
Launch HN: Dharma (YC S17) an open protocol for borrowing/lending cryptoassets - nahollander
Greetings HN!<p>My name’s Nadav Hollander, and I’m the founder of Dharma Labs (<a href="https:&#x2F;&#x2F;dharma.io" rel="nofollow">https:&#x2F;&#x2F;dharma.io</a>). At Dharma, we are creating a suite of protocols, standards, and developer tools for issuing and administering tokenized debt agreements on the Ethereum blockchain.<p>After three extensive external security audits of our smart contracts, we are releasing the public beta of Dharma Protocol v1 on the Ethereum mainnet -- developers can take a crack at building decentralized lending applications at docs.dharma.io, and non-developers can try out borrowing and lending a wide variety of crypto-assets using Dharma Plex (<a href="https:&#x2F;&#x2F;plex.dharma.io" rel="nofollow">https:&#x2F;&#x2F;plex.dharma.io</a>).<p>I first became interested in the cryptocurrency ecosystem in 2015, when I took Dan Boneh’s class on Bitcoin &amp; Cryptocurrencies at Stanford. Though the technology was (and still is) quite immature, I fell in love with the nascent space, and subsequently worked as an engineer at Coinbase.<p>At Coinbase, I was struck by the fact that a huge amount of users’ cryptocurrency was sitting idle in cold storage, instead of being deployed in some capacity as dollars would in a savings account.  The advent of generic, programmable blockchains like Ethereum presented an intriguing possibility -- what if we could build borderless infrastructure for borrowing and saving that wouldn’t require a company like Coinbase to sit in the middle?<p>That’s why I started working on Dharma -- a framework for originating, issuing, crowdfunding, and trading debt on blockchains like Ethereum.  In essence, what we do is create tools, standards, and smart contracts that developers can use to build profitable lending applications that can tap into a borderless pool of credit liquidity.  These tools are all fully open source and free to use -- there is no native “Dharma token” that users are forced to leverage in some capacity.<p>We look forward to hearing HN’s feedback &#x2F; thoughts!
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nowarninglabel
Congrats on getting to this point! Been following Dharma closely for a little
while now as we (Kiva) have an interest in trying to increase financial
inclusion and decrease lending costs for the world's poor and have been hoping
Dharma may end up being one piece to the future of our work.

Could you possibly speak to how you intend to enable KYC (Know Your Customer)
/ AML (Anti-Money Laundering) to work with Dharma? The best bet so far has
seemed to be trying to incentivize it through providing automatic fees to
external parties to perform these actions and holding the money in escrow
until it goes through. However, it would be great if you could share if you'll
have discussed this problem at all.

I'd love a world where we didn't have to deal with KYC & AML, but we do, and
the sooner we figure out how to make it work in an efficient and inexpensive
manner for the world's poor, the sooner we can reach the UN Sustainable
Development goals around financial inclusion.

~~~
nahollander
Thank you! :)

We've pretty deliberately opted out of baking jurisdiction-specific
protections (be they KYC / AML, accreditation, etc.) into the protocol insofar
as we really want this to be a universal standard that's jurisdiction-agnostic
-- to give a somewhat crass analogy, most developers would agree that it does
not make sense for content-protection against, say, child pornography, to sit
at the level of TCP / IP. Jurisdictions vary widely in how they treat lending
law, and so we've opted to be as flexible as possible on a technical level.

With that being said, we're actively working on making sure that, at layers
above the protocol, developers have an easy time plugging in / restricting
functionality on the basis of regulatory parameters. There are several
interesting projects in the decentralized identity space that are tackling
ways of natively attesting to KYC / AML screening on blockchains like
Ethereum, and we're actively in conversations with them to make sure we
maintain compatibility.

~~~
CryptoBard
I also work in the exchange space like you used to and my thinking is pretty
much fully aligned with the way you pose the issue and I'm very excited about
your intention behind Dharma. I also agree with your current thoughts on
approaching KYC and AML (please see my post in response to this one's parent).
I'll reach out to you via your website if you don't mind since HN doesn't have
PMs, would love to figure out if there's a way I can contribute.

------
beefield
I propose one more tiny step. Instead of having to use these cumbersome
cryptocurrencies as payments method, you could also use these IOU's of
selected trustworthy institutions as payment tokens. I mean, Instead of you
needing to get your currency back from Coinbase and then transfer it to your
coffee shop owner, you would just say to Coinbase that hey, you do not need to
pay me this cryptocurrency, pay the coffeeshop instead. Wouldn't that be much
more efficient?

