Answering Important Questions on Ergo Lend
After speaking with Chris Ray of Ergo Lend, we wanted to share his insights into some important topics about his vision for the platform, including how the project plans to grow and structure the lending process.
What are lender’s incentive structure, and what protects them from defaults?
Chris: The lender’s incentive comes from their ability to carry out a form of charity work through lending to people who can’t afford the financial incentives of borrowing from a bank, thus making some profit while carrying out charitable deeds. The system is structured in a way where borrowers can team up with a guarantor association, making the association the backup if a loan defaults.
What are token holder’s incentives?
Chris: Token holders have the opportunity to take part in the direction that Ergo Lend will move towards in a charitable manner. This would be far different from a traditional DeFi project, as the project’s goal focuses on charitable lending rather than on traditional lending.
How will you build strong communities of people who actually use the loans?
Chris: Our team is actively working with communities from different parts of the world. We are currently exploring communities within places like Africa that are looking to participate in our program. Currently, there are Micro Finance Institutions (MFIs) serving communities such as those in countries like Kenya, however the transactions costs to the borrowers are high — sometimes exceeding 30% in total interest and fees. In an effort to build a sustainable lending community at a fair cost, Ergo Lend aims to enable users with open P2P access to offer the same service that the MFIs can, but at a significantly reduced cost to the borrower. As a result, Ergo Lend doesn’t have to contend with the high overhead operational costs that IMFs do, translating into much lower costs for the borrower.
Although Ergo Lend is not a company, it will operate as an organization like other DAOs. This means that it will need some type of support — donations are not off the table — yet these would be received transparently to some extent we hope, as we use the Ergo blockchain for all the transactions. For the most part, the roles played by Ergo Lend will be funded by its treasury created during the distribution of the governance token. This treasury will provide development support for the dApp, community development, and support other roles the DAO sees fit to achieve its mission. Also — just a little bit on the mission: Ergo Lend seeks to provide tools that align with the values of the Ergo manifesto — bringing me to the importance of the organization being structured as a DAO. We assume that by creating pathways for people from all over the world to contribute to the mission of the DAO, then it becomes resistant to corruption and further improve the lives that need it most.
Lastly, the treasury will bootstrap the lending process and develop a path forward to invest in projects that we believe will bring a return on the treasury’s funds. We believe we’ve developed projects that are worth investing in and are now waiting for the DAO to launch. These projects will come up as proper proposals for fund allocation that the DAO must vote on, and it is possible some of the community will choose to fund some of these loans as well.