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Dharma Protocol & Dharma Plex Launch

Dharma posted 5 months ago

with or if you'd like to join the discussion.
soona
Dharma doesn't have a native token, and you guys have posted before that most token models are detrimental to user experience -- have your views changed at all in the past couple of months? Has anyone made a compelling counter argument outside of the bridge/reserve currency example?
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Nadav Hollander
@soonaorlater We haven’t seen a ton change on the ground since Brendan put out the post you’re alluding to — but it seems like the space is starting to get more rigorous and less “fuzzy” in its thinking on the economics of token models, which is great! If token models mature more and a native token seems like it would genuinely add value to our ecosystem, we’d certainly be open to exploring it!

Interesting developments that have caught some steam are TCRs. Also governance tokens are starting to get some more rigorous thought on how they can be priced, which is great! My current working heuristic for which types of tokens “make sense” are those that act as some sort determinant of “canonicality” — i.e. they serve as a signal for the canonical, singular source of truth for “something”. Whereas most MoE tokens can easily be substituted for ETH or a stable coin, if a token signals canonicality it inherently can’t be substituted.

A great example of this is REP — REP signals the canonical source-of-truth of for the Augur oracle system. You couldn’t really substitute something like REP for, say, ETH, because the whole *point* of REP is that it signals the canonical Augur oracle. The same applies for governance tokens IMO.
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Brendan from Dharma
@soonaorlater @Nadav-Hollander One thing I'd add is that in listening to a recent 0x podcast (I think with Laura Shin), Will discussed ZRX and why they made it the required MoE. He said that this requirement would result in a diverse base of token holders because all of the actors in the system would need to hold some ZRX. For a token where one of the primary uses is governance, it makes sense to try to have a diverse set of token holders, and so I think this intention makes a lot of sense.

That said, while I admire the intention, I remain unconvinced that required MoE is the right way to achieve this end-goal.
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Jill Carlson
Hey guys! Congrats on all the progress! Something I've been thinking a lot about is credit scoring. Do you have any thoughts on mechanisms for pricing loans / scoring credit that don't rely on central third parties (like FICO or ratings agencies)?
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Nadav Hollander
@_jillruth Thanks Jill — big fan of this post BTW (https://medium.com/@jillcarlson/pandoras-protocols-2ae674de603e) :)

Decentralized loan pricing is a super tough problem — the sci-fi, long-term solution is that when we have reliable decentralized identities and a debtor’s entire loan history is on-chain (*hopefully* with something like Dharma) and privately tied to their identity, so a debtor would be able to compute a zero-knowledge proof of some sort of creditworthiness metric (i.e. naively, sum of value repaid in loans / sum of value borrowed) and present that to potential creditors as their credit score while maintaining their credit history’s privacy. Note that this is somewhat possible for DAOs today (imagine a DAO issuing bonds, for instance)— less-so for individuals given that decentralized identity hasn’t quite caught yet.

In the short-term — the best mitigation to relying on a singular party is likely having some sort of federated model + staking to make underwriters have more “skin in the game” — i.e. 5 institutions stake their confidence on a creditworthiness prediction for a debtor, and get slashed commensurately if reality doesn’t fall in line with their predictions.
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Jill Carlson
@Nadav-Hollander Love it - this bit about on-chain loan history is an idea I find super compelling. Let's chat sometime.
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Nadav Hollander
@_jillruth @_jillruth Please! My email's nadav at dharma.io
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Eric Meltzer
Whats the plan to rapidly bootstrap liquidity around ERC20 tokens? How long do you think it will be before I can easily borrow $10,000 of TRX, 100k of TRX, and 1M of TRX?
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Nadav Hollander
@wheatpond Hey Eric! Time estimates are tough 😳 Any particular reason you want to borrow TRX? ;)

A crucial piece of infrastructure for this sort of liquidity are Dharma debt relayers (if you're familiar with 0x's architecture, this is functionally the same concept, but for matching debtor/creditor instead of maker/taker). The first Dharma debt relayer we're aware of is Bloqboard (https://bloqboard.com), but they've yet to launch on main-net. Once relayers hit market, there will be formal marketplaces for this sort of liquidity to collect, so that should be a solid boon for liquidity.
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Brendan from Dharma
@wheatpond One thing we have on our to-do list is to create creditor-driven open debt orders. Basically, a would-be creditor could create an open debt order along these lines:

"if a borrower offers Z% collateral in A, B, or C token, for a duration less than X, and an interest rater greater than Y, then I will automatically fill that loan”.

