A Blockchain-based Smart Contract Framework for Decentralized Peer-To-Peer Lending

Abstract

Traditional financial lending systems face ongoing issues. These include too much involvement from middlemen, limited financial inclusion, a lack of transparency, and centralized decision-making. Such problems push unbanked and underbanked populations to the margins. This paper presents a blockchain-based decentralized peer-to-peer (P2P) credit system built on the Ethereum network. It uses smart contracts and Decentralized Autonomous Organization (DAO) frameworks that are transparent, secure, and accessible worldwide. Traditional financial institutions still rely heavily on centralized models. These models involve many intermediaries, slow processes, and high operational costs. As a result, many people have restricted access to financial services. According to the World Bank's Global Findex Database, around 1.7 billion adults are unbanked and shut out from essential financial systems. This exclusion often stems from strict eligibility requirements, lack of credit history, and absence of collateral. It not only hampers individual financial growth but also limits broader economic inclusion in developing nations. The proposed model eliminates the need for centralized institutions. It speeds up transactions, increases transparency, and allows for borderless digital lending. The system architecture uses Solidity for smart contract development, Web3.js for blockchain interaction, and a React-based user interface to create a robust full-stack decentralized application (DApp). The framework features automated asset collateralization, AI-driven interest rate modeling, trust-score-based borrower assessment, and community governance mechanisms. Performance comparisons show marked improvements in transaction speed, efficiency, and financial access compared to traditional lending models. The prototype achieves a 65% reduction in infrastructure costs and an 80% faster loan settlement time across different regions.