Status Ethereum DApp Creators Issue #16 - ETHLend

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Stani, wonderful to be talking with you. Can you start off by telling us more about ETHLend?

Hi Hutch! At ETHLend we are developing a decentralized lending market that is accessible for participants from differents parts of the world.

Our aim is to provide more liquidity to local lending markets and to markets where there is less access to finance. Therefore, local borrowers are not solely subject to local banks and peer-to-peer lenders. Instead, these borrowers could request finance from all parts of the world with a single loan request.

Such global lending marketing is achievable with the use of Ethereum Smart Contracts and the blockchain technology beneath Ethereum.

Our vision is to erase the interest rate differences between countries or at least to create an lending environment where borrowers with the same risk level can access to similar interest rates regardless of their location.

Can you tell us a little about yourself? What got you interested in Ethereum?

I am based in Finland, and have been doing research on blockchain technology for the past couple of years. I got introduced first on Bitcoin, when I did legal research on the income tax liability on Bitcoin earnings.

At the same time I started to develop trading bots on Bitcoin and at some point found Ethereum. Ethereum inspired me with the use of Smart Contracts and the concept of digital tokens. This was something that was missing from Bitcoin blockchain. I further researched on whether real life financial contracts could be provided on the blockchain.

I understood that digital tokens could be used as a collateral for a decentralized loan. The former applies not solely to liquid blockchain startup tokens but as well to tokenized property such as commodities, art, shares and other property.

I believe that Ethereum network has lot of potential despite the fact that there are scalability issues that needs to be solved and more importantly the issue of gas. It is important that the gas costs needs to remain low if we want to develop more complex decentralized applications.

You’ve mentioned you’re from Finland, how is the atmosphere there shaping around the new DApps and technologies that you’ve seen first hand so far?

I think Ethereum is getting more interest here in Finland. We have regular meetups once a month and more developers are attending these meetups. The developer community in Finland is quite extensive, however developing decentralized application is not there yet.

I think the year 2018 will change the situation and we might see more projects coming from Finland as well. Blockchain itself is getting lot of attention and it was one of the main topics at SLUSH last autumn, which is the world’s biggest startup event held each year in Helsinki.

What problem does ETHLend solve?

ETHLend solves different problems related to decentralized lending. The main problem ETHLend solves lies in collateral based lending. First, ETHLend provides a market where one can pledge digital assets (ERC-20 compatible tokens) or Ethereum Name Service (ENS) domains to receive finance.

Pledging ERC-20 compatible tokens is an alternative for selling the tokens especially when one does not want to sell the tokens. This might be the case when one does not want to close a token position or the token might be scarce such as family shares or art (concept of tokenization).

Moreover, when two parties conduct a loan transactions and use a collateral there must be a way to handle the collateral without the need for trust. ETHLend provides a smart contract that acts as the loan agreement between the parties. The smart contract holds as well the collateral, without the need to trust a third party provider. In the near future, ETHLend will introduce enforcement of decentralized loans, which might be a killer function — collateral free lending.

Can you tell everyone a little more about how ETHLend works?

ETHLend is a decentralized application (DApp) that is running on Ethereum blockchain network. The DApp can be accessed with MetaMask Plugin which allows the user to connect to Ethereum network via browser, and in the future Status. Currently, any user from any part of the world can place a loan request. The borrower can select whether to use a collateral such as any ERC-20 compatible tokens, ENS domains or launch a reputation based loan request.

Once the loan request is launched, the borrower inserts data on the loan request. Such data is the amount to borrow, days to loan, premium (interest rate) and the token address and amount of tokens that are used. After setting the data, the loan request is deployed on the mainnet. The next step is to place the collateral by sending the tokens to the loan smart contract address. Once the tokens are transferred and a smart contract function is called for verification, the loan request is finalized. Now, anyone from anywhere can fund the loan request.

When the borrower repays the loan, the collateral is sent to the borrower’s address. On the other hand, if the loan is not paid on time, the lender may claim the tokens that are set as a collateral for the loan and realize the tokens in exchange to regain any losses.

It’s interesting that you can use ENS domains as collateral, how does that work?

ENS domain collateral scenario is almost the same as the ERC-20 collateral scenario. The main difference is that instead of sending the collateral to the smart contract, the borrower changes his ENS domain owner address from the borrower’s to the loan smart contract.

Therefore, when the borrower repays the loan, the ENS domain ownership is changed automatically by the smart contract back to the borrower’s address. On the other hand, on default the lender can claim the ENS domain and auction it to regain any losses.

Pledging ENS domains might be a good opportunity for users that have to pay plenty of ETH for the domain and still wants to use some of the ETH that is locked in the ENS domain smart contract. Pledging ENS domains unleashes capital for other uses or for the use of purchasing more ENS domains.

Overview of ETHLend ENS domain process

How do you feel that ETHLend could change traditional loans?

I think that the most cataclysmic effect is that the borrowers are no longer restricted to local lending markets. Therefore, a borrower from the UK does not need to rely on local banks and peer-to-peer lenders. Instead the very same borrower could seek finance with the same loan request from Korea, Japan or the U.S. Following the supply-demand theory, such increase of liquidity should pressure the interest rates.

