Hi guys,
I feel quite strongly that Aada should focus on perfecting p2p loans instead of going for pools. In my mind, pools were only invented on Ethereum because they couldnt do p2p properly. But crypto needs to evolve if it wants to grow further. We cannot keep copying what Ethereum did, especially not when having a unique model such as eUTXO which enables us to create very different dapps.
The tradfi fixed income market works with p2p loands and is one of the biggest markets there is in the world. Bigger than the whole stock market combined. Nobody uses pooled lending in the defi sense in reality, same as tradfi uses order book exchanges and not AMM…
If you look at Aave, there is a big spread between lender and borrower interest. If you want to lend WBTC, you get 0.22% on that while a borrower pays 5.44% at time of writing.
That’s an awfully large spread. What if someone offered a p2p loan to both people for an interest of 3%? The lender would get more interest and and borrower would pay less. Most money in a pool is just sitting around idle.
It seems to me the p2p model is inherently more efficient and pool is more of a legacy thing that will eventually be replaced. I’m really thinking into the future here. Of course currently the pools are more liquid and if you want to short sh1tcoin xy you dont care if you pay 5% or 4% interest. But if crypto will really become a mature financial system, its not going to stay that way.
Having lender requests will be a big step to making user experience of p2p similarly convenient to pool. Fractional loans (filling a large loan with many small lenders) are another aspect. I think it is worth fine tuning in that direction instead of jumping on the pool bandwagon (where there will also be a lot more competition). At the same time create some educational content about advantages of p2p for borrowers and lenders.
Curious to get a discussion on this going. I tried on discord but always fail, it seems the devs are not really reading there.
Cheers.
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Where do you see in tradfi a p2p system? I know of things in the US like Prosper and the like but I consider those outliers from tradfi. Bank of America is taking all their deposits and pooling those assets to lend.
I do feel like P2P is more efficient, but I think most lenders want to dump their funds into a pool and let something else handle the details. P2P would take more work and I think too many are willing to give up the extra they would make for the ease of pooling.
I do think more education is needed on the P2P subject.
I’m hoping to see both in the final product for AADA.
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By p2p in tradfi, I mean all kinds of bonds like government bonds. I agree that pools are seen as more convenient right now but in the end, when the markets mature, the efficiency and better interest rates will beat that. Plus if a big p2p loan request can be filled incrementally by many lenders, it will be a similar experience for lenders.
Extra education I agree with for sure!
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I don’t think convivence will ever stop. Personally I would prefer P2P but I know others coming in won’t understand the nuances of it and will opt for a pool. That’s why I’m hoping we can have both and both are profitable to keep them going until the bull run comes.
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“Fractional” loans as you call them, literally is pooled lending… just in a defragmented mannor… just means when you need liquidity you’re dependent on others to fill it individually rather than drawing on “unutilized” fractional lenders liquidity.
The only benefit is in fee setting, which also creates the issue of not only finding someone with the asset you want to borrow/lend, but someone who also agrees to the terms.
I also noted in your aave/wbtc comparison your quoted the variable lend yield and the fixed term borrow cost, the variable borrow cost is significantly lower.
Incrementally filled requests for large amounts would also have Incremental repayment dates for the borrower right? So fractional amounts on the loan could be due on a continuous basis of however long it took to get the request fully funded… how is that efficient?
I disagree that fractionalized is like pool. It will give higher return for lenders since it is still p2p where all money lent is actually “working” and earning interest.
You could do it like orbis or bonds in tradfi. Have signup period of x epochs where people can buy fractions of the loan and at the end of the period the loan starts or is cancelled (if it is not filled).
I chose the fixed rate because aada also offers fixed rate. So it is more comparable. Variable rate has additional risk involved for borrower.
See my other post regarding orbis and traditional bonds. Tradfi bonds are fractionalized loans. They are offered for a certain total amount, say 100m, and then people can sign up to buy a certain fraction of that.
That would also be good for secondary market since those pieces could be traded in a more liquid way since they are interchangeable exactly.
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Maybe so. The fixed rate would be fixed, doesnt mean it would be fixed at a “fair” rate. You still have to depend on what the borrower asks. I also agree that variable rate is more risky for the borrower too, but, thats the price of doing business… no different to a varable rate mortgage.
I also think this approach you’re thinking of will not do anything to maintain a high TVL in the protocol like pools would.
I chose the fixed rate because aada also offers fixed rate. So it is more comparable. Variable rate has additional risk involved for borrower.
What if the pool’s interest rate is variable but the way the interest rate is determined is based on inflation. For example, the interest rate must always be above 2% of the inflation. Let’s say the yoy inflation for the month of December last year is 4.5%, the pools interest rate must be 5.5% APR for December. So for Dec, borrowers must pay 5.5% divided 365 = 0.015% per day.
Problem here is that inflation data lags. So, at the current month of January we do not know what the inflation is until it is reported in February. So, that 's a question that needs to be solved.
I see this as a kind of peer2peer and pool2peer combination. Pool2peer because lenders are pooling their resources, but peer2peer because the interest rate is independent of how much resources is in the pool. If inflation would just stabilize, the interest rate would also stabilize regardless of if pools have a lot of or very little resources.
Update: this one has an issue, but I have a more sophisticated solution though I need more time to think about it.
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