This lesson explores the rapidly growing ecosystem of alternative finance, including peer-to-peer lending, crowdfunding, and the disruptive potential of decentralized finance (DeFi).

5.1 Defining Alternative Finance
Alternative finance refers to financial instruments and channels that exist outside the traditional banking system . It has emerged as a significant force in the financial ecosystem, providing new avenues for fundraising and investment.

5.2 Crowdfunding Platforms
Crowdfunding enables individuals or businesses to raise capital from a large number of people, typically via online platforms. The primary models are :

  • Reward-based: Backers receive non-financial rewards (e.g., early access to a product)

  • Equity-based: Backers receive shares in the company

  • Debt-based (Peer-to-Peer lending) : Backers lend money and receive interest payments

5.3 Peer-to-Peer (P2P) Lending
P2P lending platforms connect borrowers directly with individual lenders, bypassing traditional financial intermediaries . This model:

  • Offers borrowers potentially lower interest rates than traditional banks

  • Provides lenders with higher returns than savings accounts

  • Introduces new credit scoring models using alternative data

5.4 Decentralized Finance (DeFi)
DeFi represents a paradigm shift where financial services are built on blockchain networks, eliminating intermediaries like banks and brokerages . Key DeFi applications include:

  • Decentralized Exchanges (DEXs) : Trading without a central authority

  • Lending and Borrowing Protocols: Interest-bearing accounts and collateralized loans

  • Yield Farming and Staking: Earning rewards by providing liquidity

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