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.
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:
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.
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.
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? ;)
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.