Decentralized Finance Platforms for Promoting Secure Peer-to-Peer Lending Through Trustless Smart Contracts

Abstract

Decentralized Finance (DeFi) platforms are reshaping the financial landscape by enabling secure, peer-to-peer (P2P) lending through blockchain technology and trustless smart contracts. These platforms eliminate the need for traditional intermediaries, offering transparency, automation, and reduced transactional friction. However, existing DeFi lending solutions face challenges such as smart contract vulnerabilities, poor user trust, limited risk management, and inefficient system design processes. These issues often result in security breaches, collateral mismanagement, and reduced adoption. To address these limitations, this paper proposes a framework using the Blockchain-Based System Development Life Cycle (BSDLC) methodology. BSDLC introduces structured phases—including requirement analysis, system design, smart contract development, testing, deployment, and maintenance—tailored to the unique needs of blockchain-based systems. These phases ensure systematic identification of risks, secure coding practices, and continuous verification of smart contract behavior through rigorous testing. The proposed BSDLC-based method is applied to develop a safe, trustless P2P lending application on the Ethereum blockchain. The platform enables users to borrow and lend digital assets using collateralized smart contracts, which are enforced by oracles for real-time asset valuation. The implementation ensures tamper-proof loan execution, automated liquidation, and complete transparency, all without requiring central oversight. The findings reveal that applying BSDLC significantly enhances the security, reliability, and usability of decentralized finance (DeFi) lending applications. It reduces vulnerabilities and ensures system integrity, making it a scalable and trustworthy solution for modern financial ecosystems.