P2P Lending in the technological sense is a relatively new phenomenon. In the early part of the millennium, a few P2P marketplaces began to spring up in the U.S. offering (at times) high-risk, high-reward loans. One example of this started around 2005, prosper.com. They had to overcome a number of hurdles and even faced a class action lawsuit in 2008. There were others like TrustBuddy that went out of business completely due to misconduct. As of June 2012, Lending Club is the world's largest P2P lending marketplace.
These P2P marketplaces have some interesting characteristics, these include:
- Sometimes for profit
- No necessary prior relationship between marketplace lenders and borrowers
- Transactions take place online
- Loans can be unsecured or secured and are not normally protected by government insurance
- Potential for faster finance times
- Ability to circumnavigate some regulations like CRA
- Loans are securities that can be transferred to others for debt collection or profit
P2P Lending is more active abroad.
In non-U.S. based circles the activity in P2P lending has been considerably more active. China is estimated to have the largest and most active market with more than 4,000 providers. This has led some of the largest in the space to take a harder look at blockchain technologies.
Large P2P Marketplaces are evaluating BlockChain
During the discussion at Distributed, the panelists were asked if blockchain would even be a good fit in this space. It was generally accepted that from a contractual perspective it was. It appears some large P2P marketplaces are taking notice. China-based Dianrong has begun to integrate an application they are calling D-Chain for greater transparency and security on both the borrowing and lending side. We can see from their D-Chain image below how P2P based activities integrate to the blockchain.
P2P Lending is a new market and is high-risk. Working with bleeding edge technology in a high-risk space may not make sense. Speed to finance appears to be a great issue to tackle in blockchain P2P finance at first glance, but this really may be a better issue for blockchain to solve on a more traditional instrument, like residential loans that generally take 3-9 months to complete the transaction.
The convergence of P2P and blockchain at first glance seem like a natural fit, under the covers, there may still remain a number of challenges that will need to be addressed.
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