How many of you have been through a credit check or applied for a mortgage, and been frustrated with the time commitment, prodding questions, back and forth with a representative, and been confused about an entirely opaque process? My hand is raised and if I never had to go through being approved for a home loan again it would be too soon. Two years of pay stubs after changing jobs 3 times is not easy to track down, understanding origination/interest/fixed v adjustable rate, and dealing with often personalities that unknowingly discriminate is difficult.
Imagine a world where you’re able to apply for a home mortgage, car loan, student loan, or small business loan and get approved for a specific amount and interest rate in seconds or less, without the assistance of a human underwriter, loan officer, or brick and mortar banker. This requires several ingredients:
1) Liquidity
2) Public blockchains that allows for pseudoanonymous data from any available source
3) A robust algorithm that can evaluate an individual transparently
Given the liquidity that continues to flow in thanks to primitives like Curve, Uniswap, and Maker, sustainable, real world investment products will need to exist rather than investors relying on governance token incentives. Speed, transparency, efficiency (low/no overhead), and trustlessness make blockchain based transactions and interactions superior to many traditional banking experiences.
Decentralized Finance (DeFi) has the potential to make this imagination a reality as billions of dollars in liquidity (1) have rushed from investors seeking outsized returns as compared to traditional markets. Wallet histories are growing as users, mainly on the Ethereum blockchain (2), interact with new protocols and smart contracts, and thanks to ARCx’s DeFi Passport, we’re all excited about what (3) can unlock.
ARCx’s DeFi credit score
The first iteration of the DeFi Passport will be a DeFi credit score, from 0-999, that ARCx will generate based on past wallet interactions with various DeFi protocols. A proprietary algorithm will evaluate a number of variables such as loans, liquidations, airdrops, and users’ behavior to calculate the score. The initial version will be available to a limited number of users who can access exclusive yield farms and get access to a derived number of STABLEx, ARCx’s stablecoin, and specific interest rate.
In the future, I can see protocols like Alchemix or MakerDAO incorporating the DeFi passport to evaluate wallets for small business loans, student loans, car loans, and even mortgages.
Pseudoanonymity and Data
A big problem with the current online experience is our data is available and used by large, siloed corporations. Amazon, Experian, Facebook, and others have been caught sharing and selling data for profit.
The blockchain allows for psuedoanonymity and protects users from predatory marketing and banking practices. ARCx will be integral in preserving users’ privacy while still communicating thorough information to 3rd parties that require review. An Easter egg already in the plans is DeFi Passport users will be able to call ourselves whatever we want. Crypto is famous for green frogs, anime characters, cats, and cartoonishly muscular Chads.
Kids are the Future
Currently, there is a significant barrier between blockchain and other institutions, e.g. education, traditional credit history, employment history, but ARCx is betting on public blockchains proliferating through every facet of society. The more information available to ARCx, the better the underlying algorithm gets, and the more valuable the DeFi passport becomes.
Digital natives, mostly Gen Z and young Millenials, are using phones for social and financial interactions, having fully remote experiences and educations, and generally bringing the world closer together. A global economy is inevitable and cryptocurrency will be the medium of exchange. As these digital natives grow up and run the world, public blockchains will be the substrate and Internet of data that captures all of the historical interactions and transparently guides/unlocks future opportunities.
ARCx’s DeFi Passport has me thinking very big and should not be limited to financial applications. I see future iterations helping build resumes for individuals, and allowing hiring managers/recruiters to evaluate talent. I see ARCx tapping into social media like Twitter, Reddit, and YouTube to build reputation scores based on public data and metrics. Companies like Yelp and even Google should be leveraging the blockchain to provide transparent reviews for businesses too. B2B risks could be alleviated and commerce would be far more efficient without arduous legal/accounting/credit reviews for every customer.
Oh the places the DeFi Passport will take us…