Application of Support Vector Machine Algorithm in Automated Lending Protocols for Decentralized Finance Platforms

1.1 Background Information

Financial systems that function without a central authority or middleman and enable peer-to-peer lending and borrowing through the use of Blockchain technology and smart contracts are referred to as decentralized lending and borrowing approaches. Conventional lending and borrowing are dependent on centralized organizations, such as banks, that manage money transfers and impose costs and rules. With the goal of upending this paradigm, decentralized finance (DeFi) offers transparent, open, and permission less financial services. People can lend out their digital assets (tokens or cryptocurrencies) to others via decentralized lending and borrowing systems in return for interest, or they can borrow assets by pledging collateral. By automating the loan and borrowing process and removing the need for middlemen and counterparty risk, smart contracts—self-executing contracts having the contents of the agreement explicitly put into code—reduce counterparty risk. Liquidity pools, where users provide money for lending, and decentralized exchanges (DEXs), where borrowers can trade in different assets or apply for loans, are essential elements of decentralized lending and borrowing platforms (Turiel, J. D., et al 2020). Compound, Aave, and MakerDAO are a few examples of systems that provide decentralized lending and borrowing services. Research in this field may concentrate on enhancing the scalability, security, and efficiency of decentralized lending and borrowing protocols in addition to investigating their effects on stability and financial inclusion. Investigations on regulatory issues and the incorporation of decentralized finance into conventional financial systems might also be conducted.

1.2 Objectives

• 1.

  To assess the security, transparency, and user experience of current decentralized lending and borrowing protocols.

• 2.

  To investigate scalability issues within decentralized lending and borrowing platforms and propose strategies for enhancing their capacity to accommodate growing user populations and transaction volumes.

• 3.

  To examine the financial incentives and mechanisms of decentralized lending and borrowing systems, analyzing their impact on risk management, interest rates, and liquidity availability.

• 4.

  To explore the feasibility of achieving interoperability between various DeFi protocols and traditional financial systems to facilitate seamless asset transfers and enhance market liquidity.

• 5.

  To analyze the regulatory framework surrounding decentralized borrowing and lending, identifying compliance requirements and proposing strategies to navigate legal and regulatory challenges while fostering innovation and protecting consumers.

• 6.

  To examine the socio-economic implications of decentralized borrowing and lending, including its potential to empower marginalized communities, promote financial inclusion, and mitigate systemic risks associated with centralized finance.