⚠️Risk & Default Handling
What Happens If Someone Doesn't Repay?
Phase 0 uses 0% interest - lenders give out of generosity, not for profit. This lets us gather behavioral data without complexity of interest calculation or legal enforcement.
Defaults are recorded on-chain and visible to all future lenders. Redemption is possible - borrowers can rebuild trust through smaller, successful loans.
On-Chain Transparency
All repayment behavior is permanently recorded on Base:
Total borrowed and repaid by address
Number of active vs. completed loans
Maturity dates vs. actual repayment dates
This creates a permanent credit history visible across DeFi.
No Legal Recourse
Loans have no legal enforcement:
No collections agencies
No credit bureau reporting
No lawsuits
Lenders rely on:
Social pressure from mutual connections
On-chain reputation visible to future lenders
Community accountability
Why 0% Interest?
Zero interest lets us gather clean behavioral data and follows proven models:
For lenders: Give to help, not for profit - creates stronger social bonds
For borrowers: Repay from gratitude and reputation-building, not fear
For LendFriend: Clean dataset showing intrinsic motivation, not fear of penalties
What Happens in Different Scenarios
Partial repayment: Lenders claim funds pro-rata. Borrower's on-chain history shows partial repayment. Can still request smaller future loans.
No repayment: Lenders lose funds. Borrower's reputation permanently shows 0% repayment. Extremely unlikely to get funded again.
Late repayment: Lenders eventually get full funds back. On-chain history shows timing. Better than default, but affects future trust.
Tipping: Borrowers can repay more than 100% (e.g., $110 on $100 loan). Tips distribute proportionally to lenders, strengthen reputation, and signal financial health.
Risk Mitigation
For borrowers:
Start small ($100-500 for first loan)
Repay early or add a tip (5-10% extra) to build reputation
Keep lenders informed
For lenders:
Check trust scores - only fund borrowers with social connections
Diversify ($100 across 10 loans > $1000 on one)
Follow early lenders - if close friends funded, it's a good signal
What We Expect
We expect repayment rates to correlate with social support strength:
Strong social ties between borrowers and lenders → better repayment
Moderate connections → moderate performance
Weak or no connections → higher risk
We'll track actual performance on-chain to understand which trust signals best predict repayment in our model.
Lender Risk Acceptance
By contributing, lenders acknowledge:
No guarantee of repayment
No legal recourse
Social accountability is the primary enforcement
On-chain transparency is the primary protection
Our Philosophy
Phase 0 approach:
Record behavior transparently on-chain
Let community decide who to fund
Allow redemption through smaller loans
No legal recourse or traditional collections
As we learn: We'll let the data guide what's needed. Our priority is helping people access credit while protecting lenders. If defaults become systemic, we're open to exploring additional mechanisms - but we start with social accountability first.
Next: Technical Stack · Social Trust Scoring · Risk Scoring
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