Lending

[JordanLee]

As indicated in my whitepaper, lending will be key to the success of NuBits, as the properties of stability with slight inflation are quite conducive to this use case. It is the key to allowing NuBit holders to earn substantial interest in a completely sustainable manner. It will transform NuBits from being merely a transactional medium to an asset that produces a return.

We need shareholders to step forward and bootstrap the process. Because this will provide tremendous value to shareholders, it is worth providing whatever incentive is needed to get the process started. I would like shareholders to discuss an appropriate structure for rewarding the first loans in NuBits.

There are a number of sites offering peer to peer loans in Bitcoin, such as BTCJam. These might be the easiest places to get started with NuBit lending. The stable value of NuBits makes them far superior to BTC for lending.

What other ideas do shareholders have for ways to get started lending NuBits?

[Sentinelrv]

I’ve been waiting to hear about this and interested in how it would work.

[irritant]

first thing that came to mind was micro lending, micro finance, compete with the bad actors who try to squeeze out the poor even more http://www.businessweek.com/stories/2007-12-12/the-ugly-side-of-microlending
http://www.telegraph.co.uk/finance/8617658/How-bad-actors-spoil-microfinance.html

i have my doubts about how to earn substantial interest in a sustainable manner, the high interest would not be for the micro loans in my opinion

(may be a challenge to counter these perverse incentives in a free market/no regulations, the goal should not be profit maximization, mentality has to shift)

maybe not very feasible in short term, it is only an idea

[Sabreiib]

Correct me if I am wrong:
Peer to peer lending originated from UK in 2005 and booming everywhere all over the world. I check some information in China, it seems

Advantage:
1)high yield, P2P usually more than 20% annual rate while traditional bank deposits rate around 3%, other finance product below 10%.
2) small fund, no collateral mortgage, very convinent process via Internet.

Disadvantage:

1. since high yield, high risk is inevitable.
2. no supervision by central bank/banking regulatory commission.(at least in China)

Is the lending business between Nu protocol and NBT holders or between NBT holders themselves?

[GLock]

I think that would be nice to have an independent platform specific for NuBit, the major problem of BTCJam is that there are a lot of users that manage to create false references and at the end never pay the loan back.

The best way to do it is to find a smarter way to assess users, and to minimize the risk of scam.
Until cryptocurrencies are legally recognized as an asset or currency, it will be difficult to legally bind a debtor to repay a loan.

What about building a system where you can ask a loan only if you have locked in at least a portion of what you are asking?

Eg.: I want to ask for 1,000 NBT. To do so I need to transfer to a trusted third party address 500 NBT and it is locked until I repay in full the loan.

Of course as in BTCJam users need to be assessed first with references, paypal account, verifying income etc…
I understand that it would limit the amount of money you can ask, but is the best way to prevent scams and provide a lower interest rate as the risk would be lower, I think.

[Sabreiib]

Eg.: I want to ask for 1,000 NBT. To do so I need to transfer to a trusted third party address 500 NBT and it is locked until I repay in full the loan

I will run off with 500NBT profit.

[Sabreiib]

The existing NBT parking machenism is also a lending business, the Nu protocol borrows NBT from holders and pay interest.

Because of annonymous of NBT/NSR holders, any attempt to reference real ID credit record will fail. We either

1. establish a new credit record system in an distributed way, and people with good credit NBT/NSR address are permitted to lending business.
   Or
2. use collateral mortgage. If lending occurs between holders, any type of collateral is acceptable as long as they agree.

If Nu protocol involved in lending business, since we are factual reserve system the only acceptable collateral is NSR, while btc must be completely denied. There is a typical attack to fractal reserve system: attackers borrows tons of NBT by pledge lots of BTC, then they attack NBT pegging, once buy wall broken they buy back NBT at very low price and pay back to protocol.

We develope Smart Contract template for lending, people will borrow/lend NBT with each other. But I am more interested in lending business between people and Nu protocol. Can we use reverse parking machenism by lending NBT to NSR holders? So that there will be thousands of tiny commercial bank, actually everyone can become a tiny bank, and Nu protocol is the central bank. Therefore Nu protocol may earn profit and more important is control the circulation of NBT In the market.

[Cybnate]

Because of anonymous of NBT/NSR holders, any attempt to reference real ID credit record will fail. We either1) establish a new credit record system in an distributed way, and people with good credit NBT/NSR address are permitted to lending business.Or2) use collateral mortgage. If lending occurs between holders, any type of collateral is acceptable as long as they agree.

I think the NSR/NBT holders lending NBT can still be anonymous especially when they are managed by the protocol. All can go in a kind of lending pool (in the blockchain) with different offerings (duration, interest, cost to pay-off early). The lender need to be trusted though, so I agree that there are the two options (new credit/identity system and collateral) as quoted above.

