now the average user who may only need a $500 or $1,500 loan, might not need a collateral and can use his local credit scoring or the trust accredited between known lenders and borrowers. This way the chain of value is driven from the small consumer all the way up to the big bank.
As it is evident in this example, big banks and institutional investors will not be competing with ETHLend in any way, but will be able to use the platform in order to leverage their position. By using the ETHLend marketplace, they will be able to completely fulfil their lending qualification requirements, and be secure knowing they are protected by smart contract and collateral.
On the other hand, larger investors (wholesale borrowers) will be able to receive a large loan from the bank and then pass along those funds on smaller lenders. The best part of the lending experience is that banks are participating in providing lower interest rates, due to the fact that the lending transactions between banks and investors could be low interest rate due to the collaterals used (and collateral management).
Therefore, the investors are getting affordable liquidity to redistribute this liquidity to the local lending markets, such as in Brazil or India, where inflation adjusted interest rates are high. The entire value chain of the lending cycle is performed by Smart Contracts, where the collaterals are stored as digital tokens. Each party in the value chain will be receiving what they need and want, using the trustless, fully verifiable platform based on these Smart Contracts provided by ETHLend.
Andreas Achleithner – [email protected] – CoinAdvisors.io