Thanks for the great input everyone! After much thought I have an idea which may work. The key is reputation. A borrower must have something to lose if they default. Many in crypto have built up profiles with good reputation, such as Legendary members on BitcoinTalk, or 100% Feedback with 1K+ trades on LocalBitcoins.com. If we tie in a member's reputation to a loan that could provide incentive to not default.
For example, a member's profile can have a line like this:
Verified Profiles: BitcoinTalk(DaddyUser - Legendary), LocalBitcoins(DaddyTrader - 100% FB)
In this way a potential lender can see the person has an established track record and make a small loan of say $50-100, without collateral. If the person defaults that is attached to their reputation on our site for minimum 4 years. We'll also have a public search where usernames can be searched and checked for any default.
I think for small amounts it's much better to repay than ruin an established reputation, similar to credit history.
If someone has good credit and is willing to have their identity verified, there's no reason to do a crypto loan. They can get regular bank loans. Hence, what niche are you proposing to fill that banks don't already handle?
Banks don't generally loan out small quick loans. Think of it as the difference between going to a supermarket or a convenience store. People use both. Also, a person with bad credit isn't automatically guaranteed to default. It depends on the circumstances. For example, the profession considered least likely to default on loans is a school teacher (they remain in a stable job for decades). Imagine a school teacher has a medical emergency forcing them to declare bankruptcy or otherwise default. Perhaps they're a young teacher just starting out with no credit history. Banks don't take time to ask about a person's details. They make a black/white decision based on credit rating. We want a platform where peers can advertise to other peers who can take time to consider finer points that may make individual loans make sense.
Here in my country, there are companies who offers no collateral loans as long as you have a valid Facebook account that was created a long time ago with active friends and relatives and you are employed. But there's a catch, the interest rate is so high that when computed for the total amount to be paid, capital almost doubled.
Yes, there is a certain value that exists with a person's online profile which can be used as a basis for judgment.