The Road Ahead

Reflecting on the journey so far and the vision of ARCx

ARCx is just over a year old from when I announced it on the DeFi Weekly substack. Since then it has pivoted and adapted in ways that no one could have foreseen, myself included.

The most pivotal moment in ARCx history was perhaps the move from re-hypothecation to on-chain identity/reputation. At the time of the pivot, we had close to $50m in TVL and the token had just gone live. Since then we've had to reinvent nearly everything about the project, from the mission to the tokenomics.

But the thing which stayed constant was all of you who have been along the journey with us whether it's from the KYF days, STABLEx days or the v3 era.

The last 8 months

Identity is the holy grail that solves many problems in crypto and hasn't been tackled by anyone until now. Naturally, the journey of making it real has been a non-linear learning experience. When we embarked on this journey we had just over 4 full-time members of the team. Today we have 12-full time members and close to 15 in the coming weeks and months. A lot of time has been spent on hiring, thinking through product strategy, and most importantly — execution.

It's been incredible to see what we've accomplished over the last 8 months. Here's a quick recap of how we've been executing to make on-chain reputation real:

  • March 2021 - Internally started conceptualising how we could take our learnings from Know Your Farmer, Phase 1 Sale and Phase 2 sale into a product

  • May 2021 - Began architecting the systems for how we would execute this from a technical and product perspective

  • June 2021 - Consolidated all of our thinking into a blog post with a rough roadmap of what the future might look like

  • July 2021 - Shipped skins as a way to generate awareness of Passports and to make them feel more real for people

  • August 2021 - Launched the first edition of the DeFi Passport which only issues Passports based on users who meet the eligibility criteria

  • September 2021 - Shipped Passport.js, a library that allows the DeFi Passport to surface on 3rd party websites, with Furocombo being the first integration

  • October 2021 - Launched our new app design and brand to highlight the new look and identity of ARCx as a brand

Challenges behind the scenes

While this is what you see on the surface, there's a ton of work that we've been doing behind the scenes to make this real. For context, the reason why executing on this is extremely difficult is because you need many technical components, including:

  • A data warehouse to ingest all the data from various protocols across many chains;

  • A set of machine learning algorithms to make sense of all the data in scores;

  • A method of pushing all of the scores to the backend in a secure way;

  • A way to compose all the scores into a merkle root and publishing a new merkle root every epoch in a secure way;

  • A set of smart contracts that handle the merkle root in an appropriate way;

  • ARCUSD to take advantage of the merkle roots being pushed on-chain;

  • A beautiful product that explains all of this to the end user; and

  • A front-end that communicates with the backend and smart contracts simultaneously

In contrast to most projects where you have smart contracts and a front-end that connects to the smart contracts, the complexity for ARCx is much higher. Assembling the talent and coordinating everyone to create all of the above is where many months of hard work have been spent. While it can feel frustrating or confusing from the outside about what's going on, we can assure you that we're laying the foundations for solid technical infrastructure that we know will be:

  • Reliable for our users and partners;

  • Secure for the reputation of our token holders; and

  • Simple for end-users in terms of the user experience

The good news is we've already finished a majority of the above work and we will soon have built parts of the iceberg that you'll be able to see and actually start playing around with. Here are some of the things that we're excited about and we've done a lot of the heavy lifting for.

Custom scores

This is the ability for any arbitrary score to be pushed into a DeFi Passport and then leverage off-chain or on-chain to provide benefits in applications. As of October 2021, this is where the entire ARCx team is aligned on making real. Once we have this done your passports will become a lot more interesting.

With custom scores in place, we will now have the ability to go to partners and integrators to create scores for different projects and get the passport integrated throughout DeFi. This will start to cement the increasing need for a DeFi Passport throughout the ecosystem.

Credit score and ARCUSD

This doesn't go without saying, we'll also be able to push the most long awaited score — the credit score. To begin with, this will be released without the lending & borrowing product since we'd like to observe how the credit score behaves in the wild and fine tune our risk parameters in production.

As these scores are in place and come online, we'll be starting to ramp up the next major milestone: making scores integrated to provide benefits. We have quite a few avenues to do this however the main one will be to integrate the credit score into ARCUSD. There are quite a few questions around how it'll work although a few comments I'd like to make to clarify confusion around it:

  1. You can't just create a credit score and hope to have people use it. Credit scores are calculated risk probabilities and getting any established platform to use it isn't going to be feasible. ARCUSD eliminates this issue and also creates a way for ARCx as a network to bootstrap the credit score and more importantly a pathway to sustainable revenues longer term.

