Dharma Protocol: A Foundation of DeFi Lending

Dharma Protocol is an open source stack for creating debt markets on Ethereum.

What is Dharma Protocol?

The Dharma protocol is a perpetual lending platform that allows users to generate debt agreements without an intermediary. Debt markets have historically been one of the most important financial platforms in the world. From mortgages to corporate bonds, they form the backbone of any financial system. But today, most debt markets are dominated by established financial institutions with high fees and inefficient systems. This is where the Dharma protocol comes to the rescue: it is a decentralised blockchain-based protocol that allows anyone to easily create their own digital credit products by tokenising debt.

A debt market is a market in which borrowers and lenders come together to lend money at a certain agreed interest rate. A mortgage is an example of a loan product: when you take out a mortgage from your bank, both you and your bank agree on certain repayment terms, including the amount of the monthly payment, the term of the loan and the interest rate for using the money.

The protocol allows for different types of debt products, including book-entry bonds, margin lending products, over-collateralised loans and interest-bearing stablenecoins.

The Dharma protocol is structured to facilitate maximum interoperability between different classes of financial products and other protocols in the decentralised finance ecosystem.

While many iterations of DeFi are being explored in the crypto space today, we consider the most important class of financial instruments to be those that aim to move capital from savers to borrowers. To facilitate this movement of capital, we need a robust set of primitives that can be combined together to create more complex financial instruments. This is what the Dharma protocol aims to provide.

Dharma relies on blockchain security and immutability to create win-win loans and credit without the need for a centralised intermediary. By integrating all features into a single API, it greatly simplifies the lending process for both individuals and businesses.

Although Dharma is designed for loan applications, it can also be applied to any type of agreement that requires a balance between rigidity and flexibility. Its flexible modules are designed so that anyone – from a novice developer to a Fortune 500 company – can issue tokenised debt in a matter of minutes. Currently, there are many blockchain projects aimed at creating decentralised exchanges. However, only a few of them are trying to solve the problem of decentralised borrowing or lending. Lending is fundamental to commerce and financial markets, so it is one of the first areas that Dharma decided to tackle.

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