How Blockchain is Transforming the P2P Crypto Lending Procedure

  • March 25, 2021
  • Jennifer Moore

The peer-to-peer lending industry in the last few years has experienced rapid growth. Between the time period of 2018-2019, the P2P lending industry developed by over 17%. Moreover, during 2020, it was anticipated to reach billions of dollars. Such figures apparently highlight that the peer-to-peer lending industry will proceed to develop further. On the other hand, the peer-to-peer lending sector happens to be experiencing phenomenon development. It is also undergoing a fintech revolution.

They can be referred to as the revolution brought in by the infusion of blockchain. It is as it is assisting in establishing a loan marketplace where one can become a borrower or a lender. Backed by smart contracts, a peer-to-peer cryptocurrency lending exchange happens to be more transparent and secure than the conventional peer-to-peer lending exchanges.

Also Read: Crypto Banks, Decoded: All You Need To Know About

Role of Blockchain in Peer to Peer Lending

The peer-to-peer lending industry assures maximum potential in the upcoming years. But, the development happens to be pulled back by the inefficient infrastructure and the mediators. The following tips highlight the role of blockchain in peer-to-peer lending and how it is growing rapidly because of the advantages.

  • Quicker lending procedure: The traditional process of peer-to-peer lending incorporates paperwork. Due to this, the procedure for getting a loan happens to be pretty long. On the contrary, the peer-to-peer lending process backed by blockchain needs no paperwork. Therefore, the processing of loans is instant. 
  • Reducing the expenses: The peer-to-peer lending market happens to be driven by mediators. Due to this, the expenses incorporated in peer-to-peer lending happens to be high. Blockchain technology solves the problem of high expenses by eliminating the mediators from the space and automating the transactions. 
  • Transparency: By leveraging blockchain technology, the rate of interest happened to be quite transparent. Other than that, the time and cost involved, along with the whole lending procedure, turns out to be pretty transparent. Therefore, the participants of the marketplace can rely on the platform for maximizing their benefits by utilizing various strategies. 
  • Good rates: The conventional peer-to-peer lending market usually offers a fixed interest rate. In a peer-to-peer lending setup backed by blockchain, the rate of interest differs from the supply and demand. Due to this, the lender can experience better interest rates while the demand goes up. 
  • Flexibility: While the peer-to-peer lending platform connects the borrowers and lenders directly, it comes with the flexibility for interest rates, frequency of repayment, and duration. Other than that, each of these is executed with the help of a smart contract rather than an intermediary. Therefore, the possibilities of lately payments and fraud approximately eliminated. 

The Working Principle of Peer-To-Peer Cryptocurrency Lending Software

A peer-to-peer cryptocurrency lending software as yours that the landing platform happens to be built in such a way that it comes with all the above-mentioned characteristics. Apart from that, a peer-to-peer Crypto lending platform also needs to follow particular landing procedure models. Go to the steps below to understand better. 

Step 1: The Lender Has to Create a Profile 

To begin with, a peer-to-peer cryptocurrency lending exchange must develop a liquidity pool. It needs lenders to develop a profile for that and then put in the liquidity. To build an account, the lender will need to divert the following details: 

  • Name
  • Government ID proof
  • Bank account details
  • Interest rates

After the profile creation is complete, is likely to be approved and submitted on the marketplace. Here, the borrowers can find the lender. Moreover, in the marketplace, the lender will need to wait for receiving a request from the borrowers. 

Step 2: The Borrower Has to Create a Profile 

In this step, a borrower is also required to develop an account on the peer-to-peer crypto lending software. The borrower will also need to give the same details as the lender. Apart from that, he is required to mention the cryptocurrency assets that he is looking forward to depositing as collateral. Moreover, a third-party guarantor is needed on his part. After the acceptance of his profile by the platform, a borrower can begin looking for lenders. 

Step 3: Developing a Smart Contract

The next step in the lending procedure is triggered while a borrower sends a request for a loan to the lender. For sending a request, a borrower required to utilize a smart contract for connecting with the lender, thereby leading to the development of a smart contract.

Step 4: The Borrower is Interviewed By the Lender

After receiving the smart contract from the borrower, the lender interviews the borrower. The lender would ask questions about why the borrower is looking forward to a loan, has opted for a cryptocurrency loan previously or not, along with the rate of interest he is likely to pay. 

Step 5: Application Approval

After the approval of the loan application, the interest rate is automatically fixed by the smart contract. It is also based on the credit history of the borrowers on the platform. 

Step 6: Loan is Given

After the lender and the borrower agree with the terms and conditions of the smart contract, the amount of the loan is given to the borrower, which is also known as direct wallet transfer. 

Step 7: Repayments of Loan

The loan repayment dates are programmed by the smart contract. In case the borrower fails to take care of the timely repayment, the smart contract automatically combines late fees to the amount of the repayment. While making payments in the future, the late charge amount is deducted from the wallet of the borrower. In case of payment failure on the part of the borrower, the lender gets paid automatically out of the collateral given by the borrower. 

Wrapping Up

Peer-to-peer cryptocurrency lending comes with incredibly transparent options when it is compared to conventional peer-to-peer lending. Thanks to the transparency and security offered by the technology of blockchain, the procedure of lending and borrowing is a pretty efficient process now. 

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