  2. The credit score isn't something just for ARCUSD. It can be used by anyone in DeFi as they please on-chain and/or off-chain. It's almost like thinking of the credit score as the primitive and ARCUSD as the application. That isn't to say that no one else can build on the primitive. They absolutely can and we encourage it since it improves the risk algorithms.

  3. We're not attempting to do under-collateralised lending but rather enabling much more efficient borrowing. Many assets in DeFi have very high collateral ratios and some are near impossible to collateralise (such as NFTs). The value add from a credit score is to make borrowing in DeFi much more efficient than it is today.

There'll be more information about the credit score and ARCUSD closer to the time but I wanted to address some common questions I see posted on the Discord. Outside of ARCUSD, we've got some really exciting ways to make the scores in your passport more useful. Oh and did I mention that all of these scores will be available cross-chain and on L2? ;)

Closing thoughts

Wrapping up with all of this, building something as ambitious and game-changing as the DeFi Passport isn't an overnight endeavour. The way we're choosing to build it is iteratively and inclusively. Each product release gets us closer to the complete vision, but there'll always be more ways to improve and become better. I wanted to write this article to help show all of you that what you're witnessing are the key building blocks to making the vision of on-chain reputation real. We could build in silence for a year and hope to release the final product and vision but we'd lose out on a lot of the magic that comes from learning and iterating through a process. We encourage all of you to be part of that with your ideas, criticism and voices.

I hope that with this post you have a clearer picture about what the future of ARCx looks like and how each of the lego blocks that we've worked on so far ties into something much bigger.

Understanding the Ribbon Finance Airdrop

Analysis of on-chain data and how ARCx custom scores could have protected against exploitation

TLDR: by using ARCx, Ribbon finance could have potentially saved 1.23M (4.15%) RBN at a minimum and potentially up to 8.12M (27.3%) RBN. We calculated this by qualifying the number of unique days a transaction was made, the number of addresses the owner sent tokens to and the number/or distinct tokens traded.

Background

Over the past week, Ribbon Finance, an upcoming DeFi project that sells structured option products, airdropped tokens to their early users. However, through some on-chain analysis members of the community found certain addresses had exploited the airdrop by spinning up many Ethereum addresses and claiming many tokens across numerous wallets then dumping the tokens.

At ARCx we’re building the DeFi Passport, a product that creates various scores derived purely from someone’s on-chain behaviour. Given our expertise in on-chain data, reputation and analysis we thought we’d dig in and understand what happened with more nuance. 

The initial findings of the crypto community found a single entity to exploit the airdrop for ~$2m. However, in our findings, we found that the amount of money lost or distributed ineffectively by the Ribbon DAO was much larger. 

In our sample of Sybil attackers, the profile of the malicious addresses used in the attack was consistently low on Ethereum activity, diversity in assets traded, and any version of exposure to ARCx (including being a passport holder). 

By using ARCx, Ribbon finance could have potentially saved 1.23M (4.15%) RBN at a minimum and potentially up to 8.12M (27.3%) RBN. We calculated this by qualifying the number of unique days a transaction was made, the number of addresses the owner sent tokens to and the number/or distinct tokens traded.

The Data

Now to go to the moment you’ve been waiting for, an analysis of the data itself. The first graph we looked at when analyzing the airdrop was looking at how many distinct ERC20 tokens each address had traded with, the number of days of transaction history and how many RBN tokens did they receive from the airdrop. The graph below shows this data in a convenient way that helps visualise the data. 

What’s interesting to note in the above graph is the clustering of addresses in the bottom left quadrant. We define this quadrant as Q1 (where the number of distinct tokens traded is less than 5 and the number of days active on-chain was less than 10). 

From our analysis, we found that the wallets that engaged in the Sybil attack represented 4.15% of the airdrop or about $5m worth of RBN.

When you think about it conceptually though, addresses with only 10 days of active history aren’t really that high value. They contain little history and don’t really indicate any solid traits of Web 3 experience. Ideally in our research, you want wallets that are more experienced on-chain as they represent valuable identities and a lower probability of being gamed. 

We dug into what percentage of the rewards went to wallets that were in Quadrant 1 (in the bottom left corner of the first graph) and found that a staggering 27% of $32m of RBN went to these addresses. 

Closing

Ribbon Finance had one of the more sophisticated ways of distributing tokens to users of their product however this did not make their token distribution Sybil resistant. 

