On April 8, 2019, Dharma officially launched their crypto interest and lending platform. According to a Medium post from the startup, users can earn interest on their dai (DAI) and ether (ETH) holdings at rates of eight and 2.5 percent respectively. The product now joins a growing sector of lending services building out the decentralized finance space.
Brass Tacks of Crypto Lending
If simply holding cryptocurrencies was Bitcoin’s first use case, then the rise of altcoins and speculation was its second. After that, the vision for a finance 2.0 appeared relatively bleak. In hopes of reimagining essential infrastructure, a number of different crypto startups have taken the lead with various lending and borrowing services.
Nexo Wallet, Cryptolend, ETHLend, SALT, and Celsius to name a few all promise differing interest rates on sets of cryptocurrencies. Each service also offers competitive rates for those looking to borrow cryptocurrencies. Following a slight adjustment in their business strategy, Dharma has now officially announced it’s entrance to the space.
Prior to the release, the Dharma white paper initially outlined an entirely open source project. Nadav Hollander told CoinDesk in an interview, however, that the group has “made a decision strategically as a company to go user-first rather than developer-first.” The adjustment thus places a high premium on user experience, and after a quick glance through Dharma’s UI, the interface is indeed slick.
To begin lending, interested parties need only click a few buttons. The service is reportedly compatible with nearly all cryptocurrency wallets as well, but unlike some competitors, users are only able to lend and borrow ETH and DAI. To get a better idea of how the platform operates, BTCManager put it to the test by activating a loan offer.
Getting Started with Dharma
The process for setting up loan offers with DAI and ETH are relatively the same. Users will first need one of either cryptocurrency as well as access to a cryptocurrency wallet. MetaMask has been a fan favorite in the space, but Dharma indicates that hardware wallets or a Coinbase account are also compatible.
After clicking through the “Start Lending” button, interested parties go through the process of setting up an account via email, indicating the principal to be loaned and connecting their respective wallet with the platform. By adding a DAI or ETH address to Dharma, any interest accrued will be moved directly to the address provided. From there, users are asked to set up a Dharma Key.
This feature is simply a more user-friendly alternative to private keys. Despite newer iterations of web 3.0 applications and plug-ins, Dharma has replaced all of these with a four digit pin.
Users are then asked to deposit the principal initially indicated. In the below example, BTCManager has deposited 0.3 ETH, which at the time of press is approximately $52.8.
These funds are then made available for other users interested in taking out a loan, which reportedly takes between 24 and 48 hours. As collateral, borrowers are asked to offer 150 percent of the amount to be borrowed. Thus, in the above example, potential borrowers would need to put up approximately $80 as collateral for the loan.
If the collateral drops below 125 percent of the borrowed amount, due to a drastic price swing, for instance, the underlying smart contract will then liquidate the collateral.
Since the project’s public launch, Dharamalytics indicates a total number of 41 loans issued and nearly $400,000 in principal borrowed.
At current, there is a much larger number of lenders than borrowers, but the difference is reportedly being subsidized in order to remain competitive. Comparatively, Dharma is hoping to gain an edge via a clean visual experience, low barriers to entry, and no need for a bank account or credit check.