Decentralized Identity and DeFi - Isaac Patka

uh here to talk about decentralized identity in d5 is isaac patka of bloom which is a product i've been following since the very beginning very excited to hear and learn so much from isaac in the next 18 or so minutes isaac thanks for welcoming me to eat denver really excited to be here again this time virtually um so uh that uh i was listening to um ship's talk on streamer and i couldn't think of like a better um intro into into kind of what we'll be talking about next um so what i'm most interested in is the intersection of the decentralized identity spaces um and the and the maturing d5 space and so these two things have been maturing independently for a number of years and i think that really now is the time that we can start bringing them together and seeking a lot of value so the analogy that i'm thinking of which should help here is that people often talk about defy legos where you can stitch together things like credit delegation and flash loans and cdps and decentralized exchanges to build all sorts of really creative new financial instruments on the identity side we've also been kind of putting together a lot of different a lot of different pieces like dids and identity wallets uh encrypted data vaults uh protocols for cross company presentation exchanges um so the analogy that i'm that i'm hoping to try out here is that you know we've been building these identity mega blocks which are kind of off-brand legos um and we've got legos uh the d5 legos and what we don't have is a very easy way to kind of piece everything together so when i talk about the decentralized identity space um and what we've been accomplishing there's in the u.s and in abroad specifically a lot in southeast asia there's a lot of these companies rolling out the concept of verifiable credentials which give people a self-custody of information about themselves that they can prove without having to go back to some sort of central body like a credit bureau or even like a google or facebook for oauth um so these are people that are traditionally unbanked or underemployed or in the current situation unable to travel or very restricted movement wise and so what we're starting to see is a lot of decentralized identity applications giving people the ability to solve problems with with data so this is in uh i'm just so excited about the last few years um the amount of uh companies that are now supporting these open and interoperable standards it was actually two years ago at east denver um when i signed into the uh when i signed into the east denver hackathon with the uport identity wallet when i realized like whoa like why are we not interoperable with these folks so um denver was actually a big uh turning point for how we were thinking about identity with bloom so now you can see this is just a screenshot i took recently of all the member the members of the decentralized identity foundation there's also groups like trust over ip the w3c credentials community group there's so many people in the decentralized identity space that are working on the problems of um on the solutions for self-custody of verifiable information meanwhile everyone here is more familiar with um with d5 right like i had i used the same graphic a few months ago in a talk and i had to take another snapshot because it just it just dwarfed the amount of money that's been pouring into defy i mean out of products and interesting things that are launching every week um that the pace is just is just incredible of what's going on in d5 however a lot of the products in d5 are still things like um ways that you can do margin trading or locking up your assets and borrowing against them a lot of it is it's still based on the fundamental uh concepts of like trustlessness um and just you know protocol and code is king so what we've been doing in identity is not that is not that unrelated but it's not exactly on chain like if you remember the first iterations of the bloom smart contracts that i was working on um we had the concept of like an ethereum address uh has a certain um has like a type of data like a phone number and the hash of that phone number is this like it um every single piece of information was directly tied to an ethereum address and while the data was obfuscated um it wasn't there were still definitely some privacy issues um so the way that the identity space has been moving is still using like public private keys and and wallets like bitcoin and ethereum wallets but the protocols have scaled in a very different way at most the only thing that you'll see on chain is like an ipfs document hash which represents all of the document updates that happened in the last hour or something so what i have on the right is um is a graphic that shows the side tree protocol so sidetree is something that is being worked on by quite a few diff members including transmute and microsoft and these folks are um and we're also supporting it now too you can either use like a bitcoin key or an ethereum key and basically what your the point of it is more than an identity tied to just an ethereum address it's i tied to a universal identifier which is linked to a public private key and by having it on this on the sidetree protocol you can have certain features like updating keys rotating keys delegating things adding service endpoints which are like where you store your data um so these are all things that are enabled by the same core public private keys as the rest of crypto but it's not like you can query identity information from within a smart contract um it's really just using the ledger as a time stamping mechanism these two spaces are very complementary so the d5 space has a truss problem in that every lending protocol either requires over collateralization or instant payback now this isn't necessarily a problem because the applications you can build on that are amazing but if you actually want to start building consumer lending product consumer banking products will be limited both by regulation compliance and the fact that there's a completely trustless nature to um ethereum addresses on the decentralized identity space we're actually also seeing a major challenge which is um what i'm calling an adjacency problem one of the core value props of decentralized identity is that you get the information verified once and then you can share it as many times as you want