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Social Recourse via Metazenship

2022-04-25

RociFi stakeholders’ unique approach to managing the protocol

In the last post we introduced a new term, metazen, which will become the de facto citizenship for Web3 users.

In this post we illustrate how RociFi’s non-fungible credit score (NFCS) enables metazenship which will drive responsible lending and behavior among users of the system through a mechanism called social recourse.

Lastly, we’ll examine the benefits for users and DAOs by implementing it into their ecosystems with the end goal of creating a more vibrant and safer Web3 for everyone.

At its core, RociFi credit is user-issued money which is the first attempt of its kind in history at a global scale rather than a local village level. This introduces its own complexities in how to manage a digital commons like the RociFi protocol.

We believe the best way to do this is by approaching Web3 like a ‘global village’ where stakeholders are shared ‘property owners’ of the RociFi ecosystem (shown below).

These stakeholders work together to maintain an equilibrium of credit and social checks in the ecosystem to ensure it is functioning properly.

An example of a social check in today’s marketplace is an AirBnB vendor who typically analyzes an applicant’s reviews and rating along with their Facebook or Instagram profiles before renting their property to them.

The property owner will pool all this data together to reach a discretionary decision on whether to loan their property to the applicant. This process has the potential to introduce bias by “judging a book by its cover”.

However, social checks are also immeasurably valuable to renters and rentees and both benefit if the reputation, reviews and ratings provided aretrusted and verified.

Today’s credit checks by retail banks or legacy ratings agencies favor one type of collateral — property — and one repayment metric — current debt. Both these metrics are shortsighted, biased and outdated, and have led to asset bubbles in global markets especially housing. Failing to consider other elements of creditworthiness leaves many good borrowers out of the system, such as the self-employed.

RociFi’s design streamlines and automates both social and credit checks by the community for responsible lending while avoiding discretionary biases; all of which helps mitigate loan defaults.

We refer to this mechanism as social recourse which can be likened to rewarding or removing actors from the global village based upon their actions towards the common good. At its core, social recourse is designed to incentivize positive, cooperative behavior while strongly disincentivizing negative ones such as loan defaults.

RociFi’s Social Recourse process

Upon being eligible for an under-collateralized loan, the user must agree to the terms and conditions that include exposure of their opted information.

Going back to the global village analogy,how do users build reputations in Web3?

Over the decades, village co-op-style banking has proven remarkably resilient with fewer defaults and overindebtedness partly because people know each other and effectively lend at more personalized rates. In this setting, the baker and the farmer earn their reputation over years of hard work supplying food, and, if they defaulted, their reputation would be severely damaged as word would quickly spread.

This is a form of social recourse.

RociFi is building the same dynamic in Web3 whereby lending pools operate as the village bank and NFCS operates as word of mouth reputation and credit score.

So, how does one build a reputation as a metazen in RociFi’s village?

  1. DAO Participation

Active DAO participation including proposals, voting, or paid contributions can positively affect a user’s credit and reputation score. However, one should expect quality to outweigh quantity, e.g. governance proposals accepted vs volume of proposals offered.

2. MOOCs

Earn as you learn. Similar to your University degree or MOOCs like Coursera and EdX, users who upskill on Web3 will earn certificates and points using Rabbithole, Gitcoin, and Galaxy.

3. Art, media, social media

Artists and authors can earn through creation of quality work measured either by audience interaction and tips or in the case of NFTs its market value. Similarly, a large, reputable following on Twitter is a reliable reputational data point.

4. Builders

Just as a property developer will gain or lose reputation based on their last project so too can Web3 developers based on project growth, Github or Gitcoin contributions. There is no social capital more valuable than building a vibrant project or community given its benefit to Web3 coupled with the reputational capital lost in the event of default.

The following diagram explains how the NFCS contributes to building a reputable metazen’s profile with verified data from DeFi and DAO participation.

The recent Beanstalk hack is a case in point where the NFCS could have been used as an extra credit check measure and possibly prevented the hack.

In this case, hackers took out a flash loan to buy the governance coins of the DeFi platform Beanstalk, then submitted and approved a DAO proposal on Beanstalk that waived the loan repayment. They walked away with the loan worth ~ $180m.

In theory, the NFCS verification could have been a prerequisite for any Beanstalk contributor to make a DAO proposal. The community could have automatically rejected the proposal given the proposer would not have had an NFCS, as all suspected fraudulent addresses are not permitted to generate an NFCS via RociFi.

Part of the Roci Roadmap is to make NFCS badges visible on Cyberconnect as an extra tick to verify that a wallet address is a reputable borrower and metazen.

Cyberconnect is building open social graphs for developers to build Dapps on.

For borrowers of unsecured loans, it will be mandatory to have their NFCS score ‘badges’ on Cyberconnect.

This way, borrowers’ score and subsequent repayment behavior becomes a trust data point in their public on-chain identity and social graph on Cyberconnect.

RociFi is taking a community-first approach to solving two problems within crypto — native under-collateralized lending and Sybil resistance.

The NFCS is the first step in building a metazen profile for Web3 users that will enable greater interactions and services by being the verified data point for credit, reputation, and trust across Web3. Furthermore, metazenship enables a first of its kind mechanism — social recourse — that allows users to govern and incentivize themselves for the common good of DeFi.

As metazenship blossoms, greater integration of NFCS by DAOs will drive utility beyond under-collateralized lending while making overall Web3 safer from bad actors.

RociFi is the Layer 1 for a permissionless web3.0 credit economy.