Bitcoin Forum

I did search in here for 'P2P lending' and 'lendingclub'  but found no mention of what I seek...

Has anyone made a P2P lending site, like lendingclub.com, which accepts BTC loans?

Such a site would use regular credit rating info as well as BTC credit history to support personal loans of BTC between members....   I'd think something like this would already exist?

If so, please point me to it.  If not - how hard would it be to start such a site?  Perhaps there is P2P-lending clone software for purchase which could be adapted to use BTC...?

Well the closest that im Aware of is the IBB (Islamic Bitcoin Bank)
They do 0% intrest loans. But it's not p2p

P2P Is far too succeptable to scamming. Why? Well shit, Anyone can Whip a scam out when they have Inflated rep (lots of fake accounts doing "buisness" with an account

Scamming? Actually, the default rate on lendingclub.com is only 3%.   Personally my ROI ion LendingClub is about 14%, it's just a matter of judging risk given the provided information, just as any loan officer does - but without intermediary, rather with technology as intermediary.

The technology for feedback, social proof, etc is fairly mature at this point and it's not cost-effective to try scamming well-designed and established sites.   

The easiest entry point for BTC would be if an existing P2P site decided to start supporting BTC... otherwise there would be a startup hurdle of attaining critical mass...

Oooookay so i've totally missed the point.

Why in the heck do you need P2P lending if there is a site that manages rep within those p2p trades.
Sorry but I've got nothing but redflags being tossed all around in my brain.

Mr. Rabbit -

The point is, you'd earn interest... from a distributed pool of risk-managed sources, at higher rates than can be paid by traditional banks.  And you can borrow at lower rates similarly.    In an unregulated environment, possibly.

One question would be whether a P2P loan marketplace could actually operate anonymously, like silk road does... in which case it could be even more efficient.  However I think even LendingClub, prosper.com, and similar sites provide a collections service to keep the default rate low, and that would quite limit the ability to be anonymous. 

Still... I'm just curious why I havent found anything on this yet as the connection between what is possible with  BTC and also with P2P loans seems a bit obvious to me.

Risk distribution.

Say you (and 49 other people) have 200 BTC to lend.
Say 50 people want to borrow on average 200 BTC.
You could lend 200 BTC to one person (either you profit or lose everything) or you could lend 20 BTC to 10 people (if one or two defaults you can still come out ahead).

To the OP:
The reason lendingclub can control defaults is:
a) identitiy verification
b) credit report verification
c) reporting to credit agencies
d) selling bad due to collection agencies

none of the infrastructure exists for Bitcoin.


....


You answered your own question.

D&T

None of the infrastructure exists, but could be adapted from dollar-based sites... if you're not supporting anonymity, why not? 

One of the issues faced by the P2P companies in the formative phase of that industry was regulation...
they didn't clearly qualify as 'banks' and began operating in a legal grey area, but were eventually subject to some amount of SEC compliance rules, so one question I have is whether the existing banking laws would cover P2P loans of BTC on such a service...

There is a HUGE costs, regulatory overhead, and legal compliance issues.  You can't just write to someones credit report without a lot of red tape, and regulation.  Getting the ability to do that requires an above the board entity existing in the US, subject to US banking and securities regulation.

If you are going to do all that (i.e. millions in startup capital and months to get everything aproved why would you support the quasi-legal Bitcoin market which is almost so tiny as to be nonexistent.

The only way to find out is with some legal counsel and a lot of money.    You aren't going to have access to collection agencies, identity verification services, ACH network, creport reporting, etc without "playing nice" with a lot of very big, very bureaucratic entities.

Any luck finding a lender?

D&T - "why would you support the quasi-legal Bitcoin market which is almost so tiny "

For the huge potential growth opportunity, same reason most risky startups get funded. 
If you could attract a tiny fraction of the huge p2p-loan market, you'd be going from 'almost-nonexistent' to .. .well, many times that!

The idea is that such a marketplace could have greater efficiency by exploiting the cost-efficiency of BTC.

If I recall, in the early phases of the p2p lending space, the companies managed to get started and gain lots of traction before they ran into SEC issues... and were able to thrive despite those hurdles. 

As per earlier conjecture, what if you could build a parallel infrastructure that relies on its own feedback / social proof, credit-risk mechanisms?  ebay, amazon, and silk road all do this... you can buy & sell virtual goods (think of BTC as universal virtual goods not currency... ), buyers&sellers establish records that are hard to fake, etc... it's not perfect but neither is Visa.

Maybe an  interesting question is whether one could legally lend/rent virtual objects in an existing marketplace like ebay..? 

So correct me if im wrong here, But your complaint about the services that are avalible, Is the fact that they have a Minimum %?

In the event that i am wrong, Here is my second guess, If i am wrong here, then i've got no aim and i shouldnt be here.
This post reffers to the Embolded text:

I having a hard time wrapping my head around what you want, In my head What your saying is "I want to Directly Loan to, And recieve Loans From other bitcoin users, Whilst at the same time, Leave feedback"

This can be achieved (and i do it all the time) By going into the Bitcoin-OTC, Users are all Verified and Majority of transaction are Logged Via user Posts
http://bitcoin-otc.com/viewratings.php
http://bitcoin-otc.com/viewratingdetail.php?nick=DingoRabiit&sign=ANY&type=RECV <--My rating, Showing that i have done a Loan in the past Via the OTC.