all of the pilots that even the top decentralized identity companies are doing no one's really proven out that adjacency value prop yet it's more like um you know these things are working within a specific silo so an example is like a hospital that rolls out an identity system to manage their um employees uh credentials which i think is something that every name is working on there it still is basically from hospital to hospital i don't think any of those people can then take have taken their um their doctor credential status and use it in a completely unrelated application even though through the nature of this technology that's a totally legitimate use case so by bringing together the fact that define needs verifiable self-custody data and decentralized identity needs more use cases for us to actually be able to onboard more issuers of these attestations or credentials they work really well together and this graphic is my you know poor attempt to tie them together with like a bloom colored square so what type of data do we have now in the decentralized identity space we spent a lot of time working on protocols and schemas and ids and just the general transport layer but now we're actually starting to see data flow in so there's two so iata and affinity and actually a number of others are working on ident on wallets that will enable people to travel if they can show negative coveted test results and vaccination status um the immediate benefit here is that you can make health data more portable um by you know there's all these laws around like um if you get a test for your covid uh for your code results issued in like malaysia if you go to the border it's actually considered like a data export if like these two services are talking to each other by actually giving the data to people and holding it in their hands um you can get around a lot of the complex like data regulations governing what data can be imported and exported between countries this is just one use case like i'm saying like you know this allows people to travel but what can you do now if you now have a system where labs can issue portable verifiable health records it doesn't just end with covet test results you can make any sort of health data compatible in this format and we built it using like fhir schemas which are already natively compatible with electronic health records similarly in for employment information i mentioned like uh something that evernim's been talking about in inter-hospital authentication of health professionals so doctor a wants to go from hospital one to two and they don't want to have to revet all of their licenses they can custody all of this information and bring it over and on bloom what we've been focusing on one second is like credit income and kyc data so we can actually we have a deep integration into transunion which allows us to allow which allows us to pull people's credit data directly down to their device we don't see it um transunion doesn't know that what you're doing with it basically you can pull your credit data onto the device uh get a credential that represents what creditworthiness bucket you fit into and then there's all sorts of eligibility screening and offer engines and whitelisting you can do directly on device currently this is most of our users really just use this for monitoring their credit as a more private alternative to things like credit karma or nerd wallet but we want to see is people actually using this credit data to make people eligible for unsecured lending products this involves building a bridge um the same kind of bridges that you heard about in the last talk um but with uh some more details on like kind of what how we're building these bridges this is where a lot of our development is focused now the left hand side of the screen is showing how issuers give data to consumers and allow them to self-custody things about their job their education their medical history they store it in an identity wallet that gets stored encrypted in a data vault and then they can share it freely in order for them to actually share that with a defy application you need some sort of anonymization layer some sort of incentive mechanism and so there's a number of ways to a number of ways to do that the default that i think about is just you know a chain link oracle making this data somewhat anonymized saying that you know this address falls into this sort of bucket um you can build a data feed like that and we've built proof of concept data feeds like that um something that i did for the market make hackathon was actually use this data to mint nfts so what we did was based on your credit worthiness profile we would mint a nft that represented something that could be redeemed for a loan at a certain interest rate and at a certain limit and then it would automatically open up a credit line for you using ave credit delegation so we've got oracles you've got nfts there's all sorts of applications with like enigma secret contracts that we could do or any of these other data protocols i'd be happy to develop an adapter for the key thing here is that any data that is flowing into the decentralized identity space can easily be made accessible and queryable in the d5 space um this is the example of what i was just talking about we just finished this hackathon earlier this week in fact the finale was just this morning where we worked with a team um to build something called credit three um so the idea here is that we could have investors that deposit stable coins into an ave lending pool where they're getting at least the base return interest there and then qualified risk assessors can use the data that we've gathered off chain to issue loans to certain individuals that meet the certain qualifications and then all the investors in the pool can actually receive a premium interest on top of the base lending pool rate um so borrowers can receive nfts from risk assessors which are redeemable for loans investors get lending pool interest plus premium interest from borrowers and risk assessors can actually compete with each other to see you know who is the best risk assessor risk pricer for loans and customers this is something that could easily in the future be integrated into an alternative to something like a firm where you know if you're buying your peloton and it says pay 50 a month for you know a year um you could actually open up that