But there is also the option to ask people to provide a real world identity. I suppose than many wouldn’t mind and fully understand that they need to identify themselves to receive a loan especially when there is no collateral. Here is the challenge on how we make an interface into the real world. Most exchanges are already doing this and I have seen several different processes. Maybe we can partner with 1 or more trusted exchanges and utilise their identification process. Another option is to set up such a service ourselves, but which may be expensive and complicated.

Another system might be that there is some kind of identity custodian who verifies user identities and securely attach them to openIDs, Google IDs or anything (e.g. in a blockchain) we think can be used to authenticate users once verified onto our lending platform. The identity custodians will have to built their credentials over time. I can imagine that lenders even adjust their lending terms (e.g. interest, or max height) depending on which custodian has done the verification on a certain account (verifiable in the same blockchain).

A few things to think about:
The cost of the identity verification service. Would a lender be prepared to pay say $25 or $50?
What kind of blockchain would we use to e.g. attach an OpenID to a passport number and a verification date?
What kind of identities will be acceptable? An American could verify an American passport, but likely wouldn’t have a clue how to verify a Chinese passport. Although I believe there are websites for that.

Anyway lot’s of rules and complications, but not impossible (given that exchanges can do it).

I think we should write a white-paper on this or something similar…

[Sabreiib]

Cybnate, last year I paid someone money for BTC mining rig, and never get my machine. He gave me his ID card copy and I transferred fund via bank account. Finally I called the police and nothing happens till now. Everything can be fake, including ID card.

So I prefer to “trust no one” police, every person is suspicious, even Jordan’s account may be hacked. To be frank, collateral mortgage is my only choice. I like a cold blood mechanism which treats gentleman and thief equally.

[Cybnate]

Cybnate, last year I paid someone money for BTC mining rig, and never get my machine. He gave me his ID card copy and I transferred fund via bank account. Finally I called the police and nothing happens till now. Everything can be fake, including ID card.

So I prefer to “trust no one” police, every person is suspicious, even Jordan’s account may be hacked. To be frank, collateral mortgage is my only choice.

That’s fine, but everything has its price. You like full collateral and may offer low interest to a lender. Others say I trust you with ID only to a certain value and with higher interest. I see it as a market with different risk appetites.

BTW Only a copy of ID card is indeed very weak. Alternatives are video sessions where the user present themselves with one or more IDs visible and recordable. Also when people are prepared to pay further background checks can be done in many countries.

[GLock]

In BTCJam you can run off with the whole lot if you want to at the moment…
the 500 deposit is in addition to the reference system.

But I am sure it can be done in many other different ways… Cybnate idea about an identity custodian is a good example of another way of utilizing a trusted third party to keep IDs and/or a deposit.

The risk of lending money is the reason why there is interest, risk can be minimized but not entirely removed.

[seki]

i have lost some btc in btcjam even to trusty members with good payment history.
in p2p lending you can’t be sure for anything, thus the risk and the interest.
i think it is the same as gambling or investing

[Sabreiib]

There is “long con” which means some good credit record persons finally commit sth bad, so I don’t even trust good guys because the “good tab” is just about past not future guaranty.

So our lending business is going to be kind of gambling? High risk high yield, this appetite is fine, e.g., I am investing XPM now, perhaps X10 next year due to side chain by SK, and maybe empty handed.

The difference is that I believe in the judgement of myself, e.g. XPM has some feature I really like and modified PoW is OK, even SK is missing, XPM also attractive to other programmers. However, I just won’t trust a certain person on line anymore because I can’t even assure if he/she is himself/herself. I prefer to open transaction’s “trust no one with your money” policy.

Any trusted central node/third party is the weakness of that system, I won’t trust central bank, let along other central node(third party).

11:34, “Don’t trust people with your money”, and Bitcoin’s success is the elimination of trust on central node.

[tomjoad]

But there is also the option to ask people to provide a real world identity. I suppose than many wouldn’t mind and fully understand that they need to identify themselves to receive a loan especially when there is no collateral. Here is the challenge on how we make an interface into the real world. Most exchanges are already doing this and I have seen several different processes. Maybe we can partner with 1 or more trusted exchanges and utilise their identification process. Another option is to set up such a service ourselves, but which may be expensive and complicated.

I’ve mentioned it before, but if projects like the Cryptocurrency Bank overcome the wave of regulation they’re sure to encounter, it’s an ideal platform for NuBits lending. They would be the ones that invest in development of the lending processes, identity verification, and regulatory compliance. We should be the ones making sure the product they lend works.

These types of institutions may very well take a long time to come into existence however, so I agree that as shareholders we should be trying to kickstart the process. While I’m not familiar with BTCJam, I think your idea @Cybnate of looking at exchanges with existing KYC processes might be a great place to start, as they already function like a minimalist bank.

What would be a good first exchange to work with?

