dApps, or decentralized apps, are open-source applications built on top of a blockchain.But heres the thing users usually cant interact with these dApps unless they have tokens issued by these projects.For example, bothAugur, a decentralized prediction market and REXMLS, a free global listing network for real estate, require tokens to interact with.
But if you didnt participate in the dApps ICO, getting these tokens isnt easy.
While some tokens trade on exchanges, youd have to first buy Bitcoin or Ethereum (which still isnt necessarily easy), send it to an exchange, convert it to the token, then send to token to the dApp. Its a process, to say the least.
So, enter Dharma, a company part of this summers Y Combinator batch.
Dharma wants to let anyone get a small cryptocurrency loan in just a few minutes, so they can use a dApp without going through that long process to acquire a token.
Right now these loans are only denominated in ether (which some dApps accept), but eventually Dharma wants to be able to support the borrowing and lending of any crypto asset. All loans are denominated in USD so neither side is exposed to the volatility risk associated with cryptocurrencies.
Since Dharma is built as an open-source plugin, developers can essentially plug a line of credit directly into their dApp, so users can get tokens to use without ever leaving the platform. Dharmas protocol can also be accessed without going through a dApp at all, if someone just wanted to borrow a cryptocurrency to use for no specific purpose.
Of course its a little lotmore complicated than this on the backend.
The loans themselves are peer-to-peer, meaning Dharma isnt actually loaning you any money they are just building the open-source protocol to facilitate the borrowing and lending off cryptocurrency. And all loans are represented by Dharmas own newly issued ERC20-based token, which lives on the Ethereum blockchain.
So how does Dharma make money?
The startup is also handling the credit risk assessment / loan approval process which is the only aspect of the protocol that is not decentralized. At launch Dharma will collect basic KYC (know your customer) information from borrowers and decide if the borrower is likely to pay back the loan.
Since loans arent collateralized and there is no actual credit check, Dharma will likely limit first-time borrowers to small amounts of cryptocurrency. But over time as users generate solid repayment history they may increase the amount able to be borrowed, which is a model not so different from Affirm. In return for verifying a borrower, Dharma (the startup, not the protocol) will be allocated a certain portion of loan principal as a fee.
Right now Dharma is the only entity that is approved to decide a borrowers creditworthiness and approve a loan. But eventually they want to permission other entities to step in and approve borrowers for example, an African TelCo has a lot of information on its users that Dharma doesnt have, that could be used when deciding to approve them for a loan.
Dharma isnt totally live yet but you can try it out on Testnet, which is a faux version of Ethereums blockchain just used to test apps.On Testnet Dharma works withMetamask a chrome plugin that lets you run Ethereum dApps right in your browser and 0x a decentralized token exchange. But soon Dharma plans to launch on Ethereums live network and integrate with many more dApps.
If you want to learn more about Dharma, you can check out their White Paper right here.
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Dharma wants to let anyone borrow a small amount of cryptocurrency – TechCrunch
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