This is actually one of the more frustrating issues for me in cryptocurrency
discussions. The underlying monetary policy is of fixed or predefined money
supply, that is supposed to somehow stabilize the price/value of the
cryptocurrency in the long term because of hand waving, wishful thinking and
reasons, all the while having _exactly no_ way to stop fractional reserve
banking emerging nor regulating it or the additional monetary supply it will
create. This being one of the main reasons why current crop of
cryptocurrencies will never be used as economy-wide payment method and why
their price will always stay chaotic (unless the price stabilizes to zero...)

------
edent
There's something I don't understand about Smart Contracts.

Normal contracts are written by lawyers. They are reviewed by both parties'
lawyer. Sometimes, after the contracts are signed, the lawyers disagree what a
particular provision or clause means.

At which point, they either negotiate or sue. In which case, a human judge
weighs up the case and decides.

How do disagreements work with smart contracts?

I assume some contracts will be buggy - mostly because programmers are just as
fallible as lawyers. So how are disagreements resolved in an equitable way?

~~~
TekMol

        How do disagreements work with smart contracts?
    

If you are big or popular or have connections, then the guys in power will
bend the rules in your favour. Google 'The DAO' for an example.

Otherwise, an algorithm will decide.

~~~
sillysaurus3
Not quite. The ecosystem was much smaller back then. Nowadays, I'm not sure
one company would be able to make a case for forking the currency.

Besides, you can still buy ETH classic, if you disagree with the decision.
It's just not worth much.

~~~
fapjacks
I am 100% sure that if I went and "the code is the contract"ed whatever ends
up being DAO2.0 out of 5% of all existing ETH, that Vitalik would come save it
"just this once" one more time... I _absolutely do not believe for one second_
that there wouldn't be another fork. And I say this as someone with a
substantial interest in the currency.

~~~
Kiro
Nope, won't happen again. Look at EIP-999. It's backed by Vitalik but is still
dead.

~~~
CryptoPunk
EIP-999 isn't backed by Vitalik but it was backed by major figures in
Ethereum, including at least one co-founder. And yes it's dead.

------
matte_black
With any new lending platform I have to ask: What happens if I borrow assets,
spend them, and never pay back the lender?

~~~
nahollander
In the current implementation / use cases we're focused on, your collateral,
which is held in a smart contract, would become eligible for seizure by the
lender.

~~~
matte_black
And what is the collateral here? My house? A car? Money?

If my collateral is another liquid asset it doesn’t make sense to borrow, and
if it isn’t how exactly does the lender go about seizing it? I want this
explanation to reach a satisfactory conclusion.

~~~
nahollander
The collateral can be any other asset that is represented by a cryptographic
token. Right now, few crypto-assets map to real world assets in some capacity,
but we're willing to make a bet that this will change faster than most expect.

Already, though, there are many interesting assets in the world of crypto that
are particularly well suited to being put up for collateral -- namely, the
emerging class of crypto-collectibles such as CryptoKitties.

~~~
tango24
> namely, the emerging class of crypto-collectibles such as CryptoKitties.

You can’t honestly be serious about this. Please get outside the Silicon
Valley bubble and look around.

~~~
berberous
Look at the number of people that collect all kinds of crap: DVDs, video
games, stamps, baseball cards, in-game virtual items, comics, art, etc. You
can argue that some of it has more utility -- art is culture! you can watch a
DVD! -- but the mindset of collecting goes beyond that, and certain utility,
like games or trading cards, maps just as well to the crypto collectible
world. Cryptokitties is an early example, but I am 95%+ confident something
like it will be a HUGE hit within the next few years. So yeah, why not use the
crap you already collect to secure a loan?

------
seibelj
My company[0] will be using Dharma later this year to put personal loans on
the blockchain. Dharma is the best of the bunch in our opinion, and we are
very pleased with the support the Dharma team has provided.

[0] [https://airfox.com](https://airfox.com)

------
zanek
I didnt see this mentioned on the website, but what about the legality of this
?

Is this legal in the US ? Or where is it legal , illegal to use ?

~~~
nahollander
Yes -- two parties are permitted to lend money to one another in a mutually
agreed environment. It's important to note, though, that developers who build
end-user applications on top of Dharma ought to be cognizant of lending
regulations / securities law in the jurisdictions they are active in. However,
we've opted to build Dharma in a non-jurisdictionally-biased manner -- we
think that jurisdiction-specific regulatory restrictions are better
implemented at the application layer rather than the protocol piping.

