Creditcoin Q&A | Dec
Q. What is the main goal of Creditcoin, and what has been your biggest accomplishment in achieving that goal so far?
Our main goal at Creditcoin is to change the way that global credit is done, making global finance more transparent, trustworthy and inclusive through the power of blockchain technology. The first step on that mission is emerging market finance, where credit systems are often underdeveloped, and the demand for credit is still untapped.
By recording the loan performance of borrowers and lenders in emerging markets, we can help improve the flow of lending capital, giving both the borrowers on the ground access to the capital they need to grow their businesses’, pay for their education, or otherwise fulfill their needs, whilst also opening up this investment market to everyday investors looking for new opportunities which have a real-world impact.
So far, our biggest achievement to that end has been deploying the first real-world Creditcoin integration with our partners Aella in Nigeria. The integration has seen Aella moving their loan operations onto the Creditcoin blockchain, recording hundreds of thousands of loans in the process. You can watch that process live on the Creditcoin block explorer here.
Our next major milestone will be the launch of the Gluwa Invest Fixed-Term Interest Account, which will let users pick and choose exactly which companies they want to invest in. You can think of it as an open credit investment marketplace, with many of the companies raising money building their operations on Creditcoin, the open credit protocol.
Q. A few days ago, another DEX attack took place which resulted in the loss of millions of dollars. Can you explain what Creditcoin does to ensure the security of its users? Do you have a bug bounty programme to help find and resolve vulnerabilities in your platforms?
Great question. I will break it down into three different sections.
Firstly, let’s talk about our internal development process. It starts with hiring well, and on that front we have an amazing engineering team, a few of which have even spent time at NASA. After that it boils down to doing extensive internal code checks and lengthy QA testing. Everyone knows software development is prone to delays, and this is usually the reason for it, ironing out complicated issues and unexpected bugs.
Once a major update is ready, we also use third-party audits to help make sure that we’re following the industry best practices and that everything is working as intended before we hit publish. Our audits are carried out by Certik. Finally, everything we do code-wise is open to the public on Github, making sure that anyone can come and check our code. Transparency usually results in better results.
Most of that is standard, boring, boilerplate stuff. Pretty much everyone else also does this, but things can and often do go horribly wrong. In most software dev this isn’t usually quite so catastrophic, but in DeFi, with real money on the line, things are very different. Which brings us on to our second point.
Creditcoin isn’t an attractive target for hackers. The reason for this is simple: DeFi protocols hold your money in various smart contracts, which anyone can see. Naturally, this attracts hackers like moths to a flame. Imagine a bank holding up a sign saying, if you can crack this piece of code, you can run off with everything in our vault, and on top, we’ll probably never catch you either, and on top of that, we can never reverse your transactions either. Essentially,everything is riding on the security of code. And when one missing digit can be enough to lose millions, there is always going to be this smart contract risk.
Creditcoin on the other hand, doesn’t hold any users’ funds, it simply tracks the flow of these funds on other chains, or in other third party contracts. In other words, hackers have nothing to gain by attacking Creditcoin. Yes, maybe you can find a bug, but that won’t let you steal the user’s funds like with most DeFi protocols.
And finally, whilst we don’t have an active bug bounty program right now, we’re in the process of getting one ready. You can expect more information on that next year.
Q. The crypto bear market has already lasted for over 400 days. Will Creditcoin and Gluwa be affected if these market conditions continue? + If there is a global recession, how will Gluwa and Creditcoin adjust and adapt?
So I’m going to answer these two questions together as they’re very related.
Regarding the first question. Crypto bear markets come and go as we all know, but Gluwa and Creditcoin are sticking around. To answer your question more concretely, yes we have enough runway to last us several more years. Right now, we’re looking to grow, not downsize. I don’t have the exact numbers for you, but we are looking to make several more engineering hires in 2023 if that is any indication.
Now to answer more broadly about how the macroeconomic situation may affect us, it’s obviously very hard to say exactly, especially when I’m not an economist, but I’ll try my best. To summarize, there’s a very real possibility that rising interest rates, and the broader crypto downturn, may in fact have some positive effects for Creditcoin and Gluwa.
Firstly, in regards to crypto, we’ve already seen DeFi yields implode as demand for leverage in the ecosystem collapses. The unsustainable interest rates we saw in DeFi were made possible due to the overarching bullish market conditions and associated speculation. Now that’s all gone, so have those interest rates.
Gluwa is unaffected by the crypto market cycle, as our yield is all based on real-world businesses, it also represents an opportunity to capture some of those users, converting crypto speculators into crypto investors looking for real yield from real-world sources.
Secondly, on to interest rates and the overarching macroeconomic picture here. Again, I’m not an economist, so I’ll largely be basing my opinions here on a memo from Howard Marks (link here), one of the world’s most successful investors, and co-founder of multibillion dollar investment fund Oaktree Capital. I’d recommend reading it if you’re interested in the bond market (what we do at Gluwa and Creditcoin), and how it might play out in relation to interest rates and the overall investment outlook. He also makes these points better than me!
