Dharma, a lending startup, just launched on the Ethereum Blockchain. The application enables lenders and borrowers to be matched peer-to-peer and to establish crypto lending terms through the platform’s smart contracts. Dissimilar from other smart contract situations, Dharma offers a fixed rate return on the crypto that users lend.
Nadav Hollander, the platform’s CEO explained to CoinDesk that the platform aims to ensure that users have a positive experience. He stated,
“There are a handful ways to earn interest on your crypto in a non-custodial manner, pretty much all of those require a high degree of technical knowledge.”
Further, the platform has taken the approach of becoming user-first, instead of developer-first. And the underlying smart contract is open source. According to Hollander, the platform has been facilitating the loan process using a pilot that reaches 2,500 users. Thus far, $1.16 million in principal has been borrowed by 1,575 loans. Dharma COO Brendan Foster stated,
“We see the broader shift to blockchain-based financial services as the beginning of a much more efficient, programmable, and equitable system.”
The platform’s website provides insight into how the system functions. Users are prompted to create an account, which can be done from anywhere in the world. Then, they can send funds from any wallet and the funds earn interest or functions as collateral. Once the funds are sent, they can borrow or earn in a matter of minutes. Better yet, the transactions are described as
As the platform explains, it does not
“touch your crypto.”
Rather, the platform
“provides the means to move it, through this magical thing called the blockchain.”
Generally, the platform requests that users who wish to borrow place up to 150 percent of the value of their loan. Upon being matched with a lender, they can participate in the borrowing process. If the collateral’s value declines below 125 percent of the principal, the smart contract liquidates the borrower’s collateral. This is a risk that borrowers face – called volatility risk. The other risk is a technical one which would arise if the smart contract is written with a mistake. The good news is that the risks are apparently transparent.
One of the issues with the platform is that there need to be more borrowers for things to function properly. Max Bronstein shared with CoinDesk “Although there is a lot of demand for market trading, we think that by making a much more useable interface we will be able to find more use cases.” He also takes the position that ICO startups will be the source of the demand and that they will be willing to accept DAI instead of dollars. And in any event,
“There is much more interest in lending cryptocurrencies than there is in borrowing them.”
Dharma is also subsidizing lenders, in a way. Borrowers are paid 2 percent, and lenders earn 4 on ETH and 5.5 percent on DAI, when their capital is in a loan.
According to Hollander,
“Our approach is to build a non-custodial DeFi product . . . that can be used from any crypto wallet, including Coinbase.” Bronstein added, “We are working hard to allow more optionality.”