I suppose small investors could realize the same diversification by lending in very small amounts to a very large number of borrowers, such that only a small fraction of their wealth is exposed to any individual borrower.

Obviously given m lenders and n borrowers, a system would need to manage O(m*n) streams of payments vs O(m+n) for a centralized party. In a traditional finance/legal framework, the former is an overwhelming amount of overhead for all but the largest loans, which are syndicated across lenders. For realistic sizes of m and n though, it’s probably not unreasonable for a single smart contact (per borrower?) to manage them. That starts to look ‘centralized’ though, and a contract per borrower/lender probably starts to get expensive? I don’t have a good enough sense for the practicalities to know for sure.

It would weird to borrow a 300k $10 at time though, like you’re a BigCo borrowing $10m from each of 20 banks...