We think that'll bring a lot of the whales to the platform and open up the potential to borrower in high quantities
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Eric Meltzer
@wheatpond @bpforster24 Ooh, I like that plan a lot. [email protected], no, no reason at all ;) just an example...
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Nadav Hollander
Folks -- gotta get back to hacking the mainframez (https://www.youtube.com/watch?v=u8qgehH3kEQ). Thanks for the awesome questions -- feel free to hop into our Telegram if you have any other questions (https://t.me/dharmalabs)
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Erik Torenberg
What’s something misunderstood or non obvious about how dharma works
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Nadav Hollander
@eriktorenberg Great question! Something a lot of people don't realize is that debt agreements in Dharma are actually *settled* on chain -- i.e. when principal payments / repayments are made, they are are routed to/from debtor/creditor on-chain. I think that a lot of people assume that Dharma is a sort of blockchain-based back-office for debt agreements where payments / repayments have to be "reported" to the chain by some sort of trusted party. This sort of model would, IMO, obviate a lot of the benefits of using a blockchain for this.
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Calvin Chu
Hey Nadav & Brendan! Any thoughts on making a portal for someone to list themselves as a general borrower/loaner, rather than a coin-specific position like your EOS tweet Nadav?
I'd love to get alerts to simply always be a loaner on the x many coins that I really like, for example.
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Brendan from Dharma
@calchulus Hey Calvin, this is a cool idea! While we don't have plans to build it ourselves, it'd be rad if someone built this :)
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Nadav Hollander
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Calvin Chu
@bpforster24 @Nadav-Hollander summer project :)
or maybe next weekend for a blockchain hackathon
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Clarke Nobiletti
Great job on Dharma Plex, awesome to watch the progress since September.

Any plans to add a whitelist component to the protocol for KYC/AML? In general would love to hear your thoughts on regulatory compliance, for both the lender/lendee, and where such responsibilities lie in the lending process.
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Brendan from Dharma
@Clarkebar We get this question a lot. We care about compliance and encourage our ecosystem to comply with local regs. That said, we do not view this as a protocol level feature but an application level feature.

As you know, we currently do not have any sort of KYC/AML at the protocol level. This is intentional. Dharma Protocol is a generic protocol, meaning that we want to support any type of lending agreement, anywhere in the world. Building KYC/AML into the protocol would either mean that 1) we are limited to only certain jurisdictions, or 2) that we have to build new KYC/AML solutions for each new jurisdiction that an ecosystem project wants to build in. That's not tractable. Leaving KYL/AML to ecosystem projects means that we can scale as fast as they can have great ideas.

One thing we may consider though is collaborating with one of the compliance protocols to put out an example of a terms contract with KYC/AML built in. This would help ecosystem projects have a starting point for their compliance.
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Clarke Nobiletti
@Clarkebar @bpforster24 Well thought out. Thanks
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jonathanmarcus
Will Dharma evolve to support traditional private credit market loans such as home equity lines of credit (HELOCs), etc.?
Congratulations for the launch!
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Nadav Hollander
@jonathanmarcus Hopefully in the long term! A crucial prerequisite to this is being able to reliably represent things like home titles as tokens on public blockchains -- some great projects working on this problem, though.
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Brendan from Dharma
@jonathanmarcus Thanks Jonathan! While I'm not familiar with the details of HELOCs, we are very excited for loans for meat-world assets to be moved onto Dharma. Mortgages, for instance, just require tokenized real estate to be used as collateral in a Dharma debt order.

We think there are a few barriers to this type of loan:

1) legal jurisprudence -- it's not a huge technical challenge to represent a title to a house as a token. What is a big issue is whether courts will recognize transfer of the token to actually be transfer of the house. This may be solved soon though -- we have some friends who are trying to establish legal jurisprudence for their real estate tokenization by suing each other (in a friendly, deliberate way). One of them bought a piece of land and tokenized it. He then sold it to the other person. The original land purchaser then sued the second person saying the transfer shouldn't be valid. We'll see if the court recognizes teh transfer as valid.

2) Trustworthy, battletested stablecoins.
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jonathanmarcus
@bpforster24 Thanks for such a thoughtful answer! Exactly what I was looking to understand.
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Rasnhop
Looking at your interface for issuing debt orders, you use a bytes32 type to hold the termsContractParameters. This seems limiting for very complex debt instrument which could have variable interest rates, conditions under which it behaves differently, various ways to pay off early, different behavior early and late in life, etc.

I can see 3 reasons for this design choice, and I was hoping you could clear it up for me:

1. You don't want very complex debt order, or consider 32 bytes enough for any "reasonable" debt order.

2. For complex debt types you could use the terms contract parameters to generate an address (or index) pointing at more parameters elsewhere (this seems very expensive).

