Overview: Unsecured DeFi Lending
Compound, Maker Vaults, and InstaDapp popularized the concept of margin trading (mortgage lending).
Thanks to this, in the past few months, DeFi has become the focus of more and more people's attention. Moreover, people no longer only pay attention to the part of mortgage lending, but begin to extend in more directions.
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Disclaimer: In the mortgage lending model, most viable DeFi solutions are aimed at those who are already users of crypto assets. Because the designers of these financial services usually start from the perspective of themselves (or people who resemble themselves from a certain angle), and the designers of financial services are often not unbanked (CortexLabs note: low-income people who cannot receive financial services) , so it is difficult for them to understand the real needs of those who do not have access to financial services. This creates a paradox.
However, it is easy to understand the fact that there is a huge market demand for unsecured loans even in first world countries.
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Learning from a Small Twitter Survey
I tweeted two weeks ago, wanting to chat with borrowers who didn't take out a mortgage. I got 30 DMs and my friend Daniel helped send out a survey form and got 30 replies. Overlapping aside, we gathered the thoughts of roughly 50 cryptocurrency users: All want to experience unsecured lending outside of traditional finance. Here are my findings:
Their average borrowing needs are $4,000, and an acceptable annual loan rate is 7.5%.
After a simple calculation, it can be known that, in theory, these people are willing to "pay" an average of $300 for this lending service.
Borrowing can be used for a variety of purposes, such as:
Financing cryptocurrency projects (which makes sense, most projects are under-profitable and considered "premature" by many VCs), investing in other projects, car loans, repaying Maker Vaults, repaying high-interest bank loans, or completing master's degree.
Half of the survey participants claimed to have never consulted a bank before. It may be that the fee for the desired loan is too small to meet the requirements of both parties, or because the interest rate is too high. So can't think about it.
In the loan approval process, people have discovered many innovative non-financial ways to persuade banks (or financial institutions) to lend them funds.
We can roughly divide these non-financial loan approval methods into two categories:the first sort
It is to own various NFTs (CortexLabs Note: NFTs are non-homogeneous assets), similar to ENS domain names, valuable encrypted artworks or art collections. These things all require a basis of value and are easily deposited into an escrow account.second category
It's around an identity or what I call "credibility proof." Examples include a 3Box account, a donation to the Maker Foundation, membership in a DAO, a profitable Gitcoin developer account, an author account for a book, etc.
The borrower must be genuine and capable of earning enough assets to pay off the debt.
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Users want to borrow and lend in stablecoins
It's a great way to investigate, and we hope there is a way to provide financial services to some of those who need it.
Although this survey is based on a trusted social network, it is not a particularly cold, scientifically rigorous, blind-selected academic survey. Because I have at least some connection with some of the people who participated in the research.
Another point is that small sample sizes can also lead to overfitting. For example, most native cryptocurrency users may not have the means to provide valuable NFTs.
Regarding this brand new unsecured lending market, a big question is the TAM of unsecured loans in DeFi (CortexLabs Note: The full name of TAM is Total Addressable Market, which is the total available market. It helps to describe how big the market for products is, and whether the business deserves venture capital backing) currently appears to be much smaller than expected.
All real borrowing needs are implicit fiat currency borrowing. In the current cryptocurrency field, the only lending is actually a disguised investment, and margin lending has fulfilled most of the needs.
Even with applications like Sablier (a dApp that uses Ethereum to distribute uninterrupted salary streams), more people can use cryptocurrencies. However, the fact that only 15% of people accept cryptocurrency payments tells us that this is still a small market.
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Unsecured Crypto Loans
Here are the five I'm interested in:
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Union Protocol: Credit Decentralized Autonomous System for Cryptocurrency Users
Union is a prototype version built by a group of experienced DeFi project founders (including MetaMoneyMarket's Jacob Shiach) to build a decentralized self-made system similar to credit unions.
Its goal is to allow people to pool DAI and lend it to some projects with controllable risk profiles and collateral ratios, which we call "credit facilities".
For example, the collected DAI is lent to borrowers on the Compound platform, and the interest obtained can be lent to members of the DAO in an unsecured or partially collateralized manner.
Once the code is pushed to Ethereum, the main job will be convincing lenders to ditch Compound and use Union, which can be a daunting task.
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CentrifugeTinlake: Mark traditional assets as encrypted assets for collateral
The Tinlake launched by Centrifuge is a protocol platform that realizes the transformation of traditional assets (such as commercial invoices) into NFT.
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zero collateral
The project, which emerged out of nowhere a few weeks ago, aims to achieve zero-mortgage loans by gradually reducing the amount of the mortgage in proportion to the interest repaid by the borrower.
In simple terms, every time you successfully repay the loan principal + interest, the next loan becomes more attractive (lower mortgage rate, higher loan amount). That way, even if the borrower runs away with the money, there is no loss to the lender because they are being repaid through interest they have already paid in the past.
Once defaulted, the defaulter will have to go back to the initial rate.
Bonus noted that the team needs to be forward-thinking and anticipates future Web 2-directed collaborations with credit scoring sites such as Credit Karma to further assess borrowers for solvability. However, lending rates do seem to be high in order to protect yourself from abusers. Whether there is a demand or not is currently being tested.
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NFT banks and unsecured DeFi experiments
As a first experiment, I gathered a team in the #UndercollaterizedDeFiDiscord & Telegram channel I created three weeks ago.
This is a quick way to experiment, speed up learning, and collect as much data feedback as possible. We have weekly conference calls, feel free to private message me if you want to write some smart contracts too!
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Alternative: Use people's social tokens as collateral
With things like Pepo and Roll, it's increasingly easier for creators to make money without intermediaries.
PepoCortexLabs Note:
RollIt is a social media application based on blockchain technology.
It is an application that issues personal social tokens.
Social tokens are interesting:
Some cryptocurrency users, such as CamilaRusso, DeFi users, and myself, can issue their own personal tokens. For example, you can buy $CAMI (Camila Russo's personal token), and then you can (1) get some pre-planned service or time slot, such as Camila Russo's Twitter shoutout (similar to likes) or a period of Camila Russo's office hours (2) Speculate on Camila Russo's future success on different #DeFi platforms and share the proceeds.
It is worth mentioning that Roll will soon launch a Uniswap frontend.
Wrote so much, to sum up:
The industry is undoubtedly in a very early stage, and the stakes are high.
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Original link:
Original Author: AlexMasmej
Translation & Proofreading: Cortex Labs (CTXC) Operations Team
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