The lending market does not provide very well for the modern-day needs of average people nowadays. Checks are too rigorous, and loan terms are far too rigid. There is a need for short-term lending, but the options out there at the moment – payday loan companies and pawn shops – offer hugely elevated interest rates and are high-risk. Lendroid, however, are leveraging blockchain technology not just to remove that risk, but also to offer short-term capital-based lending to everyone.
A Matter of Collateral
The way it works is multi-stage. Lenders and guarantors (who are holders of the Lendroid token LST) work together to establish a loan offer, with 20% secondary collateral in the form of LST tokens. This is a requirement. In exchange for the guarantor offering up the secondary collateral – in effect a slight risk – they receive a share of the offered interest back once the loan has been fully repaid. This is all well and good, but what happens if the borrower cannot repay the loan? Take a look at the picture below.
Put simply, if the borrower cannot repay, the first stage is to liquidate the primary collateral, then the secondary collateral in the form of the guarantor’s LST tokens. What remains is split amongst lenders and guarantors unless there is not enough collateral to do so, in which case all losses are proportionately spread across all lenders. Obviously, this means that there is some risk, which is unavoidable. But then, there is no obligation to be either a lender or a guarantor, so you can make the checks you need. And of course, a non-payer is far less likely to be able to use the platform again.
The genius is in the flexibility. Borrowing terms could be anything, interest amounts are set by the lender or lenders (as many lenders can join together to raise the funds requested by the borrower), and virtually anyone can lend or borrow any amount, as long as the primary capital is there. This could prove extremely useful for the thousands of people out there who need to raise short-term funds with no notice, but may be either rejected by a bank because of a credit rating that doesn’t take into account the existence of capital, or simply because the length of the term does not represent an attractive enough money-making opportunity for the lender.
The Lendroid public token sale runs from the 19th-23rd February. The pre-sale was extremely successful, so if you’re interested, you’ll need to get in quickly before they all sell out.
Would you use a platform like Lendroid? Let us know your thoughts in the comments section.