Why Unsecured Credit Matters

Jacob Shiach
Union Finance
Published in
3 min readFeb 5, 2020


Congratulations! You just got your dream job.

To celebrate we go out for dinner and when it comes time to pay, we both hand our cards to the waiter.

*Your card was declined, insufficient funds*

You are mortified, so I do the friendly thing and drive you to a pawn shop to borrow $50 against the watch your grandfather left you, so you can cover your half.

Of course not, I front you the cash.

Yet, this is the state of decentralized finance(DeFi) today. In order to access lending markets, you are required to put up assets worth more than you intend to borrow(~1.5 times more in most cases).

Paying 9% APR to borrow from yourself is not the future of finance

Collateralized lending has its place. It’s great for speculation on the value of assets, or if you want to enter into a 5x leveraged real estate venture (aka a mortgage).

But, if you don’t have money and need to borrow some, it’s not terribly useful.

Which is where unsecured lending comes in.

Time-shifting Future Value into Present Resources

The ability to borrow with just the promise you’ll pay it back serves two important functions: 1) It moves idle money to where it will be put to work, and 2) it lets a borrower effectively time shift when they receive the benefit of some resource.

From interbank lending keeping banks solvent through liquidity crunches, to venture capitalists putting millions($) in the hands of those with just an idea as collateral, and even the installment loans that let you buy the latest technology today instead of after 2 years of savings.

The ability to access credit drives growth in an economy at every level.

Now, some people in crypto view unsecured lending as creating systemic risk. I would counter that the line between collateralized and un-collateralized lending is simply a matter of appraisal and that the real danger is in the miscategorization of risk. If you know you’re going to jump out of a plane, you can take precautions, it’s the unknown risks that will get ya.

Will trade 👑 for 🐎

And more importantly, an economy without a functioning unsecured lending market is one without safety nets. This is because, without them, momentary gaps in liquidity turn into liquidation events. Which can cascade into “losing an entire kingdom all for the want of a horseshoe nail.”

In summary, without an effective way to support unsecured lending, DeFi’s economy will forever remain an asset-backed economy. Only useful for speculation and providing cheap equity lines of credit to the wealthy. Reinventing a system of haves and have nots, now with 100% more blockchain.

We believe this new decentralized economy can and should work by default for those without assets…. without bringing mountains of personally identifiable information on-chain, or into the hands of 3rd party attestation platforms.

This is why we are building Union.

We’ll be sharing a lot more of the how in the weeks to come, but in short, Union is a credit mutual that enables pseudonymous unsecured credit lines.

👩‍💻If you’d like to help us build a fair, global, independent credit system that works for its members, We’re hiring: https://forms.gle/zjdSrVb5iU4JkVxK7

💳If you’d like to build something that leverages an unsecured credit line, or want to be one of the founding members of Union, please apply here: https://docs.google.com/forms/d/e/1FAIpQLSdk1x5prwNksRg1sZ3JInd-qlnRK6n495-9CF0gqP9NPrh7nQ/viewform

🦉If you’d just like to follow along on twitter: @unionprotocol