What can Qiro enable for DeFi ?

DeFi has introduced unique financial primitives on-chain such as peer-to-peer lending, yield farming, AMMs etc. Among these primitives, lending is a huge market which have drove billions of dollars on-chain. Think Aave, Compound, Morpho….

If i had to think about lending protocols it’s divided into two broader segments
1. Over-collateralised Loans: These protocols enable on-chain asset holders to borrow against their assets. This is limited to folks with holding some sort of collateral on-chain. The capital efficiency is also very less here.

2. Under-collateralised Loans: These protocols enable loans to borrowers with lower or no collateral requirement. This is an emerging market in DeFi with lot of protocols lending based on tokenised real world assets.

We will be focusing on under-collateralised loans and how Qiro enables DeFi to execute that at scale. Before jumping into the details, its essential to take a look at the opportunity.

How big is the opportunity ?

Best example for un-collateralised loans that comes to my mind is credit cards, as per TransUnion report there are 545.1 Million credit cards with $1.05 Trillion in balance. Banks or fintechs issue credit cards to individuals mostly based on FICO/Credit scores.

These numbers represent just one part of under-collateralised loans in real world. If you compare this with current lending TVL i.e $51.3B. If these loans are brought on-chain, it will enable huge economic value to flow on-chain.

But, the obvious question one might ask is: Why should we bring this to DeFi ?

1. Capital efficiency: Borrowers would be able to get credit with low or no collateral, increasing capital efficiency

2. Democratised Access: with growth of stablecoins, anyone with a wallet and credit-worthiness can become borrower/lender.

3. Higher Yields for DeFi: These loans will enable higher yields for the on-chain investors. Think 20% APY with no ponzi-nomics !

4. Cost Savings: Smart contracts will help improve these market operations compared to TradFi setup, bringing the cost down for the borrowers/lenders.

With this benefits, it also introduces a risk i.e borrowers defaulting on the loan. The caveat is there is no/low collateral to liquidate which can bring losses to lenders. That’s the most critical thing here is selecting the best borrowers - which most less likely to default and repay the money back.

So, how do you select the best borrower ? the answer is credit underwriting.

In simple terms, the process of evaluating the borrower whether they should be approved for the loan and if so, on what terms is called credit underwriting.

To enable credit underwriting, the most important need is data on the borrower combined with domain expertise to evaluate particular borrower to arrive at a decision. So how does DeFi gets there?

Qiro is building credit underwriting infrastructure to enable under-collateralised lending on-chain. Through Qiro, lending protocols can leverage data-driven credit evaluation and risk monitoring powered by a distributed network of underwriters.

Let’s get straight to how we’re doing it.

The Core Pieces of Qiro Underwriting Infrastructure

Qiro’s underwriting platform provides seamless integration of credit data, risk evaluation, and monitoring for lending protocols:

1. Credit Data

Qiro has built tooling to collect and processes critical credit data from different sources such as bank statements, financials, rating bureaus and third party APIs.

This includes:

• Identification: Borrower verification and profiling.

• Valuation: Information about the nature and value of the borrowers and underlying assets.

• Performance: Historical performance metrics of the borrower entities and underlying asset such as loan portfolios.

2. Credit Risk Evaluation

Underwriters (risk experts) in Qiro network run their credit models on verifiable compute to provide lending protocols with:

• Credit Ratings/Scoring: Assigning risk scores based on the quantitative and qualitative analysis of the borrower.

• Loss Estimation: Predicting potential defaults based on historical trends and borrower credit analysis.

• Interest Rate Calculation : Predicting interest rates for the loan based on the loss estimation, currency risk and other factors.

3. Credit Risk Monitoring

Once a loan is issued, monitoring the risk is crucial. Qiro enables:

• Financial Covenants Tracking: Real-time checks to ensure compliance with loan covenants.

• Collateral Monitoring: Tracking Collateral related metrics to for use-cases such as RWA backed loans.

• Early Warning Signals: Proactive detection of potential repayment issues/ credit defaults through data insights.

By providing these core pieces, Qiro’s infrastructure enables robust risk management for under-collateralized lending in a data-driven and transparent manner.

Exploring Use Cases in DeFi Lending

Qiro’s platform enables a range of practical use cases for lending protocols, opening up new avenues of growth in DeFi.

1. Fintech Loan Securitization

Fintech loan securitization is a starting point for Qiro. Fintech originators often face challenges in accessing liquidity for their loan portfolios. which limits their growth. Qiro will enable efficient and cheaper financing options by tapping into global debt investors on-chain.

Underwriters will evaluate both fintech originators and their underlying loan portfolios, such as SME or consumer loans leveraging Qiro’s underwriting infrastructure . This creates opportunities for institutional fintech lenders to raise debt capital by securitizing these portfolios and bringing them on-chain.

2. Credit Cards

With Qiro’s credit evaluation capabilities, lending protocols can issue physical or digital credit cards to individuals or businesses. These cards leverage credit scores, bank statements, and other financial attributes to assess creditworthiness. This use case can connect traditional credit infrastructure with blockchain-based systems.

3. Cash Flow-Based Loans

Small and Medium Enterprises (SMEs) often need working capital to manage day-to-day expenses and scale operations. With Qiro, SMEs can secure financing based on their past and projected revenues. These loans are underwritten on-chain, enabling businesses to grow while leveraging blockchain’s transparency.

https://x.com/0xsmac/status/1572242206437556224

4. DePIN Financing

As DePIN (Decentralized Physical Infrastructure Networks) grows, assets like EVs, solar farms, and more are seeking credit to scale their networks. Qiro facilitates securitized pools of these assets, enabling DeFi lending protocols to fund them while relying on Qiro’s underwriting expertise.

https://x.com/DAnconia_Crypto/status/1769710465708425343

5. Trade Finance

Trade finance, often constrained by liquidity, can benefit immensely from tokenization. By tokenizing trade receivables, DeFi lending platforms can provide much-needed liquidity for global trade. Transaction data tracked on blockchains adds a layer of transparency, making it easier to underwrite these loans.

6. Embedded Financing

As global payment processors like Stripe embrace stablecoins, embedded financing can bring new credit opportunities. Qiro’s infrastructure can enable Buy-Now-Pay-Later (BNPL) loans for e-commerce platforms, funded through stablecoins and underwritten by Qiro’s network.

Looking ahead

Under-collateralized lending represents the next frontier for DeFi, and Qiro is addressing this opportunity head-on. By enabling highly data-driven credit evaluation and risk monitoring, Qiro bridges the gap between traditional finance and decentralized finance. From fintech loan securitization to embedded financing, Qiro’s use cases show the possibilities of diverse lending use-cases in DeFi.

In the coming weeks, we’ll share more insights into the technical architecture of our underwriting network as we approach our test-net launch in Q1 2025. Stay tuned for updates. For any questions or more information, feel free to reach out.