The concept of loans have existed for thousands of years, and typically lenders would know who the borrower is, and on that basis amongst others, issue the loans. So why is there a case for anonymous loans, and how will it be implemented?
Finance institutions which issue loans require as much Know Your Customer (“KYC”) information as possible before allowing a borrower to have a credit line with them, and because existing finance firms’ customer databases are not linked to each other, each firm will do their own verification and KYC checks and store them in centralised information silos.
Pros: Traditional methods of KYC have existed for a long time already and so far have proven to be quite reliable.
Cons: Information silos and outdated KYC process. Banks or credit firms do not share KYC information as they treat such information as classified and undisclosed for customer privacy sake. I argue that existing KYC checking processes are outdated and CashDab intends to implement new features which will be covered in the next section below.
CashDab enables anonymous loans by having its own internal credit rating token issuance system, an innovative social media driven KYC checking process, and a tiered account verification and product feature process. Lenders and borrowers are connected simply without having to do time consuming understanding and external verification of counter-parties. Lenders need not worry about the loss of deposit insurance protection unlike non-blockchain P2P lenders as all funds and transaction informations are stored in the incorruptible blockchain. The funding mechanism will be discussed in detail in the upcoming whitepaper.
CashDab will create a decentralised credit rating and KYC system which uses a combination of blockchain as well as linking each user account’s social media information to perform KYC and credit ratings, eg. checking of each borrower’s social media accounts such Facebook, Twitter, Instagram, LinkedIn etc on top of typical personal or corporate income statements. Social media is increasingly becoming a part of most people’s lives so social media streams of borrowers are increasingly becoming relevant as part of the KYC process. It will be part of the tiered account verification process to submit the borrower’s social media account handles, eg. the more income and social media information you provide, the more a user can borrow and have his/her account enabled for higher margins.
For every successful loan repayment, a small percentage will be issued to the borrower as an internal blockchain credit rating token, so the more tokens a borrower has, the better its credit rating. Any loan repayment delays or defaults will have a negative effect on the credit rating token values. The credit rating token mechanism will be discussed in detail in the upcoming whitepaper.
The borrower’s credit rating tokens are stored on CashDab’s blockchain, and will have the option to have limited public accessibility. This is so that any CashDab user will have his or her own virtual credit rating for personal finance history reference and financial status verification etc. For example, if a CashDab user migrates to another country for work purpose, and when say purchasing or leasing of a vehicle, the user can produce his CashDab credit rating and loan history, etc., as part of his financial status verification. CashDab will effectively decentralise credit ratings and at the same time make it universal by itself being a borderless entity. This solves the problem for people when they cross country borders and their income and financial statements aren’t applicable. We intend to work with existing financial institutions to roll this out globally.
This in effect shows that anonymous loans will work as CashDab removes the need for separate financial intermediaries by virtue of having all the necessary information required to complete a loan process stored on the immutable CashDab blockchain, thus its goal of streamlining global financing, reducing intermediary costs and addressing cybersecurity concerns all at once.
This blog post is part of a series of articles leading up to CashDab’s white paper.