3. I'm misunderstanding stuff (not unlikely).
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Nadav Hollander
@rasnhop This is an excellent question. It's important to know that the primary determinant of a debt agreement's terms is *both* the `termsContract` and `termsContractParameters` -- the terms of the loan aren't defined exclusively in the 32 byte parameter slot. The `termsContract` is an arbitrary smart contract that has to adhere to an interface of standard methods that allow any actor to query the contract for its expected repayments at any given time. Given that the terms contract is a smart contract, it can define arbitrarily complex logic for when and how repayments need to be made. The `termsContractParameters` strings serves to parametrize that terms contract -- i.e. so that you wouldn't have to deploy a new terms contract for every debt agreement that has, say, a different interest rate, but identical terms otherwise.
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Dan Held
Have you all thought about using alternative data for risk modeling? For example, oracles pull in outside data to help score users.
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Nadav Hollander
@danheld Yes, absolutely! We have an experimental trusted-underwriter feature in this initial release that could facilitate this sort of action.
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Alexis Aiono
If I'm not mistaken, the assumption that Dharma protocol is operating on is that there will be two separate healthy markets of `underwriters` and `relayers`. Traditionally, with P2P lending platforms, they support both sides of the marketplace.
Are there any current companies or projects that could fall under underwriter or relayers, or is Dharma hoping to be the catalyst for these companies to exist?

With that, what would be the optimal network of underwriters? For example, niche ones like lending to Zcash miners per your white paper or something else. From your response to @_jillruth, it seems to be that with the current structure, the underwriter with the best credit scoring algorithm wins. Hypothetically, let's say there is an underwriter who has a superior credit scoring algorithm for general personal loans. Without knowing too much on how relayers are matched to their underwriters, it seems like relayers will be competing for the most competent underwriter. Is there a way Dharma can check and balance this in the marketplace?
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scott
why is a public lending protocol better than a private, permission solution like quorom or hyperledger?
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Michael Brune-Waelser
Hey there, very interested in Dharma. The one thing that sticks out to me is the crypto to fiat liquidity. I personally like that aspect, but wanted to see if you could talk more about it? The stable coin loan that is. For example, what you want it to be versus what it will be. In that there’s what you envisioned for it and how it will most likely be used for based on data (if any); that helped with the model creation for this. I’m not sure if I’m doing a great job of explaining my question. Let me know if you need clarification. Keep up the great work!
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Brendan from Dharma
@michaelbrne Not sure we understand the question. Could you rephrase?
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Michael Brune-Waelser
@michaelbrne @bpforster24 when building crypto to fiat liquidity via stable coin loans, was there any model it was based on? If not, how will it work on Dharma?
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Neil Deramchi
What kind of friction do you think you'll encounter in generating broader adoption amongst the non-crypto community?
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Nadav Hollander
@NeilDeramchi UX, UX, UX -- using a browser-extension wallet is a horribly confusing experience for non-crypto denizens, at no fault of their own. We have huge strides to make on this front.
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Brendan from Dharma
@NeilDeramchi @Nadav-Hollander +10000000 Before I got crypto-obsessed I didn't even trust Chrome extensions to send emails. Now I'm supposed to trust them with my money?!?!?!?! It's crazy that we've even gotten this far.
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Neil Deramchi
Really love how lean this day 0 release of Dharma Plex is. What are some other creative features you've envisioned/are excited about in the future?
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Brendan from Dharma
@NeilDeramchi We have bounties out on bounties.network for a crowdfunding contract and collateralized collectibles (e.g., use your cryptokitty to get a loan).

I mentioned to Eric above creditor-driven open debt orders.

But the wackiest idea that I've had that I am irrationally excited about is to finance a restaurant using Dharma -- BUUUUUT, I want the restaurant to pay interest in a native token that represents credit at their restaurant. Example:

Brendan's Burgers is a successful restaurant in NYC. They want to open a second location, and want to finance the project with debt. They use Dharma to borrow 250K USD, payable over 2 years. Each holder of a share of the debt gets paid interest in BrendanBurgerTokens -- 2 BrendanBurgerTokens per month. Each BrendanBurgerToken is redeemable for a Burger & Fries.
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Neil Deramchi
@NeilDeramchi @bpforster24 *starts lending to every restaurant in the area and eats all of the things*
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Andrew Phillips
Do you foresee treasury bonds being tokenized on Dharma in the future?
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Brendan from Dharma
@Andrew-Phillips There are no technical barriers to achieving this, so in a certain sense, yes, this is entirely foreseeable.

But on the other hand, by the time the US federal government is willing to put t-bills on-chain, it's somewhat questionable whether people will believe in fiat currency enough to fund those debts.

We think other government debts (e.g., muni bonds) are much more likely candidates for tokenization.
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ChristianKaczmarczyk
How do you yourself vs Compound?
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Brendan from Dharma
@ChristianKaz_ So Compound is a platform for money markets. Basically, Compound acts as a kind of Fed, analyzing supply and demand to set the overnight interest rate in various assets. And they are the intermediary in any transaction -- you lend to Compound to earn interest, and borrow from Compound and pay them interest. There are lots of technical differences too.

In contrast, Dharma is an open debt system for any kind of loan, we are not an intermediary in the process, and basically every parameter is flexible (duration, asset, interest rate, etc.).

At the end of the day, money markets and open debt markets are only very obliquely competitors. There are many, many more ways in which we will collaborate vs. compete.
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