[JordanLee]

I would like to keep the discussion focused on what actions need to be taken to make NuBit lending a reality.

Some have mentioned that BTCJam features high default risk. This is a concern for the lender, but is not really our concern. Our concern is whether BTCJam and other lenders perceive adding support for NuBits as a profitable course of action. Perhaps they are intimidated by it and just need someone knowledgeable to help them. Perhaps they need compensation for the effort it would take to support NuBits.

So, we need someone to step up and answer the following questions:

• Who are the peer to peer lenders best suited to supporting NuBit lending?
• These lenders need to be contacted to determine why they aren’t supporting NuBits and what it would take to interest them in doing so. Then shareholders should attempt to provide them with the assistance or compensation they require.

There is ample funding available for any course of action shareholders decide brings value. I am surprised to see that only Cybnate has requested and received funds for an initiative outside the scope of liquidity provision. I think shareholders and other participants are used to cryptocurrencies that have no model for funding their own development. But that is not our situation. There is no lack of opportunity here, just a lack of initiative.

There seems to be a desire for collateralized lending. This can certainly be done. Auto loans may be a viable avenue here. In some countries auto loan rates seem to be subsidized via governance but in many countries this is not the case and auto loan rates begin in the double digits. In some such countries people may be adverse to loans not denominated in their national currency. However, in many countries in Latin America, for instance, car prices are denominated in US dollars. Some research ought to be done to discover where auto loan rates are highest and what places would accept auto loans pegged to the US dollar. If a lower rate can be offered for NuBit lending, we can create a market. Possibilities for partnerships with established lenders (who can assess credit worthiness) and car dealerships should be assessed. Shareholders should consider compensating whoever is willing to do all the work to put this together.

Let’s take a moment to consider how loans such as auto loans would effect the NuBit economy. The first thing that would happen is a NuBit loan would be immediately exchanged for the currency the auto seller desired to be paid in. Then every month for the term of the loan there would be guaranteed demand for NuBits, as the borrower would need to purchase several hundred NuBits each month to repay the loan. This supports the peg and would create demand for exchange services. The creation of these exchange services would make NuBits easier to use. Investors would purchase NuBits with the goal of receiving interest on them. Lending will provide a multitude of important benefits to the NuBit ecosystem.

[tomjoad]

I’ve sent an introductory email to Celso & team with BTCJam, will update this thread when I hear back.

[Cybnate]

What would be a good first exchange to work with?

That is not an easy question. I would trust CCEDK and I would trust a Dutch exchange as I would trust the people there as they need to comply to stringent Dutch KYC processes. Others might trust Vault of Satoshi, I don’t know them well enough, but they look reliable on first sight.
So if one of those exchanges could provide a proof of identity check with some smart process and ideally lodge that into a blockchain in a way it is verifiable, that would be great.

100% peer to peer lending is only possible if you can trust strangers, which most of us don’t. Or have 100% collateral and control over it. Most of the time you will need a 3d party to do some due diligence or vouch for them in some way when you trust the third party. A trust-less peer-to-peer lending system is one of the toughest things to crack in my opinion. Until someone has figured this out, I think we just need to tie into existing trust systems and interface them into the blockchain, so they are at least traceable and not able to be counterfeit.

I’ve sent an introductory email to Celso & team with BTCJam, will update this thread when I hear back.

Let’s see what comes back from that.

There seems to be a desire for collateralized lending. This can certainly be done. Auto loans may be a viable avenue here.

Auto loans is interesting to start with especially in countries where reliable banks are scarce and too expensive for most people. Ecuador is accepting dollars, but I you would need someone local who knows the market to write down a proposal for the shareholders. e.g. a car dealership.

Some have mentioned that BTCJam features high default risk. This is a concern for the lender, but is not really our concern.

True, but does not sound like a viable system therefore. Ideally NuNet should bring knowledge, processes and third parties (e.g. for KYC) to improve security and this can be a growing market for the Shareholders. Don’t see it taking off otherwise any time soon.

[tomjoad]

Would be interesting to see what @ronny at CCEDK thinks about this discussion.

I’ve contacted Vault of Satoshi multiple times since release trying to gauge their interest in adding NuBits, but haven’t even received a response. VoS cut their trading operations down to a handful of long-established coins last month, so adding NBT might be contrary to their current strategy. They are an excellent exchange however, so I still hope they’ll realize the opportunities that NBT trading pairs brings in early 2015.

[pennybreaker]

Would be interesting to see what @ronny at CCEDK thinks about this discussion.

Yeah, we need an exchange to offer margin accounts backed in NBT. Not only would this be great for NuBits, it’s the only way for exchanges to even come close to competing with the likes of Bitfinex, OKCoin, etc.

[zoro]

if i understand correctly you wanted to convince traditional exchanges to add p2p lending fearures?