ARCx has been pioneering many custom scores to model consumer behaviour on EVM blockchains. One such metric we’re working on is a “Web 3 Citizen” score that determines how actively engaged and valuable an identity is. While still in development, the “Web3 Citizen” score has many metrics that we consider such as:

  • How often are they doing things on the blockchain?

  • How many different kinds of assets are they transacting in?

  • How many distinct addresses do they interact with?

  • Have they been dormant for a significant amount of time?

Many of these features, while internal are used to determine passport eligibility at ARCx

By using such a score, protocols can receive numerous benefits that include but are not limited to:

  • Remove the universe of Sybil attackers

  • Remove individuals who do not participate in blockchain-based activity

  • We consider activity as opposed to wealth or the value or token assets held

    • An individual in the Philippines who feeds his family playing Axie Infinity WOULD be whitelisted in a universe where this score is widely applied to prospective airdrop recipients

Notable in our analysis as well, is the fact that individuals who were recipients of the RBN airdrop also happened to be involved with ARCx.

  • Without saying that any individual who has been added to our waitlist was not one of the sighted ones involved in the Sybil attack

  • The thesis that tying an individual cost of identity to trust in web3 is further validated by these results

At ARCx we are pooling data from multiple EVM chains to create a historical profile we can leverage to score users probabilistically. As profiles expand, communities can leverage the data on their users in public to profile the best citizens they can work with and reward.

If you’re a protocol that wants to understand your user’s on-chain behaviour and create smart contracts and applications that can leverage this analysis, reach out to us!

Special shoutout to @metaversephd in the ARCx Machine Learning team for putting the analysis together.

Your Metaverse Identity

Introducing our new brand and app design

ARCx is just over a year old, and since then we've been continuously iterating on our product, identity and branding. Today we're excited to introduce the new ARCx brand identity and user interface design for the next stage of our journey.

Logo

While we loved the previous ARCx logo for its mathematical beauty, we found it was hard to distinguish and stand out. Our new logo is clear, simple and recognisable. Whenever you're interacting within the metaverse with our identity services, you'll recognise the ノ.

The key element we're proud to announce is the "ノ" symbol as not just a logo, but a new form of currency. ARCs are reputational currency that can only be earned, not purchased with money. Just like the real world, it takes a lifetime to build a reputation and a single instance to destroy it.

The ノ symbol is also a digital identity for those in the ARCx community to signify their commitment to the protocol. All team members and community members bear this symbol in their bio.

App Design

Not only has our branding been uplifted, we've also revamped our app to reflect our much larger vision and ambitions. ARCx is a consumer product that provides identity and reputation services for the metaverse. To make this vision more real, we've created a special WebGL component of the passport that is interactive.

We've also overhauled our visual app elements to reflect our core values of:

  1. Fun. The new user interface makes the experience of owning a DeFi Passport captivating and engaging.

  2. Excellence. We've ensured that a consistent design system, great colours and a simple user experience are at the core of what we create. Products are meant to look and feel great.

  3. Accountability. The interface provides constant reliability that you can ensure what you trust the app to do, it will do. We've been working hard to refine our internal testing processes and also automated uptime reporting for all parts of our stack.

What’s next?

This is only the tip of the iceberg our team has spent the past 7 months working to bring to you all. As we expose more user value and functionality from the passport, the opportunities available to your metaverse reputation will expand vastly.

Introducing Passport.js

Becoming the middleware of identity in the metaverse.

One month ago we launched the DeFi Passport to allow you to use your on chain history to realise new and personalized value. Just like a national passport, the value of a DeFi Passport is derived by two things:

  1. the places which accept it and,

  2. the benefits it gives you

We've developed Passport.js as an important step to improving the first two points by making the passport recognised on more dApps! In addition this allows us to formalise new relationships with other projects who wish to build out integrations with the DeFi Passport. If you're a project that's keen to integrate, keep reading!

What is Passport.js

Passport.js is a small React library (3 lines of code) that displays an Ethereum addresses' DeFi passport in when signed into the application via Web3. The passport & their selected skin will display and rotate in the bottom right hand corner and can be hidden by clicking on it. Check it out in action below! You can see Passport.js in action over here.

Why integrate Passport.js?

If you're a dApp that's interested in integrating Passport.js, here's some things that can benefit you:

  1. We can formalise a working relationship that will allow your dapp to become more intelligent through custom scores (think higher yields for your most loyal tokenholders)

  2. Co-marketing and promoting your dApp to our 1000+ DeFi Passport holders

  3. Creating special NFT skins that can be purchased/earned/distributed to your community to apply to their DeFi Passports :) Check out some of the collaborations we've done below.