Now i understand that the OTC is not what you desire,
 I THINK, What your asking for is a "P2P Tracked Lending Specific Service"

You are correct, That does not exsist, Because So far, There is not enough "market" to operate in.
On another note, That "lending market" Is highly dominated by IBB, So if your going to make an attempt at a Tracked P2P Direct Lending program.
Goodluck.

Respect for helping me understand BitCoin better  ;D

I'm thinking of a variation to this.

This idea is for something similar to a pawn shop, where bitcoins are committed as collateral towards a cash (fiat money) loan.  To borrow $100 USD cash the borrower puts up some amount, say $120 worth of BTCs, for instance.  This can be P2P where the USD funds (or whatever currency is used) for the loan occurs from an individual lender or small pool of lenders.  A loan servicer operates in the middle and holds the BTC collateral -- essentially the servicer is just an escrow.

If there is no repayment or only a partial repayment, then the bitcoins are liquidated by the servicer as needed to make the lender(s) whole (and cover liquidation fees).

The value to the borrower is that instead of selling bitcoins outright to raise cash, instead those coins are used as collateral and if the value rises the borrower does not lose that increase in value.  Of course, if the Bitcoin exchange rate drops the possibility increases that the borrower will default.  Because it is trivially easy to liquidate, the lender only loses if the price drops below the value of the collateral, and even then the losses should be marginal unless the Bitcoin value really tanks.

Of course, this method has a slew of hurdles.  In the U.S., pawn shop laws in certain states require notifying the customer before you can liquidate for instance.  There are lending laws that this approach doesn't match well against either.  Perhaps the way to do this is to run the escrow service from a jurisdiction where this can be done.  

The problems include how to handle the case where the lender sends funds (e.g., PayPal USD) to the borrower but the borrower claims to have not received them (or they are frozen).  This can be the result of attempts to defraud by either the lender or the borrower, or as the result of human error.  As a middleman though, the servicer has no access to the PayPal (or other payment intermediary) transaction info.  By having the service transfer the funds makes the service vulnerable to monitoring and eventual negative attention that might arise.

Repayment of fiat to the lender is probably a little easier if centralized (i.e., can go through the servicer) as that can occur entirely within the jurisdiction where the servicer operates.

In the (hopefully) normal situation where the borrower makes repayment in full the collateral returned to the borrower are in bitcoins (a non-reversable transaction) so the borrower's repayment needs to be made in funds that are just as secure.  Perhaps the borrower acquiring Mt. Gox codes (through BitInstant, as one method) would meet this requirement.

Another concern is how can the lender trust the servicer with the collateral held in escrow.  Perhaps a certain amount of the collateral can be held by the lender until the fiat funds of the repayment have been secured by the servicer.

If this were used widely it could affect the bitcoin value in a few ways.  It will lock up bitcoins as collateral that might otherwise be sold on the open market as an immediate response when the price drops.  On the other hand, if the value drops for an extended length of time and the loans default the liquidating of the collateral will push the price down even further.  Perhaps options or other derivatives fit in somewhere to lessen these risks.

Any thoughts on this?

OK JackRabbit,

I'm not complaining about existing services, I'm not even sure what exists - since I'm a newbie, trying to learn about potential markets for BTC etc. 

But thanks for the pointer to that 'web of trust' - yes, it's that sort of thing which could be incorporated as a component to reduce counterparty risk in a loan marketplace.  There are doubtless other mechanisms which could be used to improve performance, short of Credit Reports and Collection activity.

I guess what I'm thinking is that if you could create a marketplace for (distributed) borrowing and lending that was international, reasonably reliable, and offered better interest rates than banks - there's a demand for that, by definition...and there's likely a way to create such a system by adapting existing P2P lending technology.     

So I'm curious to hear speculation on how existing regulations might actually apply, since BTC is not recognized as legal tender for debts by any country, yet can be exchanged internationally and exchanged for currency.


thanks.

So I borrow $100 for a few months. If BTC price goes down by 20% or more, I just keep the dollars. If it doesnt go down, or not enough, I repay the loan. Bitcoinica is for suckers, your system is far better.

Well, I pulled that 120% collateral percentage out of the air.  The actual collateral percentage, interest rate and maximum duration of the loan would be based on market forces.  If no lenders are willing to lend to a first-time borrower at 120% collateral on a 36% APR, fifteen-day loan (to pull a more complete example out of the air) then an adjustment to one or more of the criteria would be made until a willing lender is found.  Of course, if you as a borrower wish to borrow again and get the lower interest rate, lower collateral requirement or longer loan length then you'll probably want to repay the loan even though you would be underwater on it.

At the same time perhaps people Would do that in hopes of the Oppsite happening for them, In thier favor.

So whats the closest we've got to such a thought of place guys? ____________________<-link me

SG, P4, JR

If you want to hedge against rise or drop in BTC value of your holdings, if I understand you correctly, options contracts will do the same thing...  I don't see the reason for all the other stuff...?

