I blame this more on the average person than Prosper. They publish historic default rates; I even wrote some quick simulation models before I put my money in. The biggest problem is that people see 20% and don't realize just -what- the C grade means.

I can't speak from the borrowing side, but the lending side seemed on par with the risk of the market to me. And for what it's worth, my Prosper portfolio did much better than my 401k.