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I think the idea is that RAAs can bridge the reality divide by tying the pseudo-anonymous contract identity to a real life identity. You can, for example, requ

I think the idea is that RAAs can bridge the reality divide by tying the pseudo-anonymous contract identity to a real life identity. You can, for example, require the user upload a video showing them, any government IDs, their house number, their last utility bills, pay stubs, etc. You might require a mobile app that could look at ongoing phone telemetry/contact info to see someone has a network and is regularly going to a job. The goal isn't mathematical certainty, just to make the effort/cost of theft < the value of the loan. Some startups do similar things to this (Tala) to lend in countries without credit bureaus and IIRC they can achieve loan repayment rates >= 'prime' US borrowers.

nahollander 9y ago
Exactly. Tala's a great analogy insofar as developing world microfinance faces a lot of same challenges Dharma will likely encounter -- namely the lack the of legal recourse for defaults.
- nissimk 9y ago
  I heard a guy talking on Bloomberg radio this morning about this in regards to emerging markets bond investing. The interviewer was commenting that the legal system didn't provide good recourse in the event of default. The guy said like you that the credit analyst would need to focus more on the likelihood of default than the recoverability of the collateral. It reminded me of my time working on credit models for subprime mortgages. We forecasted 2 variables: frequency and severity of default. The total loss prediction was the product of the two. If your severity is always 100% at least it makes your model simpler.