On the other hand, for lenders such global lending market would provide more finance opportunities with different risk level and the opportunity for diversification.

Moreover, the use of Smart Contracts and Blockchain technology provides more transparent lending and eliminates the need to trust third parties or service providers. Smart Contract provides the way to create transactions that are more resistant of tampering and all transaction within each loan agreement can be followed on the Ethereum distributed ledger.

There is less opportunity for third parties to interrupt such loan transactions. Since all loan transactions are transparent, the market price of finance is easily available for the participants.

What are your thoughts on possible bad actors with ETHLend, how is that problem solved in a decentralized system?

Since ETHLend is 100% free market, there is a risk of bad actors and ETHLend handles such actors with different methods. Within collateral based lending such as ERC-20 or ENS domain loans, there is not much that a bad actor can do.

However, we shall introduce more tools to help our lenders and borrowers to assess the collateral to loan ratio and to avoid funding loans that might default. Therefore, collateral based lending is quite safe when there is a sufficient amount of collateral in place in decentralized system.

For reputation based lending, the situation is a bit different. At the moment, one might only place a loan request once there is repayments on collateral based lending (i.e. history of lending).

We believe that more sufficient tools should be used to avoid borrowers whose intention is not to repay. Therefore, we are introducing within a couple of weeks a new method of that provides the ability to enforce unpaid loans in the real world. Such approach is part of our KYC implementation and the aim for adopting ETHLend for wider use.

ETHLend is working on Ethereum’s main-net already, what has been the feedback so far?

ETHLend launched the Alpha DApp on May 2017. Since then we have improved the DApp and added new features. We even had our first decentralized loan few weeks ago and received 200 upvotes on the Ethereum Subreddit.

We have received lots of positive feedback and also faced with constructive criticism. We were actually happy that we received much attention on Reddit since we have received questions that we have not thought before. Without the feedback we might not be able to produce a fully functional DApp that has wide user base.

I hope that other developers and projects would get more attention from the community. Lot of the discussion on Reddit is Ethereum related, and many seems to neglect that Ethereum is a protocol that needs DApps if we want the protocol to get more around the mainstream.

However, I think once scalability issue is solved, there will be more possibilities for the DApp creators. Currently, it is difficult to develop something that is fully decentralized due to the gas costs.

It makes more sense to use Ethereum for certain functions and leave the other function off-chain. We wanted to create all the functions on-chain due to the fact that we wanted to prove that decentralized lending is possible to achieve.

Do you think ETHLend will ever incorporate Crypto to Fiat lending?

I hope not. I do really believe in puristic decentralized economy where one does not need FIAT currency or the banks at all. However, I am realistic and do acknowledge that such crypto economy is not even near within the next 5 or 10 years. Therefore, crypto to fiat lending might be something that we might need to get into.

On the other hand, we are introducing later this year FIAT-pegging, which means that the borrower and the lender may agree to tie their ETH loan to a FIAT currency such as the USD.

Therefore, the borrower would borrow 100 USD worth of ETH and return 100 USD worth of ETH plus interest. Such loans would avoid the volatility risk and come practical when the loan is paid back with FIAT earned income. Here we are actually using ETH and Ethereum as a method to transfer funds quickly between continents.

What do you see for the future of ETHLend?

I think the future for ETHLend looks promising. We have already come along so far and have on-going development on the DApp. Our aim is that our DApp would be the to go product when one looks for finance beyond the local offerings.

To achieve this aim we might need to add some centralized functions such as KYC and fraud prevention. However, we think that we should not emphasize too much on presenting on how far the blockchain technology could be used. Instead, we should pick the best of the decentralized and centralized environment to provide the best user experience for our future DApp users.

What is the next biggest milestone planned?

The next biggest milestone is on the end of December 2017 when we implement the FIAT-pegging and instalments on the DApp. The milestone is very important for the adoption of the DApp since being able to tie the loan value to a more stable currency provides the opportunity to widen the use-case to a wider audience. This is due to the fact that repayment with FIAT earned income is not subject to the volatility.

Previously we have achieved many milestones including ENS domains pledging and reputation based lending. Now our development resources are focused on the upcoming token sale and the development of the token sale smart contract.

However, once we get past the token sale period we have many incredible functions that we are adding to the DApp. We also hope to attract more developers to our team which our project would benefit from.

How can the community help and get involved?

The community has helped us a lot by so far. We have received lot of feedback and suggestions on how the DApp should be created. Moreover, it is not just the Ethereum community that is fueling our project. There are startups, angel investors, p2p-loan experts and professionals from the banking industry who have provided us much of the information that we are currently using. I actually hope that the Ethereum community would consist of variety of professionals who could could contribute on the DApp projects.

Of course, we think that much more support is needed from the Ethereum community. There are lot of smart people on Reddit and Ethereum forum that could assist with our project. The more feedback we get, the more likely ETHLend becomes mainstream. Anyone that would want to join our project can just start a discussion on our Reddit or join our Discord.

I feel like the community is a good way to test whether an idea will fly. So far we have done pretty well, but much issues needs to be solved before we have a fully functional global lending market.