RCN’s New Development Roadmap
Introducing RCN’s Future Roadmap
The project’s new technological blueprint focuses on four key areas: Fiat-denominated Loans, Accessibility, Decentralized Identity and Uncollateralized Loans.
RCN’s New Development Roadmap.
RCN is excited to announce that, after a careful process of industry analysis and user research, it has adopted a new roadmap that better reflects the current needs and long-term potential of the Decentralized Finance ecosystem. With this in mind, the project’s development horizon was refocused towards bringing DeFi lending and borrowing to more traditional use cases designed for a mainstream user base.
In order to achieve this, all future work will be centered around 4 key development areas: Fiat-denominated Loans, Accessibility, Decentralized Identity and Undercollateralized Loans. Here’s what they’re all about!
RCN’s roadmap has 4 development areas: Fiat-denominated loans, Accessibility, Decentralized Identity, Undercollaterized loans.
The first key development area for the creation of a DeFi credit product truly appealing for the widespread public is the introduction of Fiat-denominated Loans. While the borrowing and lending of stablecoins through decentralized protocols has proven itself a hugely successful use case, the variety of currencies in which these services are offered leaves much room for improvement. This is a direct consequence of the lack of variety of stablecoins itself, almost all of which are denominated in United States Dollars (USD) with virtually no alternatives for local currencies from Africa, South Asia, Oceania, Latin America or the Caribbean.
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This contrasts sharply with the reality of emerging debt markets across the world, in which local currencies play an important role by allowing borrowers to denominate debt in the same currency in which they generate income. This disconnection between DeFi’s proposal and the actual needs of its potential users prevents them from joining the ecosystem, severely limiting its growth.
Taking this into account RCN has integrated with Chainlink to adopt a different approach to loan denomination, which allows it to offer users from around the world the chance to request loans in their local currency regardless of whether a related stablecoin exists or not. The first Fiat-denominated Loans were launched in early 2021 starting with the Argentine Peso (ARS), making RCN the first DeFi project to offer this kind of borrowing alternative. However, given the lack of restrictions provided by the adopted approach, this was only the beginning.
The next step in the inclusion of new denomination alternatives for DeFi Loans involves essential cryptocurrencies such as BTC, ETH and DAI, but once these are added to the Credit Marketplace the search for new fiat currencies will resume. The first candidates will be those currencies that have already been integrated to Chainlink Price Feeds, which can be introduced to the platform in almost no time with minimal resources. Further listings will be defined on a community-driven basis, letting current and potential users decide which currencies they would like to see integrated next.
In all cases, new listings will require less time and resources than creating stablecoins for the chosen currencies, allowing RCN to quickly adapt to changes in market demand.
The second crucial component to deliver DeFi credit solutions to a more traditional user base is accessibility. The current transaction costs for the Ethereum network have proven to be an excluding factor for a wide percentage of DeFi’s potential users. Moreover, since these costs depend exclusively on network usage and are not proportional to the transacted amounts, they become especially prohibitive for users performing little operations, a key demographic for DeFi’s future growth.
Once again this stands in stark contrast with the legacy financial system, in which most fees paid by users — although usually higher than DeFi protocol’s service fees — are proportional to the size of the operations they make.
To tackle this problem RCN has chosen to embrace a multi-chain development paradigm and start exploring alternatives to the Ethereum mainnet’s Layer 1, ranging from sidechains and Layer 2 solutions to other blockchains altogether. Since most of these projects are still in early stages and none of them has positioned itself as an industry standard, this process will be conducted in a highly experimental manner and without the goal to replace the current Ethereum integration, but to incorporate new options for those users seeking to lend and borrow on the Credit Marketplace while paying lower fees.
The first accessibility solution selected for testing is Binance Smart Chain (BSC), which is in the process of being integrated to the Credit Marketplace. The Ethereum-based blockchain developed by Binance — which has established itself as one of the most important chains of choice for DeFi projects — will allow the platform to offer the same services it provides today while requiring lower fees, increasing the financial efficiency of borrowing and lending operations. The next alternative to be evaluated will be Polygon, an open-source protocol for building and connecting Ethereum-compatible blockchain networks, which is expected to offer the same benefits.
While at the moment this process doesn’t have the goal to choose one network over the others, accessibility solutions evaluated in the future will be continually compared with both Ethereum and the mentioned alternatives to better orient further development efforts.
The third development pillar required to bring DeFi to the general population is one of the cornerstones of traditional finance, but reshaped to fit this new paradigm’s nature: Decentralized Identity. While anonymity has played an important role in DeFi’s current success by enabling anyone to enjoy its services without facing any kind of discrimination, this strength has also become one of its biggest weaknesses. Without being able to use identity as a tool to estimate a borrower’s credit risk, protocols have opted to implement loan overcollateralization as an industry standard, forcing users that seek to borrow funds to have even more funds to begin with.
This contradicts the regular logic of traditional retail debt markets, in which borrowers don’t usually request funds to get leverage or avoid selling assets, but to refinance previous debts or pay for goods and services they wouldn’t be able to afford otherwise due to lack of funds. In order to properly serve those users it’s necessary to remove the need for overcollateralization, and the only way to do it is by implementing identity solutions which are both reliable and decentralized.
As a first measure to face this issue RCN has decided to partner with Proof of Humanity (PoH) to provide the Credit Marketplace with its first Decentralized Identity (DID) feature. The integration, which is already live in the Ethereum-backed version of the platform, allows users to verify the identity of any borrower or lender with a PoH account by linking it to their address. Since creating a PoH profile is a strictly voluntary process, taking part in this feature will be optional as well.
A second step towards providing an identity solution for all the Credit Marketplace’s users will be the creation of a Know Your Customer (KYC) feature embedded on the platform, which will request them some basic information to create a public profile also linked to their address and PoH account, should they have one. Further down the road this profile can be enriched with several identity enhancements, such as extra information from social media platforms or financial entities related to the user, which could in turn be used to create a scoring mechanism or social reputation system for the Credit Marketplace’s users.
The end goal of this process is to provide lenders with tools to evaluate a borrower’s credit risk in the absence of overcollateralization, and to put in place mechanisms that reward or punish debtors depending on whether they fully repay their loans on time or not.
The fourth and final component of a DeFi credit platform designed for the current users of the legacy financial system is, of course, Undercollateralized Loans. As mentioned above, overcollateralization makes it impossible for protocols to cater to the needs of this user base, severely stunting the ecosystem’s growth. In order to overcome this, Decentralized Identity solutions have to be leveraged to gradually reduce the collateralization requirements for borrowers until eliminating them completely.
Once the foundational identity features are in place, RCN will start offering borrowers who complete the different verification levels the chance to request loans with a Collateral Ratio lower than the current standard of 200%. In turn, these same verification levels will allow lenders to judge whether a borrower is reliable enough to receive their funds or not.
In order to incentivize borrowers to create profiles with abundant, diverse and reliable data, the more verification levels they complete the lower will be their required Collateral Ratio. Initially, they will still be requested to overcollateralize their loans with a Collateral Ratio of at least 150%, but those with more advanced profiles will be able to request undercollateralized — that is, with a Collateral Ratio of less than 100% — or even uncollateralized loans.
On the contrary, if a borrower fails to repay a loan according to the agreed terms, he or she will be subject to the loss of undercollateralization privileges or even blacklisted from the platform altogether. In addition, in order to encourage lenders to fund these undercollateralized loans, the less collateral they have the higher their APR will tend to be.