~~~
jbob2000
That is a dangerous position to put yourself in. AML and Terrorist financing
laws make everyone responsible, you generally cannot claim innocence if you
take no precautions and are involved in some kind of incident.

Good luck.

~~~
seibelj
No, this is akin to building a protocol. The creators of HTTP are not in
trouble when someone uses the web for illegal activities.

~~~
jbob2000
HTTP is not intrinsically tied to finance, though. This is specifically a
protocol for financial transactions, for sure it would fall under AML laws.

~~~
seibelj
I’m sorry but you are mistaken. I think you should research this technology
more.

~~~
tango24
Are you a finance law attorney? This is marketed as a financial protocol.
Completely different than HTTP.

~~~
seibelj
An RFC and source code does not constitute participation. That is dharma at
this point.

------
iMuzz
What stops someone from putting up some collateral, disappearing with the loan
and then just creating a new account?

~~~
nahollander
The collateral is held in a smart contract -- if the borrower disappears and
fails to make a repayment, his collateral becomes eligible for seizure.

~~~
iMuzz
Are the collaterals always worth equal or more than the amount borrowed?

I asked that assuming people put up 1 eth as collateral to borrow 2 eth.

~~~
cortesoft
Usually collateral is supposed to be equal or more than the amount borrowed,
especially in a situation like this where there is no 'credit score' to use to
determine likelihood of default.

~~~
ghthor
The protocol doesn't have a credit score. That's a concept better suited for
the application layer built on top.

~~~
cortesoft
Right, which was why my point was that the collateral is probably going to be
at least equal in value to whatever is borrowed.

~~~
bpforster24
Dharma Protocol doesn't require that the value of collateral be greater than
the principal of the loan, but we do expect the market will demand full- or
over-collateralization.

------
dmitrygr
So, you've reinvented fractional reserve banking, minus all the protections
we've built into the modern version of it we all use today through decades of
hard lessons? Should be fun.

~~~
spookthesunset
Welcome to the crypto “space”. It is a bunch of people who don’t understand
math, finance, politics, monetary policy, legislation, government, economics,
computer science, or seemingly life itself. All sit around and rediscover why
society is shaped the way it is...

------
arcaster
This service sounds incredible! However, naming it "Plex" seems like a bit of
a hiccup since most just think of Plex as the most pervasive home media server
in existence...

~~~
sambull
Or that currency I used to buy my first space ship. In eve online.

~~~
imdsm
ISK was the currency, PLEX was the subscription, right? Or did you use PLEX to
buy it?

------
jakecrouch
What is the advantage of using the blockchain rather than creating a fully
centralized debt exchange?

~~~
bpforster24
I'd recommend reading this blog post we put out. It explains better than I can
in a short comment: [https://blog.dharma.io/dharma-an-open-protocol-for-
generic-t...](https://blog.dharma.io/dharma-an-open-protocol-for-generic-
tokenized-debt-agreements-9a4e6a4e6fc0)

~~~
jakecrouch
I am interested in knowing if there are advantages to using blockchain
generally outside of Bitcoin - I don't understand it in this case from reading
the post. A centralized exchange could be fully transparent, publishing every
transaction, and handle every type of debt, if it wanted to.

~~~
bpforster24
Censorship resistance is a big factor - since no one entity controls the
Ethereum blockchain or smart contracts that have been deployed to Ethereum,
there is no way to shut down the service. This paves the way to a single
global capital market that is much more inclusive and efficient than the
haphazard and heavily intermediated capital markets we have today.

~~~
spookthesunset
It absolutely is not censorship resistant. It is 100% mob rule. Smart
contracts are complete horseshit and this one will be no different. See also:
the DAO. Can’t work and never will.

------
simonebrunozzi
Congrats for the Dharma team for this anticipated launch! Been following them
for a while, great team and very focused exection!

Our company [0] is building an API platform to transact on digitized real
estate assets, and we intend to leverage Dharma as much as possible in the
future.

[0]: www.fabrica.city

------
TekMol
How is paying the debt back enforced or incentivised?

~~~
bpforster24
Right now we expect most loans will be fully collateralized by other crypto-
assets. So the default deterrence would be that if you don't pay back your
loan, you lose your collateral.

We also support unsecured loans (i.e., loans that are not fully
collateralized). We consider these pretty experimental and lenders should do a
lot of diligence before investing.

For unsecured loans, counterparties can agree to any kind of default
deterrence that they want. Could be off-chain legal agreement, could be a
reputation scheme, etc.

