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The Taub Faculty of Computer Science Events and Talks

Blockchain Loans: Mechanisms, Platforms And Challenges
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Tom Azoulay (M.Sc. Thesis Seminar)
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Sunday, 21.04.2024, 16:00
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Advisor: Prof. Ori Rottenstreich
Distributed lending protocols are major financial mechanisms that match borrowers and lenders without the need for intermediaries. Smart contracts deployed on blockchains ensure the security of such loans. Borrowers mitigate the risk of default by providing collateral in the form of cryptocurrencies or by limiting the loan duration. In the first part of the talk, we describe various loan types, major platforms, and financial models that allow them. In the second part of the talk, we refer to a major challenge in collateral-based loans. The high volatility of cryptocurrencies implies a serious barrier of entry with a common practice that collateral values equal multiple times the loan's value. This requirement prevents many loan candidates from obtaining them. We study a new approach that lowers capital requirements and augments inclusiveness with a low added risk. Risk estimation is crucial to guarantee the ongoing operation of the lending protocols, allowing them to be selective in providing loans and setting interest rates. We describe a risk estimation of high accuracy for borrowers based on their past activity. We evaluate our methodology on data collected directly from the Ethereum Network and show it achieves high gains and estimation accuracy. A part of this work appeared at the IEEE International Conference on Blockchain and Cryptocurrency (ICBC), 2023