Explaining Dharma, a Crypto Lending Platform That Holds Over $5.9 Million

By Jack Filiba

This month, a decentralized lending platform called Dharma formally launched to the public. Since then, the amount of value locked in the platform skyrocketed, but Dharma may have some serious competition ahead of it.

On April 9, 2019, Dharma’s marketing manager, Max Bronstein, took to Medium to acknowledge the milestone. In doing so, he called Dharma “the easiest place to borrow and lend cryptocurrency.”

Dharma is one of three projects listed on Defi Pulse that falls under the “lending” category, with the other two being Maker and Compound, which LongHash explained in previous articles.

The total value locked in Dharma increased 182% in a week

According to a tool called DeFi Pulse that tracks various decentralized finance projects, the total value locked in Dharma has been growing exponentially over the last week. In fact, the amount of Ether (ETH) locked into Dharma grew by over 90% in the last day alone.

On April 16, 2019 (at 11 am UTC), a reported $4.8 million USD worth of cryptocurrency was locked into Dharma’s protocol. A week prior, on April 9, this figure was closer to $1.7 million, marking a weekly increase of around 182%.

As TechCrunch wrote back in 2017, Dharma aims to let average users take out small cryptocurrency loans. Reportedly, one potential use case for this protocol is letting users easily participate in decentralized applications (DApps) without having to tediously acquire tokens.

In February of this year, The Block reported that Dharma Labs secured $7 million USD worth of funding from a variety of firms such as Green Visor Capital, Coinbase Ventures, Polychain Capital, and several others.

With the platform having now launched to the public, Dharma lets users borrow both Ether (ETH) and DAI. It plans to expand to a wider variety of digital assets in the future.

“Our goal is to make borrowing and lending beautiful and easily accessible — we’re here to onboard the next million users to crypto-finance,” said Bronstein, in a blog post. “To do so, we’ve built an experience similar to today’s most popular internet applications, but with the magic and speed of an upgraded, programmable financial system.”


How crypto lending platforms like Dharma work

At the time of writing on April 16, the $5.5 million USD worth of digital assets locked into Dharma is nowhere near the reported $348~ million locked in Maker, or the $29.8 million locked in Compound. However, considering the fact that Dharma’s core product only recently launched to the public, this comparison is somewhat untimely.

As for how the platform functions, Dharma leverages the Ethereum blockchain in order to facilitate a protocol that makes use of a “creditor” and “debtor” system. In this context, a creditor is someone with excess digital assets that they are willing to loan. Under terms agreed upon by both parties and executed by a smart contract, the creditor is rewarded with interest in exchange for loaning assets to a debtor.

According to a post on the Dharma Protocol blog, the protocol differs from many other lending platforms in the sense that it is agnostic to deterrence methodologies. This means that when it comes to enforcing how loans are repaid, the decision is ultimately left to the parties involved.

The protocol makes use of trusted parties referred to as underwriters. These entities are tasked with evaluating the likelihood that a debtor will repay a creditor, and are designed to do everything in their power to ensure that debts are repaid in full.

Alongside traditional means of collecting unpaid debts, underwriters can use real-world processes like courts and collections agencies if a party does not repay their debt under the specified terms. Otherwise, there are numerous options such as on-chain collateralization schemes that require debtors to lock digital assets into a smart contract as collateral before they take out a loan. This collateral would then only be returned once the smart contract’s terms have been met.

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