credit line easily um using the combination of d5 legos and and our identity blocks um this is just i like to show exactly what it looks like um so this was uh you know this is the app that um allows you to see you know these are the different attributes you have about yourself identity documents like sanction screens um like social media accounts a credit tab with actually like live data being pulled directly from transunion and then just with a simple qr or button scan um you can share it with the page and then whatever address i have associated with my wallet would be um then made available in the chain link oracle or via or minting an nft there's another thing that i think would be really interesting which we've been exploring with regulators uh primarily in the us um we i'm the co-chair of the diff banking and finance special interest group where we talk about you know different ways that we can introduce this technology to make it easier for banks to track to handle their customer data in a more privacy preserving way one of the really interesting things we learned is that um while we brought on a lawyer who uh was involved in the early 2000s of actually writing the customer identification program in the u.s um to talk about like what are the actual laws that crypto exchanges and banks have to abide by in order to um in order to make sure that they're are not causing money laundering or facilitating money laundering or terrorist financing and what we learned was that there actually there is no law on the books that says every institution institution you do business with needs to have a copy of your personal information the fact that when you go to kraken coinbase gemini or do and like participate in ico the fact that you have to share your identity information with each of them is just because they're not connected but there is no law that says that they each need a copy of your data it's perfectly legal for there to be some sort of consortium of identity doc of identity providers just to make it so that somebody can raise a flag and say this transaction looks suspicious i know who this wallet belongs to maybe they're doing money laundering or maybe they're financing like terrorist groups or something it's just that somebody needs that information about you but we can do it in a much more privacy preserving way that's done now you shouldn't have to take a picture of your license every time you want to use um a new uh a new application on in crypto so there's all sorts of really cool stuff i want to see built here we started funding a lot of grants in the space just this week we closed applications last week and we have come we have companies that are coming in to build unsecured lending products um different like tokenomics research projects um what i would love to see is like um you know as some of you know like bloom's been around in the space for a few years started off as a token sale but you know the initial value prop of the token was a network currency of like blt as this network currency um but you know when we actually got started integrating with these different data contracts with the transunions and the and the accuains and all the companies um pretty hard sale to get them to say okay now it's a competitive marketplace where you're buying and selling data with a token what i would love to see is is there a way that we could advance the original vision of like the token the protocol this whole decentralized identity ecosystem to do things like governing lending vaults unsecured lending protocols d5 something at the intersection between these two spaces i know that's a little vague but that's kind of what we're exploring and researching now and we're opening up a lot new a lot of new grants and opportunities there i think that if we do solve these problems of bridging c uh d5 and decentralized identity we can create an entirely new class of products like um you know different on-ramps for centralized finance users to get access to crypto lending and investing opportunities so yeah these are some links please join us like this is all uh research that we're conducting now that we're fostering the community um yeah and i'm really excited to see what you guys can do with this information well thank you so much isaac that was brilliant we learned a lot here and we saw in the comments some people just want to ask you one last question before we let you go people were saying that identity can be used for or against you uh and and people are concerned that perhaps the same here we go this is the comment here you can read it yourself um what do you think what do you have to say to this uh commenter um yeah so i definitely agree with the premise that like having this knowledge about who you're dealing with um it can work for or against you like if uh um if you're either trying to um skirt certain things about the system or if there are certain products that you want to have access to that you don't that legally you might not have access to um if people kind of know who you are unable to track this down people can kind of gather information about you behind the scenes and start understanding things about your activity that you would not necessarily want them to know um so i think of identity as like a very fragmented concept and at the core of the decentralized identity space we have this concept of like selective disclosure where you really should only have to share just the minimum amount of information that the counterparty needs to feel comfortable doing business with you and the fact that that's kind of baked into the core fundamentals and like ethos of the system gives me some comfort but it's definitely a good point that we shouldn't just because it's now a decentralized credential you shouldn't just have to share all the same information that you did before um you should be able to break it down into like sub credentials and select and use selective disclosure to make sure that you're really only sharing what you need for people to feel comfortable doing business with you well to feel comfortable and also perhaps uh the minimum to meet statutory requirements yeah yeah okay well isaac thanks so much for coming on here and educating us about decentralizing identity and where we stand in 2021 uh is of course a core piece of the d5 stack as you described in your smart blocks and lego blocks at the very early on so thanks again