The platform facilitates the sharing economy in banking through a decentralized platform that is managed by the members, for the members.
A bank takes deposits from one group of people and makes loans to another group of people. They make money on the difference between the rates that they charge borrowers and lenders. A credit union is similar to a bank but it is not-for-profit. Rather than exist to serve shareholders, it exists to serve its members. Profits are returned in lower fees, higher savings rates and lower loan rates. The platform is more like a credit union in that it is a not-for profit that exists to serve its members.
An important role that banks play is the matching process between borrowers and lenders. The platform utilizes technology to facilitate matching in a much more decentralized and efficient way, enabling more network participants and better rates for borrowers and lenders.
The platform is not a bank or credit union in that it does not set the rate or terms of the underlying loans. It also does not take credit risk or have a balance sheet. This is why it is a "full reserve" platform. The lender(s) provides the balance sheet, sets the terms and takes the credit risk. The platform contracts firms to operate on its behalf as licensed as originators, servicers and debt collectors.
#1: The platform is like a self stabilizing monetary gyroscope. The input axis is represented by borrowers, the output axis is represented by lenders, the stable core spin axis is the Planck and the value of the Planck is the size of the rotor.
#2: The platform is like the grain elevator was to farming. Prior to the invention of the grain elevator, buyers and sellers of grain transacted in individual units - bags of grain. The grain elevator enabled transactions in bulk - more efficiency - for both buyers and sellers. Today there isn't an effective "grain elevator" for borrowers and lenders, sorting by quality and enabling transactions in bulk. It enables the commoditization of lending.
#3: The platform is like our grandmother at a farmer's market. When purchasing produce at a farmer's market, it is customary to carefully inspect it. The buyer holds it, smells it, and carefully evaluates the quality. If it meets their demands, they purchase it. Similarly, the platform provides unprecedented transparency that lets buyers select the exact quality that they want.
#4. The platform is like "The Case for Flexible Exchange Rates". In “The Case for Flexible Exchange Rates,” economist Milton Friedman said, “Isn’t it absurd to change the clock in summer when exactly the same result could be achieved by having each individual change his habits? All that is required is that everyone decide to come to his office an hour earlier, have lunch an hour earlier, etc. But obviously it is much simpler to change the clock that guides all than to have each individual separately change his pattern of reaction to the clock, even though all want to do so. The situation is exactly the same in the exchange market. It is far simpler to allow one price to change, namely, the price of foreign exchange, than to rely upon changes in the multitude of prices that together constitute the internal price structure.”[i] Foreign exchange markets changed the financial system’s clock. One lever, instead of many, enables billions of people to instantly convert their purchasing power to any market on earth.
The same principle applies to the platform. Rather than change exchange rates, the platform is changing leverage. Transacting at the risk level is much more efficient for borrowers and lenders.
When transacting at the loan level you get the worst of both worlds: you are operating in bulk at the loan level (you have to take all of the loan or none of the loan) and at the individual level (borrower) where lenders desire bulk.
The platform inverts this traditional structure. Buyers are transacting in bulk at the risk level and can manage the exposure they want at the individual level. In fact, the borrower is choosing the quantity and quality of the goods they produce which are then priced, individually in units of risk, by the market. A lender can take some of your loan, not all of your loan. This enables more competition which enables better prices. Importantly it also provides more feedback which empowers better decisions by both borrowers and lenders.
[i] Friedman, Milton, Essays in Positive Economics, University of Chicago Press, 1953, p. 165
Abstract: Money always has been, and always will be, credit or a claim on an asset. In the future, there will be no “money” it will be a credit based society or the complete Denationalization of Money, as Hayek foresaw. Each person and entity is a unique issuer of currency. Each currency has infinite potential sub units, each with its own value, creating a world with infinite currencies. Money serves as a store of value, a medium of exchange and a unit of value. For the infinite creators and purchasers of money these roles are best served through complete decentralization. Debt is the creation of credit, which is the creation of money. The decentralization and commoditization of the creation of credit becomes the basis of currency: one facility, infinitely broken down into units of risk, dynamically market priced, and sold to the market in groups.
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