The P2P lending sector continues to drive adoption in the DeFi (Decentralized Finance) market. These unique protocols streamline the lending process and provide the community more flexibility, transparency, and opportunities. Today, P2P lending protocols are more popular than ever, and for good reasons. Here are the top 10 lending protocols you need to know in no particular order.
Advantages of P2P Lending
There are a lot of reasons why P2P lending is on the rise. These systems eliminate the need to ask the bank to borrow funds and streamline the process. Borrowers gain more flexibility, and in some instances, the DeFi rewards help to offset payments or late charges.
Lenders have much to gain from using P2P networks. Crypto users can be the bank, take their unused assets, and lend them out to secure interest. Notably, the structure of these systems uses large liquidity pools, which reduces the risk to the lender and improves the ROIs.
Aave is a popular P2P platform offering users added security via its non-custodial and open-source protocol. The network entered the market in 2017 as ETHLend before rebranding. Stani Kulechov is the company's founder, and the network is registered in London.
Aave is an ERC-20-compliant system that leverages a dual-token strategy. Aave is the utility token used as collateral and to access network features, whereas LEND is the governance token. Notably, you need to over-collateralize your loans to borrow. This structure protects the network's solvency. Additionally, lenders gain the benefit of compounding interest when using Aave.
To learn more about this project, visit our guide to Investing in Aave.
Maker has been a long-time competitor in the P2P lending market. The network went live in 2015 and has seen considerable adoption since its launch. Today, Maker provides top-notch flexibility, and its unique collateral lock system reduces the counterparty risks associated with lending.
Maker users borrow DAI stablecoins, which are pegged to USD. Additionally, the MKR token is the main utility for the network. Notably, Maker supports the use of +20 ERC-20 tokens as collateral at this time. One of the most unique aspects of Maker is that the collateral tokens secure rewards, which can offset any delays in paying off the loan.
To learn more about this project, visit our guide to Investing in Maker.
Compound is one of the pioneers behind lending liquidity pools. These large interest-bearing pools allow borrowers and lenders to enjoy more flexibility and less risk as the rewards help buffer any default. Compound has been in operation since 2018 and has undergone multiple security audits.
The network uses the popular over-collateralization setup to help ensure solvency and offset losses. Compound supports a nice selection of digital assets and is ERC-20 compliant. Those seeking a reliable and proven P2P network should take a moment to check Compound out.
To learn more about this project, visit our guide to Investing in Compound.
Solend is the only P2P lender on this list that lives on the Solana blockchain. This designation provides the network with high performance and scalability. Solend users can borrow and lend out their tokens to secure rewards. The structure enables you to provide liquidity to pools to secure returns.
The returns are paid to the network from borrowers. The borrowers take loans from the liquidity pool after collateralizing the network. Solend relies on the SLND token as its primary utility option. Users can save on fees and secure rewards using SLND. Notably, Solend is the premier P2P lender in the Solana ecosystem currently.
To learn more about this project, visit our guide to Investing in Solana.
Alchemix pioneered the concept of self-paying loans. The network requires borrowers to collateralize their loans. It then takes these funds and uses high-paying yield farming pools to generate rewards. These rewards are used to pay the loan back automatically. To accomplish this task, your interest gets tokenized.
The network leverages ALUSD tokens that represent lenders' farming potential. The yield farming returns automatically chip away at the loan debt. In the end, the interest paid on the collateral of the loan pays off the loan. This method is ideal because it means there are no payments to be made.
You simply provide collateral and wait. Once your rewards are enough to pay for your loan, your collateral is released. This style of self-paying loan has become more popular in the market. When using this type of lending protocol, the main thing to consider is that your collateral asset needs to not lose lots of value or your collateral will be sold to prevent future losses.
To learn more about this project, visit our guide to Investing in Alchemix.
Fulcrum takes an original approach to P2P lending with the introduction of iTokens. These unique digital assets are issued to lenders upon depositing funds. iTokens provide a host of benefits. They improve trackability and provide interest to the token bearer. Notably, Fulcrum requires borrowers to over-collateralize their loans.
Fulcrum is ERC-20 compliant, which means users enjoy a high level of interoperability using the system. It also serves the Polygon and Binance Smart Chain ecosystems. This multi-network approach improves liquidity by opening the door for more users. It also demonstrates the system's desire to remain versatile in the market.
Instadapp takes a different approach to lending digital assets. This platform entered service in August 2018 as a smart wallet portal. The network's founders, Samyak Jain and Sowmay Jain, envisioned a system that could help lenders get the most from their efforts. In this way, InstaDApp acts as a lending protocol aggregator.
The network leverages a smart wallet interface to streamline user borrowing and lending. InstaDApp provides borrowers with some of the lowest rates at this time, and there are other features that make it possible to secure additional rewards. You can swap and even leverage your positions, which makes this system ideal.
San Francisco-based lending protocol dYdX entered the market in 2018 as an inclusive DEX. The network's founder, Antonio Juliano, wanted to create a high-performance DEX that offered access to the most advanced DeFi features of the time. Today, dYdX users can borrow, lend, and trade various assets.
The open-source DeFi network supports DAI, ETH, and USDC at this time. Recently, the network expanded its feature set to include advanced options such as margin trading. In addition to the network's P2P lending system, which provides a reliable and audited option for users to consider.
To learn more about this project, visit our guide to Investing in DYDX.
9. Dharma Protocol
In 2017, Nadav Hollander founded the Dharma Protocol seeking to connect borrowers and lenders directly using blockchain systems. Today, the network is home to a community of lenders, borrowers, and fund managers. The platform helps connect borrowers who meet the criteria for loans autonomously.
The Dharma Protocol is responsible for ensuring that the loan defaults don't harm the network. The system automatically scans loans and integrates a host of liquidation systems if the collateral falls below the threshold. This method protects other users and ensures that lenders find the right borrowers for their options.
The bZx DeFi network uses two tokens to help lenders and borrowers connect securely. The network has a lender fee of 10%, which is comparable to other options on this list. Crucially, the lender has been in operation since 2018 and was founded by Tom Bean and Kyle Kistner. Now, bZx users enjoy the benefits of an active ecosystem and proven lending strategy.
P2P Lending Platforms – Concerns and Considerations
The P2P lending revolution is not without its growing pains. The market has seen considerable expansion. Alongside this growth have come some risks and concerns that every P2P user must think about. These issues vary per protocol but should remain at the top of your list whenever using P2P networks.
Hackers have shown interest in attacking P2P lending protocols. The main reason why they make a good target is the use of large lending pools. Anytime you gather users' funds together, it makes a big target sign for nefarious actors seeking to gain access to the funds. Recently, Tender.fi had $1.59 million in tokens stolen by a white-hat hacker.
The term “rug pull” refers to the developers' sudden closing of a platform. In the early days of P2P lending, rug pulls were an issue as some shady developers wanted to access the lending pool funds. Thankfully, sticking with reputable platforms like the ones listed will reduce these risks.
Regulators have had their eyes on the P2P lending sector for quite some time. There are some who believe these networks require much more regulatory oversight to operate. This desire could end up muddying down innovation and make these platforms less attractive to traditional firms.
Top 10 P2P Lending Platforms that are Making Changes
All of the networks on this list provide users with direct access to funding and reward opportunities. The DeFi P2P lending movement is constantly innovating to meet the needs of the community. As such, you're sure to find an option that fits your needs and budget when using the top 10 P2P lending platforms in the market today.