Rikkei Finance
Published in

Rikkei Finance

DeFi Lending: P2P & P2Pool

DeFi lending: P2P and P2Pool

Decentralized Finance (DeFi) which brings a financial ecosystem without the intervention of authority financial institutions to its user has witnessed a fast development in the cryptocurrency space in recent years. Some of its most attractive factors are the lending function which provides users with permissionless, transparent, and fast transactions. The two lending models considered most utilized in DeFi platforms are peer-to-peer (P2P) and peer-to-pool (P2Pool). This article will focus on explaining and comparing how these two lending models work and the benefits/risks that each of them provides to users.

What are P2P and P2Pool?

Peer-to-peer (P2P) appears to be the earliest form of lending on the DeFi market. This model allows a lender and a borrower to match each other on the blockchain system and set a deal that involves only them. In 2021, the value of the worldwide P2P market reached 83.79 billion dollars. It is now expected to grow to 705.81 billion dollars by 2031 with the increasing investment from institutional investors and the dominance of business lending.

Meanwhile, unlike P2P lending, the lender and the borrower in peer-to-pool (P2Pool) lending do not work directly with each other but through a pool of assets. This pool is controlled by smart contracts and the EVM-compatible machine on the blockchain which algorithmically decides the interest rate that the borrower has to pay to the lender.

How P2P works?

Step 1: The Lender and the borrower create accounts on a lending platform.

Step 2: The lender and the borrower match each other on the system when the interest rate offered by the lender is accepted by the borrower.

Step 3: For secured lending, borrowers lend crypto by depositing their assets and receive the negotiated crypto (the higher the value of the asset, the higher amount of crypto they can borrow); for unsecured lending, both sides sign a contract based on mutual trust.

Step 4: Through the platform, the borrower transfers the monthly interest payment and repays the principal amount at the due date to the lender.

How P2Pool works?

Step 1: The lender and the borrower create accounts on a lending platform.

Step 2: The lender invests tokens (liquidity) into the platform’s pool of assets and the borrower lends these tokens from that same pool.

Step 3: The EVM-compatible machine and smart contracts calculate and determine the interest rate.

Step 4: The borrower repays the interest rate and the principal amount before the pool liquidates the deposit assets.

Benefits and risks

DeFi lending models are taking financial services to the next level. Compared to traditional lending, DeFi lending has opened a wider door for users to access financial services, even with users who have fair to moderate credit scores. The transactions on DeFi platforms are also handled promptly since there is no participation of third-parties and all transaction information is broadcasted publicly which increases transparency. Moreover, higher interest rates than conventional financial institutions have benefited the lender with greater earnings.

Specifically for the P2P model, unsecured lending allows borrowers to lend crypto without having to deposit their assets. It also does not impose a minimum amount of crypto on borrowers like banks do. However, users with low credit scores should be aware that additional fees sometimes appear in the transactions and the interest rate of P2P lending is higher than traditional lending.

Meanwhile, the fact that the P2Pool model does not permit lending transactions to take place unless borrowers make deposits indicates higher security in contract. For a healthy pool, it is a chance for users to lengthen the repayment period and have more time to invest in other projects. Just like P2P lending, P2Pool lending also contains risks like impermanent loss (assets after being deposited in the pool increase value and borrowers lose an opportunity to negotiate a better price), or flash loan attacks.

Comparison of the two methods




Lender — Borrower

Lender — Digital Pool — Borrower

Deposit requirement

  • Unsecured lending: not required
  • Secured lending: required


Due date


Depends on the health of the communal pool


  • No deposit required.
  • No minimum crypto amount applied.
  • For borrowers: Longer repayment period if the pool is healthy.
  • For lenders: Higher security.
  • Permissionless, transparent and fast transactions.
  • Higher earnings for lenders compared to conventional financial institutions.


  • Borrowers have to pay higher interest rates compared to traditional lending.
  • Additional fees sometimes required.
  • Impermanent loss.
  • Flashloan attacks.


DeFi lending is obviously proving itself as a strong competitor of the conventional financial system. Its peer-to-peer and peer-to-pool models have made the traditional lending process become faster and easier for users to access and invest in. Depending on the purpose of DeFi users, each of the lending models has its own pros and cons that can leverage their financial conditions.

For more information, join Rikkei Finance Discord community: https://discord.gg/GM3U44e6PG

Disclaimer: The information herein is for reference purposes only and should not be considered financial, investment, or trading advice. Please conduct your own research and due diligence before making investment decisions. You understand that you are using the Information provided at your own risk.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Rikkei Finance

Rikkei Finance


Rikkei Finance is a Web3 platform, encompassing a DeFi lending protocol and an NFT Marketplace; with a focus on NFT rentals and NFT based lending and borrowing.