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!
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 background: 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.
Bloom Protocol: 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:
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..
“Citigroup’s new digital product might be a game-changer for crypto” According to Business Insider, Citigroup has developed a new crypto product called “Digital Asset Receipt” in a collaborative partnership between the bank’s capital markets origination team and depository receipts team. The article from Business Insider further went ahead to say that this news “may be a game changer for the industry”.
“Bitcoin Mutual Fund in Canada” First Block Capital Inc., the only regulated bitcoin fund in Canada, has acquired mutual fund status, allowing investors to invest in First Block through their self-directed Retirement Savings Plans account and Tax-free Savings Accounts. This essentially allows investment advisers to buy and redeem FBC Bitcoin Trust units on behalf of their accredited clients.
“Two more stablecoins on the street” Winklevoss twins-owned Gemini Trust and Itbit operator Paxos Trust obtained licenses from New York Department of Financial Services (NYDFS) to launch their respective stablecoins. Both the coins are ERC20 tokens issued on top of the Ethereum blockchain and are subject to anti-money laundering acts to prevent the use of these stablecoins in money laundering or terrorist financing practices.
“A majority of crypto investors want to buy more” Investment platform SharesPost recently published a study which suggested that a majority of accredited and retail investors plan to increase their crypto asset holdings over the next 12 months. The survey also showed that people remain optimistic despite the huge decline in price recently.
“Cryptocurrencies are here to stay” During a recent meeting of the Economic and Financial Affairs Council, Valdis Dombrovskis, the Vice President of the EU commission (the legislative authority for the EU), suggested that despite the recent turbulence, crypto assets are here to stay. In particular, he remarked on the potential for ICOs to develop as a viable form of financing.
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