Dharma Protocol
What is it?
Dharma is an open-source protocol for peer-to-peer lending built on top of the Ethereum blockchain. Unlike existing online lending solutions, Dharma connects lenders and borrowers through free, open-source software, without relying on a heavily regulated middleman to broker the transaction.
Why is it valuable?
With nearly 2 Billion unbanked individuals rapidly coming online, lenders around the world are unable to service international loans to a large, credit-hungry market due to the massive regulatory hurdles associated with operating a cross-border lending platform. Dharma creates a means for facilitating cross-border loans without relying on a centralized brokerage platform — borrowers and lenders are connected directly to one another through peer-to-peer software, effectively erasing borders from the traditionally regionalized credit market.
How does Dharma work?
The Dharma Protocol is divided into three layers:
The Loan Layer, the Origination Layer, and the Risk-Assessment Layer
Loan Layer
Loans in the Dharma Protocol are individual smart contracts that implement a superset of the ERC20 token standard known as the Dharma Loan Standard (DLS). They are responsible for storing the terms of the loan, facilitating the crowd-funding of the loan, pro-rating loan repayments to loan investors, and allowing investors to transfer their stake in the loan to others.
Origination Layer
The function of the origination layer is to match lenders to borrowers in a decentralized manner. An example of an origination layer client is the Dharma Loan Browser — a free, open-source application that allows borrowers to broadcast loan contracts onto the Ethereum network and gives lenders a tool for browsing through, investing in, and managing a loan portfolio.
Risk-Assessment Layer
Loan contracts adherent to the Dharma Loan Standard are required to expose a publicly auditable, signed attestation from a Risk-Assessment Attester (RAA). An RAA is a centralized entity that, for a pre-defined percentage of the loan principal, assesses and attests to the veracity of a borrower’s identity and credit-worthiness based on his borrowing history both on and off-chain.
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(This project is still in its early stages, though it is definitely one to keep an eye on.)