Advancing P2P Lending with Blockchain Technology

Privatized Capital A TradFi/Defi platform will be the world’s first blockchain-based lending platform that offers unbankable and low-income people access to ethical and affordable short-term loans. Privatized Captial focuses on helping vulnerable and underserved borrowers get back on their feet by providing an alternative to parasitic PayDay loans.

Problem Statement

Payday loans are typically small, short-term loans that must be repaid within a few days or weeks. However, these loans' high-interest rates and fees can make them difficult to repay. As a result, many people take out another payday loan to pay off the first one, creating a cycle of debt that can be very difficult to break free from.

Vision

Blockchain protocols are the perfect solution for P2P lending, as they provide a fair and transparent way for borrowers and lenders to connect. Decentralization eliminates the need for parasitic intermediaries, often charging high fees and taking advantage of borrowers. With blockchain, P2P lending is more efficient, fast, and secure. Tokens reduce default rates by incentivizing borrowers to repay loans while encouraging lenders to maintain liquidity. Tokenization also allows for the creation of smart contracts, which can automate the loan process and help ensure a timely repayment.

Digital Asset Rights / Demand Drivers

Privatized Capital would augment/replace its current rewards/point system with a utility token based on the Polygon protocol. As borrowers repay, they earn staking rewards. Privatized Capital will also create a pool token via MATIC to incentivize lenders to supply liquidity. Both parties would leverage smart contracts to earn interest and staking rewards for participating in the community.

Digital Asset Supply

Asset supply is a crucial driver of value for digital assets. Staking can help increase asset supply by making buying back and holding tokens possible rather than burning them. Buybacks can also help stabilize an asset’s price by increasing demand and reducing supply. Buyback and Make is an alternative to burning tokens and uses an automated market maker (AMM) to keep the financial benefits of buybacks and issuance without the drawbacks of burning and without perpetually increasing token supply. We deploy a protocol treasury implemented as a network-owned stabilizer that serves as an automatic buyback machine, token issuance pool, and liquidity provider.

Protocol Selection

Polygon is a layer-two scaling solution that offers excellent functionality and uses sidechains to achieve almost 65,000 transactions per second. It can be called an improved version of Ethereum with more advanced features like smart contracts and oracle solutions for legacy financial systems integration alongside new-age ones such as decentralized applications construction kits (DApps). More secure due to the results of the validation system, the unique design of Polygon allows the protocol to scale with the increasing volume of transactions, providing a similar experience to Etherium .

Smart Contracts

Privatized Capital will generate smart contracts between borrower and lender to facilitate the lending transaction. Smart contract technology eliminates intermediaries, provides finality, and removes underwriting bias. Smart contracts also give greater certainty and transparency around the loan terms, making enforcing them easier. Smart contracts will also distribute and manage the native token for liquidity and repayment incentivization.

Stakeholder Adoption Incentives

With Privatized Capital, both “Members” (those receiving advances) and “Investors” (those funding advances) participate in an app community that places a high value on the sharing and celebration of small acts of good character (called “Achievements” in the PVC app). Investors who actively participate in the app community by sponsoring members (those they believe are a reasonable risk) are called “Sponsors.” All Achievements in the app community are gamified via a points system, allowing participants to level up and gain status. Community members have collectively earned over 1 million PVC points and will be able to unlock the value of these points when we launch our reward token.

Member Benefit: Access to deposit advance to help pay for groceries, rent, and utilities; earn reward token for doing the right thing. Cost: Donation/tip paid for in advance; time committed to community

Investor

Benefit: Earn high yield while helping someone in need. Cost: Lock up liquidity

Sponsor Benefit: Earn a reward token for betting on those they think will do the right thing. Cost: Time committed to the community

Since we already have an active digital marketplace and community where all three of these stakeholder groups are performing these activities with fiat as the basis, the primary impediment to adoption could be the perceived value of the digital asset to the Members since they have had much less exposure to crypto than Investors. However, if we can get the flywheel to start spinning early and they can see the value of their digital asset begin to take off, this should be easy to overcome.

Systemic Risk and Regulation

The SEC is taking the lead on enforcement regarding DeFi and tokenized Dapps. Unlike on-chain lending, the crypto2fiat component of these transactions differentiates them from the current zeitgeist of collateralized defi lending. The TradFi characteristic of these loans could grab the attention of State and Federal consumer protection agencies and lending regulators. These agencies protect consumers from fraudulent or abusive behavior in the financial sector. But with the rise of DeFi, there is a new landscape to consider. And while many in the space believe that self-regulation is sufficient, it’s clear that the SEC is paying close attention.