The entire integration is simply 3 lines of React and gets you plugged into the ARCx partner ecosystem. You can read the developer docs here.

Next Steps

Very shortly we'll be releasing a major upgrade to the way that the DeFi Passport works in order to support custom scores specific to a Dapp. For example, you could create a unique protocol score which measures how engaged someone is to your protocol to give them higher yields and increase engagement/loyalty. This will enhance the passport experience and have other use cases in governance, airdrops, yield farming and credit.

If you're a dApp interested in Passport.js and formalising a working relationship, reach out on Discord or Twitter.

AIP4: Simplifying and improving the ARCx Tokenomics

Key Points

  • ARCx tokenomics are unclear. Mint all outstanding tokens to simplify.

  • Publish a new emissions chart with updated and improved vesting schedules.

  • ARCx treasury wallet would hold over 52 million ARCx tokens. That’s a huge warchest to use for growth.

Abstract

There have been a lot of questions regarding the ARCx tokenomics. They are not clear and should be mapped out to allow investors to make informed decisions. The previous unlock schedule needs changing to produce a more healthy inflation curve.

Previous Issuance Schedule

As stated in the initial token release article: 3

“After the sale, the continuous schedule inflation will kick in. Every time that new tokens are minted by the protocol, they are minted in the following proportions.

  • 60% direct to the community - the users of ARC - as incentives for locking up collateral, providing liquidity, and other productive contributions

  • 19.1% to the Community Treasury (controlled by ARCx holders)

  • 15.5% to Founding Team (6 month lockup from the date of the sale, vesting over 4 years)

  • 5.4% to Angel Investors (6 month lockup from the date of the sale)”

The wording in some of the previous articles left a lot of ambiguity and made it impossible to know when certain releases were due and how much they were going to be. Moreover, when mints are happening at random intervals to free up tokens for the treasury the vesting schedules would be difficult to manage and track, leaving investors a tough task in judging inflation. Having discussed with the ARCx team, it was clear that some changes would be required. Without AIP-4, there will be a large token unlock in September of not only the phase 2 sale tokens, but all of the angel investors tokens and 25% of the team tokens (an extra 8 million ARCX in total). This would almost double the current circulating supply.

Further to this, the details on CoinGecko are confusing with respect to supplies. The “Total supply” and “Maximum supply” are two separate numbers, one being the total minted to date and the latter what can be minted. The industry standard is to mint all tokens and store them in relevant wallets that are considered locked. These wallet addresses are fed to CoinGecko to allow for easy tracking.

New Unlock Schedule

The below chart shows what the emission schedule would look like if AIP4 was to pass. It involves a one off mint of approximately 60 million ARCX to get the total supply to 100 million tokens. From here a new schedule should be formed for the Angel investors, ARCx Team and $KERMAN holders (detailed below) with various unlock dates in the coming months and a stream started where relevant. The initial unlock dates have been pushed back to flatten the inflation curve.

Note: There are still some ARCX OLD tokens (around 600) that are yet to be migrated across. This will add to the circulating supply as and when they migrate. There is no time cap on this, the migration portal will remain open indefinitely.

Token Distribution Breakdown

The below pie charts show how the different allocations change over three time periods. Each chart shows the total locked allocation and its change to becoming unlocked. For example, phase 2 is eliminated from the second pie chart since all tokens unlock and the circulating supply increases.

Passing this AIP would leave the ARCx Treasury with over 52 million ARCX tokens, leaving a huge opportunity for expansion. Incentives, when timed well, with the correct control measures in place can be used to massively bootstrap the DeFi Passport. Careful thought should be taken before making any decisions on utilising the treasury, but the project is in a very strong position with these reserves.

Key unlocks

  • 19 September: Phase 2* sale remaining ⅔ (6,183,439 ARCX).

  • 19 October: Angel round, 40% (2,160,000 ARCX) followed by 12 month stream.

  • 19 November: Team tokens and $KERMAN* holders. 10% unlocked (1,450,000 and 27,778) followed by a 3 year stream. There will be a blog post in October outlining how the distribution for $KERMAN holders will occur.

  • 19 December:3rd raise 9, 50% unlock (798,300 ARCX) followed by a 6 month stream.

*Please note that there may be minor delays depending on the development resources to enable distributions in certain cases.

The Proposal

For: mint all of the remaining tokens to the originally proposed supply of 100 million ARCX tokens and approve the ongoing vesting schedules.

Against: leave the supply and vesting schedule as is.

Snapshot voting is live and can be found here.

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