Consistently growing and expanding over the various industries around the globe, cryptocurrencies and blockchain, the technology that made its debut with Bitcoin, have advanced the digital revolution to another level. One of the leading and dominating niches across the crypto sector is the exponential growth of the Defi space over the years.
As crypto gained global traction, thousands of Defi projects have advanced into the market with revolutionary concepts, offering a decentralized and trustworthy platform for staking, lending, borrowing, etc. With Ethereum standing as a major market-dominant to support countless projects on its public blockchain, Defi space has expanded to grow over $100 billion in the past years. One of the most recent and revolutionary benefactors is the increase in the number of innovative projects that are keen on offering a decentralized alternative to almost every centralized financial service.
Tackling another issue that has swarmed the Defi landscape for quite some time, BNPL Pay recently shook the ground with its funding round that raised over $7.14 million. Dedicated to aid those who are unable to meet the eligibility or requirements for taking a collateralized loan, BNPL Pay is an uncollateralized lending protocol that has managed to mitigate the counterparty risk through its distributed network of Banking Nodes.
Creating a set of innovative incentive structures for rewards and of course punishments for operators, the BNPL Pay system basically entrusts the job of credit checks, risk assessments, etc. to pool operators. Banking Nodes are one of the key components of the BNPL Pay ecosystem along with Lenders, Borrowers, and Stakers, that on a wider frame acts like banks in a decentralized ecosystem.
Basically, Banking Nodes in the BNPL Pay network can only be set up by an individual or entity if they stake 1M of BNPL Pay in the network. The BNPL token is the governance token within the network that has several functions across the system along with acting as a form of insurance in case of a default. Once set up, the Banking Nodes are responsible for managing the pools of liquidity and have the freedom to assign the funds to a borrower, depending on the parameter that makes sense to them.
A similar freedom of choice is also offered to the lenders in the BNPL Pay network which allows them to choose an operator that is best suited to their preferences for risk and rewards. With a fully transparent data system, lenders are free to perform interest-bearing activities in a secure yet open network. As for the borrowers, they can apply for credit from any or all the Bank nodes where loans are issued on fully agreed-upon terms, customized to their borrowers’ needs.
The incentive structure of the network is specifically curated for the node operators. As mentioned above, node operators are responsible for managing the pools of liquidity and are rewarded through a fair share of revenue in BNPL tokens for carrying out their duties responsibly and effectively. By using a penalizing slashing model, the structure also addresses the lack of efforts on operators’ part in carrying out their duties.
The network assigns a share of the revenue raised from interest payments to the operators of the nodes as a reward. Furthermore, in the form of BNPL tokens, the operators also receive a share in the 10% interest that is distributed to the stakers in the pool. On the other hand, yet fitting to the event of capital loss, a slashing event is initiated due to loan defaults. As far as the size of the event goes, it’s relative to the total capital loss, further in relation to the size of the pool.
Where BNPL Pay may not be the first Defi platform in the market, its unique feature directly targets the disregarded faction of the consumer base that has been long neglected by established Defi protocols such as Compound and AAVE. While the fate of BNPL Pay lies in the future, the monumental figure of funding raised has definitely solidified its potential and carved a well-deserved and effective beginning for uncollateralized loans in defi.