~~~
aphextron
What exactly is the use case for a 100% secured loan?

~~~
bpforster24
Even if you 100% collateralize, you can get 2x leverage. That leverage can be
applied to all sorts of use-cases, but we think one of the main ones that will
be common today is speculative margin trading (e.g., short selling)

~~~
spookthesunset
So basically, like all crypto it’s just another layer of speculative trading,
fraud and scams all the way down?

Congratulations, I guess...

------
zitterbewegung
Your product looks interesting and I really like the website. I'm going
through the Tutorial and it is AMAZING. I like that you put in the time to
make it game.

Do you think that your product would be useful for Insurance contracts on the
Ethereum blockchain?

~~~
nahollander
Thank you! Glad to hear that you enjoyed the tutorial.

There are numerous ways in which Dharma debt agreements can interface with
insurance contracts:

1\. We've already seen some members of our developer community working on
trustless credit default swaps -- which are functionally insurance contracts
that use the programmatic endpoints of Dharma debt agreements to assess claims
on defaults. 2\. For non-fully-collateralized insurance contracts, Dharma debt
agreements can serve as the mechanism for tracking and administering the
tokenized bonds that capitalize the insurance contract.

------
techaddict009
Is there any simple explanation of what exactly it is? I tried to understand
it by reading various places on site but too heavy words used like credit
liquidity, tokenized debt. When you are targeting normal people can you
explain how exactly this works? Is it like I give bitcoin/ethereum and you
give me fiat money and when I repay fiat money you give my bitcoin/ethereum
back?

------
xur17
This looks really neat! - I was talking to a friend about something similar to
this a few weeks ago.

It looks like you'd need to trust the counterparty right now unless they put
up substantial collateral. Do you intend to add something similar to a credit
rating / history to make it possible for random strangers to lend to each
other? Or do you have other ways to handle this?

~~~
nahollander
Thanks for the kind words!

In the short-term, as you correctly alluded to, we're focused on loans that
are fully-collateralized on-chain. In the future, however, we hope to
integrate trusted third-party underwriters into the network in order to open
the door for unsecured loans. There are many technical / game theoretic
challenges to be solved on this front, though, so we've included unsecured
loans as an "experimental" feature set in this initial release.

~~~
xur17
Is a public marketplace in the works? Right now you have to paste a json
string from the counterparty.

~~~
nahollander
Yup -- there are several. The most mature relayer project on Dharma we're
aware of is Bloqboard (bloqboard.com), though I believe they are not ready to
launch on mainnet quite yet.

------
himom
Shouldn’t money be Dukka, not Dharma? Or is money too often an amoral
scapegoat for many individual acts of greed?

------
perfunctory
When one lends cryptocurrency I assume the loan comes with an interest? Given
the fixed supply of bitcoins or what have you, where will the coins to pay the
interest come from? Or does it work differently in cryptocurrency world?
Genuinely curious.

~~~
tlrobinson
I'm not the op, but fractional reserve lending isn't the only form of lending,
and fixed supply isn't the only form of cryptocurrency.

~~~
nahollander
Beat me to the reply :)

Indeed, even with a fixed supply token, a borrower would simply have to come
across the necessary amount of principal + interest in the loan term.

~~~
perfunctory
But that's kind of the point, isn't it. With the fixed supply the "\+
interest" would be harder to come by. Wouldn't it lead to elevated levels of
defaults?

~~~
bpforster24
One way or another, the borrower has to come up with the principal + interest
or they will forfeit their collateral. So they will want to use the loan in
some sort of income generating capacity: financing a project, speculative
trading, etc. If they are able to use the loan to earn more than the interest
rate they've committed to, they'll make money overall. If not, they'll lose
money.

Bottom line: we don't think the monetary policy of crypto-assets will have
much of an impact on default rates in the short term.

------
KasianFranks
Nice, a trading vehicle [https://hackernoon.com/its-not-about-the-ico-it-s-
about-the-...](https://hackernoon.com/its-not-about-the-ico-it-s-about-the-
trading-vehicle-38fa3425e9e3)

------
blahnow
[https://plex.dharma.io/request](https://plex.dharma.io/request) spins
forever... website down?

~~~
bpforster24
Are you using a web3 browser? Chrome+metamask, cipher, toshi, brave, etc.

------
orasis
What does this have to do with helping all sentient beings to awaken in this
lifetime?

Consider a name change.

------
atomical
How is this different than SALT and MakerDao?