To summarize, the biggest factor behind the bullish stock market over the past 40 years has been low interest rates. Loose monetary policy has encouraged speculation and risk taking, whilst safer investment (such as your bank’s interest rates) have been in terminal decline. Today, the stock market is falling, encouraging investors to look elsewhere. At the same time, interest rates are going up to tackle inflation, resulting in the cost of borrowing increasing, and also the returns for lenders increasing too.
Putting these things together, I can speculate on a few different possibilities for Gluwa and the overall bond industry. If the stock market continues to fall and interest rates continue to go up or stay relatively high, then investors will look for new investment vehicles. Meanwhile higher rates are good for lender returns, meaning things might actually be looking up for bond market investors. And a bouncing bond market can only be good for companies and protocols working in that sector.
Gluwa offers exactly this, offering everyday investors a chance to enter the global bond market and access higher returns. Meanwhile Creditcoin affords investors greater transparency over counterparty loan performance helping to reduce risk and encourage investment.
As the low-interest rate investment climate of the past 40 years comes to an end, perhaps OpenFi investment is arriving at exactly the right time to capture this new market?
Finance often works counterintuitively. As my friend in Lloyds of London has explained to me (the world’s biggest insurance group), lots of good news is actually bad news, as suddenly, people’s risk perception vanishes and no one wants to pay the same rates for their insurance. Meanwhile bad news is actually good news, as suddenly, people get a reminder of the importance of paying top-dollar for their insurance.
Hopefully it’s somewhat similar for Gluwa and Creditcoin.
Q. OpenFi is already providing services in Nigeria. Which other countries do you plan to expand to, and how do developed countries fit into this strategy?
Our focus is on emerging market economies for the time being. There’s loads of reasons for this really. I’ll just bullet point some below to explain our approach:
- The credit gap — Basically, the demand for credit is much higher in emerging markets relative to supply. Countries like the U.S. already have a debt to GDP ratio well over 100%, meanwhile small businesses in emerging markets have historically struggled to get any kinds of banking loans etc. So the untapped demand for credit, and associated business opportunity, is much higher.
- Credit infrastructure — Again similar, but developed economies already have extensive credit lending infrastructure and coverage. Credit is already everywhere, on website checkout sites, through your credit card, as a mortgage for your house etc. Plus the informational infrastructure is also more developed, with proper banking records, credit scores, open banking initiatives etc. In contrast, this stuff doesn’t exist in emerging markets, so there is a greater opportunity to build a new, better system from the ground up.
- The role of fintech lenders — The best way for us to scale is through local lending networks, especially fintech lenders. Fintech lenders in emerging markets need more access to credit, they play a greater role in credit provision (where banks have often failed), and they are also more amenable to the objectives and technology of Creditcoin. Plus, they pay more interest!
- Higher returns — As I already mentioned. Emerging market lending has greater perceived risk, this means more rewards too. The good news is that the data revolution, primarily through smartphones, is allowing fintech lenders to assess risk much more effectively than before. You can read more about that here. Right now there’s still a huge gap between the real and perceived risks of these investments. This is an information asymmetry you can exploit (by using Creditcoin to help you), and make higher yields than you could in developed economies.
- The social impact — We’re here to make a difference, and your money is more likely to do so if it’s funding small businesses and enterprises in emerging economies who have always lacked access to the credit they need to grow.
- Cryptocurrency usage — Finally, Creditcoin needs people to use crypto for it to actually work, and people use crypto much more in emerging markets than they do in the developed economies. This makes Creditcoin adoption and usage much easier in emerging markets.
Having said this, we’re still looking at opportunities to grow in developed economies too. Indeed, our network of OpenFi investment opportunities will be sourced all over the world, with no intrinsic geographic requirements. You can expect investment opportunities in developed economies, just like you can in emerging ones too!
As for specific countries we’re looking to expand into, our list of OpenFi partners should give you some general ideas. Jenfi are Singaporean, YoFio are based in Mexico, Awabah in Nigeria, and Credrails operate all over Africa.
Q. Will Creditcoin and Gluwa be celebrating the new year with a new years event for supporters?
You know us too well! 😁
About Creditcoin
Creditcoin is a foundational L1 blockchain designed to match and record credit transactions, creating a public ledger of credit history and loan performance and paving the way for a new generation of interoperable cross-chain credit markets.
By working with technology partners, fintech lenders such as Aella, and other financial institutions across global emerging markets, Creditcoin is securing capital financing, building credit history and facilitating trust for millions of underserved financial customers and businesses based on the principles of Open Finance.
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About Gluwa
Gluwa is an Open Finance platform, connecting capital from developed markets to emerging market lending opportunities using blockchain technology. By providing the decentralized infrastructure rails to raise and disburse capital anywhere in the world, investors can use the Gluwa Invest platform to partake in debt-financing deals with emerging market fintech lenders, earning up to 20% APR.
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