The Cardano ecosystem is preparing for some massive changes in 2022. As per the latest announcement, AadaFinance, a peer-to-peer lending protocol on the Cardano ecosystem, will launch the first version of the protocol in May, effectively enabling P2P lending on the Cardano platform. The development could soon see Cardano rub shoulders with the likes of Aave and Compound, both of which have an early movers advantage.
Crypto P2P Lending – How It Works
In theory, crypto P2P lending platforms aim at replacing the age-old lending system which suffers from high fees, varying interest rates, and longer approval times.
By using blockchains and smart contracts, crypto projects can rebuild the traditional lending process and cut out the middlemen, effectively reducing costs and increasing efficiency.
The process normally consists of 2 components – the lender and borrower (and a guarantor in some cases). Cardano’s lending process details that a borrower first creates a request and deposits collateral into a smart contract. The lender funds the loan via the smart contract, after which both parties receive a non-fungible token. The interest rate at which the loan would be re-payed is also set in the smart contract. Once the loan is repaid, both parties return their issued NFTs within the smart contract.
Crypto P2P projects are not a new concept. The likes of Aave, Compound, and MakerDao have built their successes through the new method of lending, with each having phenomenal price performances in 2021. The future also looks bright, with market data compilers Business Wire suggesting that the crowdfunding market would grow by $240 Billion during 2022-2026, led by blockchain technology and niche crowdfunding platforms.
Cardano – New Competitors?
An entry into the budding lending space can open the doors to further price progression for ADA, but Cardano would have to compete against some well-known projects.
For instance, Aave, Compound, and Maker have been active in P2P lending since 2017 and 2018. Although Cardano’s current market cap of $40 Billion far exceeds its soon-to-be counterparts, appropriate reserves and safety measures would have to be maintained to emerge as a better alternative. Cardano would also have to ensure attractive interest rates and minimal collateral requirements to encourage selling and lending on the platform.