~~~
bpforster24
Similar to the question about SALT and EthLend, these are both applications.
See our answer there fore more details.

Re. MakerDao, they offer one type of loan, the Collateralized Debt Position,
in which a borrower collateralizes ETH and the principal is denominated in
DAI. And they have built in many automated mechanisms to keep DAI stable
against the value of a US Dollar.

Dharma can support a similar use-case (getting liquidity on crypto-assets
without selling them) -- you would collateralize any currency and borrow in
DAI. That way you can get fiat liquidity today, but if you pay back your loan
on time you can still benefit from appreciation of the asset you
collateralized.

In addition, Dharma is capable of supporting other lending use cases: short
selling, speculative leverage, venture debt, corporate bonds, muni bonds, etc.
etc. We are a platform for any kind of debt agreement and for companies that
want to issue these debts.

------
cvaidya1986
How is this different from EthLend or SALT

~~~
bpforster24
EthLend and SALT are both lending applications. While we have created a
lightweight lending app in Dharma Plex, our core offering is Dharma Protocol.

Dharma Protocol is a suite of developer tools that enables entrepreneurs to
create apps like Ethlend or SALT easily and securely. It's open source and
entirely free to use.

~~~
cvaidya1986
Ah thanks for the response. What's the business model?

~~~
bpforster24
We discuss our business model a bit in this blog post:
[https://blog.dharma.io/dharma-isnt-currently-doing-a-
token-s...](https://blog.dharma.io/dharma-isnt-currently-doing-a-token-sale-
and-here-s-why-afa04e78247b)

Happy to discuss more, but that's a good start

~~~
hekfu
You don't really though? Unless I missed the bit on how you want to get payed.
All I see is 'building a great open source infrastructure', which while I
applaud and is noble, is not widely accepted to pay rent so far

~~~
bpforster24
Ha, you're right, sorry. We think we'll be able to sell value added services
to our ecosystem (for example, consulting services, insurance, data feeds,
etc.).

We will also investigate token models to see if there is a way to make the
underwriting process less trustful, and this token model may be a revenue
generator as well.

------
djstein
lot of components did not load on initial landing of the page on FireFox
Nightly 62.0a1

~~~
nahollander
Thank you for pointing this out -- I've flagged our team and we're looking
into it.

------
atomical
How do you make money?

------
dvfjsdhgfv
You may ponder longer on the name. As the comments in this thread show, not
everybody is happy with your capitalizing on a word that for centuries was at
the center of Buddhism.

------
murwebb
Love the idea

------
romgrk
`dharma` is the term we buddhists use to designate the (sacred) teachings of
Buddha. Would you use `Coran` or `Bible` to name your project? Probably not.
It would have been a good idea to take more time to reflect on your choice of
name.

~~~
hapnin
I'm also a Buddhist (a savaka, technically). I have no issues with the name.
If the name causes one person to learn what the Dharma is and to stop harming
themselves and others, that's a great thing.

It looks like a cool project too.

~~~
flatline
The main things that give me pause are (a) unadorned use of the word out of
context and (b) the general level of scamminess I associate with crypto
projects.

~~~
hapnin
I take all cryptocurrency projects case by case. This one appears straight up
as it's proposing an actual protocol and the associated token actually
addresses a problem. Being YC backed ups its cred too.

But yeah, 95% of all ERC-20 tokens are BS.

------
integration
Maybe you don’t realize but this name is offensive to Buddhists...

It’s like an insurance company calling itself “Gospel”

~~~
asdsa5325
> It’s like an insurance company calling itself “Gospel”

Is that offensive? Doesn't seem like it to me.

~~~
integration
Does “disrespectful” instead of “offensive” satisfy your need to play
semantics?

~~~
cfadvan
What about it is disrespectful, and why should anyone care? It’s true that if
you look hard enough, you’ll always find an offended party, but so what?

~~~
yusee
This is a successful global branding strategy...NOT!

------
schaefer
Nadav,

"Dharma" is widely recognized as the term to denote the teachings of Buddha. I
feel the use of the term in this new context is cultural misappropriation.

Would you care to address that concern with your thoughts on the topic?

~~~
indiafoodie
Not the author here, but Dharma has several other meanings in Indian
languages. A predominant one is virtue, righteousness, and duty.

I hardly think of this usage as cultural misappropriation; just loanwords from
a different language.