So from what I'm gleaning so far, a P2P-lending system based on BTC does not yet exist, nor has much thought been given to how one might work, despite the usual bars to entry such as startup cost and possible regulatory hurdles. 

Still, BTC itself was created with no regard to regulation and is now functioning as a primitive international monetary exchange, is it not?  What is the total size of the BTC economy currently, which sites track that kind of thing??

Just who would loan if he has more than the loan's principle in liquid assets? Its like loaning $100 and giving $150 in collateral.
 ???

Are you asking who would borrow under those terms?  A pawn shop user goes in with a diamond ring that cost $2K brand new, learns that the street value is $700 and can borrow $350 (50%) against it.  So that person is putting up $700 of collateral in order to borrow $350 cash -- at a high interest rate level to boot.

The key concept is that the borrower still owns the bitcoins.  If they go up in value, the borrower keeps those gains.  This technique is used by the wealthy as well:

Even art can be used as collateral according to their list.  It's a [bailout-backed] pawn shop for multi-millionaires!

 - http://www.privatebank.citibank.com/our_services/individuals_families/financing/lending_services.htm

I did say liquid assets. Diamonds or art are not. Let me rephrase my analogy; why would you give 100 euro in collateral for a 100 dollar loan? Are you then loaning or speculating on currency exchange rates?

I suppose it is a little of both.  For the borrower that takes out the loan with the intention of repaying it in full regardless of the value of the collateral,then this is simply a loan using other property as collateral -- nothing more nothing less.  This could be used for speculation, though I suspect the interest rate would not be minimal for this lending service and as a result, there would hopefully be cheaper methods specific for exchange rate speculation.

One difference here is that transaction costs for selling art or diamonds or even shares of stock would be much higher than for selling bitcoin...  but I guess you are asking if it makes sense to establish a marketplace for collateralized bitcoin loans, business loans, etc.??

It seems like the hedging function is a separate matter - the value of any currency or collateral might vary over time, and there are established means of hedging against volatility using derivatives. 

Has anyone created a market for bitcoin derivatives yet? 

But back to my original question  ;D  Perhaps here is a clearer way to ask it, given the discussion:

What would stop someone from making agreements to loan each other fungible items (real or virtual items) and earn more of the same in interest?   

BTC is such a fungible item - but it hasn't been declared a currency; it's not regulated.  Correct?

Also, there are ways of assessing risk between counterparties that do not rely on traditional mechanisms of updating credit reports, etc.  There's social networks, transaction history, etc...  and per the recent comments, one might also require collateral so the market would support secured as well as unsecured loans.

The distributed nature of P2P lending seems to be a better match for the way BTC works than to require some kind of centralized bank - distribute the risk and let individuals choose their own risk/reward blend.

So why couldn't someone adapt existing P2P lending technology to create a P2P lending system based on bitcoin?   You want to loan out your bitcoin and have it gain interest - the system helps you pick the best borrowers; riskier borrowers pay higher rates and will typically default more.
Perhaps you prohibit riskier borrowers based on their credit ratings.

Such a service might be mostly virtual, if it didn't have to deal with onerous regulations - the big issue I see is how would you do Collections to police deadbeats... maybe some kind of alternate consequence could be set up.


I guess it surprises me that although bitcoin is still a tiny market, there hasn't been discussion of this kind of thing because of the large amounts of money involved if an alternate unregulated international credit system could be created with impunity...

Sorry for hijacking your thread with that. ;D


Lending BTCs exposes the lender to huge exchange rate risk.  Imaging you borrowed BTCs about six weeks ago when BTC/USD was $2.25 or thereabouts.  Today at $2 higher, repayment is much higher.  Add in the ability to ditch a sullied social network username and start over and you'll likely find borrowers who maintain a good credit history when BTC/USD is going up but a rapidly increasing number whose credit turns south when the BTC/USd exchange rate drops as well.

I'm being reminded by the borrowings by stevenbucks (problem gambler, allegedly) https://bitcointalk.org/index.php?topic=3355.0 and bond auctions by Atlas and others:

- https://bitcointalk.org/index.php?topic=4863.0
- https://bitcointalk.org/index.php?topic=5214.0

Additionally, with P2P there is the risk of the lender running away with the collateral.  Unfortunately, an automated escrow solution for handling that is not available (at least not since ClearCoin closed) http://wiki.bitcoin-otc.com/wiki/Secured_loan
- http://wiki.bitcoin-otc.com/wiki/Secured_loan

Well as to the volatility problem, my conjecture is that funds would be exchanged for local currency pretty quickly as desired at least for the initial sum.

I think you do have a point when it comes to calculating interest payments though - the contract would need to be written to index the bitcoin payment amounts to a currency, I guess.

We're just talking conceptually here- an automated escrow system, maybe like what silkroad uses, and whatever else is needed, could be built.     Yet I'm still not convinced that escrowed bitcoin would be the way to go, lendingclub.com is all unsecured loans based on credit risk.    For larger loans maybe the lender would take title to the property, just like what happens now for car loans, mortgages, etc.