DARs, crypto receipts and stable coins..
Two very interesting, paradoxical events have happened this week.
On the one hand, Citi has launched an instrument called a Digital Asset Receipt (DAR). It works much like a lot of traditional securities like ADRs (American Depository Receipts). At its essence, this involves Citigroup issuing a receipt for a cryptocurrency like bitcoin that is held by a traditional custodian. The bank then alerts DTCC (The Depository Trust & Clearing Corporation), a Wall Street entity that provides settlement and clearing services. A curious case of an innovation (the blockchain) that is supposed to disrupt inefficient middle men (institutions like Citi, DTCC included) itself using a traditional paradigm in an effort to gain traction with traditional investors who like bitcoin, but still want it the old fashioned way, with trusts and settlement, and depository receipts and custodians and all the boring middle-office plumbing!
To round out this paradoxical symmetry, two financial companies won New York state approval to issue cryptocurrencies pegged to the US dollar. The Gemini Dollar
and the Paxos Standard
are intended to be transparent competitors to Tether and other stable coins, which basically track the US dollar.
Effectively, you can hold your bitcoins through a bank (DARs) or you can hold your US dollars on the blockchain (stable coins). Options are good to have!
Weekly token deep dive
In today’s deep-dive newsletter, we are going to present a short thesis on a very interesting crypto token called Bloom. Bloom is an ERC20 token that focuses on building a decentralized credit scoring system that is portable across geographies, something that is not conceivable in the present world. It’s an innovative product that aims to disrupt the monopoly of centralized credit scoring companies like FICO and significantly improve access to credit.
The US Government, in 2015, officially declared FICO a monopoly in the credit scoring services business, with FICO working with 90% of the lenders in the USA. This monopoly imposes real inefficiencies, with 26 million Americans being “Credit Invisible”, which means that they do not have a credit history. On top of that, 19 million Americans are “Credit Unscorable”, which means that a millennial or a person that has not used her account for 6 months are not assigned a credit score by the system.
USA is a developed country with 45 million invisible people. Globally, the situation is much worse, with over three billion people without a credit card and over 38% of the global population without a bank account.
Apart from credit invisibility, people who move their life to another country have difficulty taking a loan out as they have to rebuild their credit scores in the new country. Additionally, the insecure usage of personal information and identity proofs in this credit-score building process contributes to over $21 billion dollars in identity theft crimes.
The Bloom protocol introduces three components which help improve the current credit scoring process, and puts in place an open-to-all, inclusive network. These three components are:
1. BloomID: BloomID maps every unique individual on the network with a unique ID, which can be globally used as a proof-of-Identity to take out loans against. BloomID negates the threat of Identity theft.
2. BloomIQ: BloomIQ acts as a credit registry which stores historical credit information and report and tracks current and historic debt obligations which are associated with a unique BloomID.
: BloomScore is the fiat world equivalent of a credit score, which is determined using updated model. These are different
from the FICO or CIBIL models.
Bloom Protocol proposes to decentralize the credit industry, and aims to provide better credit risk assessment, lowered rates for borrowers and increased security. By bringing online a network of people who are credit invisible, Bloom makes it an attractive prospect for traditional lenders to join the network.
Bloom Token (BLT):
The Bloom Token, or BLT, is the currency used in this network. Bloom Tokens allow organizations to participate in evaluating user identities and creditworthiness. It also serves as a proposal and voting token which paves the way for the evolution of the Bloom Network and BloomScore model.
An identity attester or a credit risk assessor will be able to set a price for her services and get payed in BLT on the network. These BLT tokens can be used by these attesters to propose changes to the credit scoring model and vote on these changes.
Along with individual attesters, organizations can also apply to become identity attesters by paying an application fee (in ETH). The users within the network can then vote on the inclusion of that organization, with an acceptance of that organization leading to a reward to the voters from the Application fee. The voters would need to go through a few steps to research the organization and its legitimacy before they can vote.
Also, while Bloom is in its infancy, early users will need to stake a certain amount of BLT tokens as collateral to invite peers who can attest to their identity and creditworthiness. Apart from this, the collateral also acts as a deterrent to organizations looking to attack the network with fake identities and exit scams, as the amount lost as collateral will be more than the amount of money made on average. The collateral BLT will be returned to the user after a one year holding period..