Dharma Protocol relaunches the platform

Dharma Protocol

Dharma, the Ethereum-based peer lending platform you are removing your existing product and instead focus your efforts to build a new platform connected to Compound.

Developing in Compound is amazing, since Dharma and Compound they were apparently competitors in the loan space decentralized, both competing for volumes and liquidity.

The pivot comes after months of growth slowdown in Dharma. The origination of loans fell from 6.9 million dollars in April 2019 to only 1 million in June, according to data from Loanscan.

And despite a solid rebound in July, on August 7 the entity based in San Francisco announced that it would pause new deposits and Loans on your platform. Meanwhile, Compound has seen originate increases in its platform of 12 million dollars in May to 43 million in July.

Solving the delay problem

Similar to version 1, Dharma “Version 2” also will allow loans and loans at fixed interest rates, although To begin, it will only offer loans. However, instead of offer a platform based on their own smart contracts owners, Dharma users will take advantage of the group of Compound liquidity. This allows an “equalization instant “, with lenders that earn interest immediately when depositing.

In fact, the lack of instant matching has been a complaint important among Dharma v1 users since lenders to they have often faced long waiting times before being matched due to lack of borrower demand, getting lost the accumulation of interests. With interest rates for stable currencies currently around double-digit APRs, this delay leaves money on the table for users.

Dharma Underwritting

Here comes the exchanges

Even so, Dharma v2 is not as simple as the users that interact with the Compound liquidity group through a intuitive interface.

As Compound issues variable loans, Dharma will serve as intermediary, issuing interest rate swaps to maintain loans issued through the liquidity reserve of Compound fixed at a certain interest rate.

For example, if compound variable loan rates currently offer an annual percentage rate of 15%, Dharma You could pay a flat rate of 10%, which is attractive for people who want a guaranteed rate during a period of longer time, which bag the differential of 5%.

Of course, there are many scenarios in which the rates of the industry change against Dharma’s favor: if the rates of Compound loans suddenly drop to 5%, Dharma will lose the 5% of the value of the loan.

Brendan Forster, co-founder of Dharma, said that while there is no hedging mechanism to compensate for that rate risk, the company has brought people who have experience in structuring swap instruments and trust that it can run so efficient.

A market commentator said Dharma’s decision to moving to the swap creation space can be turbulent considering the lack of understanding of the industry regarding main driving forces of rates and, simultaneously, the natural development of secondary markets for swap rates interest, which may put a price outside the monopoly position of Dharma.

“I don’t understand how they can 1) set the price of these swaps correctly 2) compete against market forces, “he said person. “It is surprising that they have not learned from lessons of Version 1, where they tried to fight the market and finally the market won. ”

Dharma hopes to eventually monetize its platform through origination rates and / or spreads in swaps. Unlike Version 1, will not subsidize rates for borrowers and lenders.

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