Digital Asset Credit Union

The best regulated businesses should have the lightest infrastructure.

The beautiful thing about bitcoin is that you are decentralising security to the rest of the network and that is something to be harnessed.

My favourite idea for a regulated business at the moment that I have been working on is a pure digital asset credit union (DACU).

You can have a core membership group that has a ‘common bond’, which for a DACU could (arguably) be being part of the bitcoin network (or even better operating a bitcoin node).

Together they form the Credit Union which involves an authorisation process with the Prudential Regulatory Authority (PRA) (if in the UK) which takes about 6-12 months (details here).

Basically all the DACU would be (from a technical standpoint) is a Bitgo multi-signature wallet with insurance behind it and the bitcoin blockchain initially.

Members pay into a multi-signature wallet held by the Administrator of the DACU (DACU is required to have insurance to insure against fraud or misconduct of directors as part of authorisation process) and members apply for loans from the pool of digital assets for their businesses or as individuals. Profits are generated from the loans business and then distributed to members in dividends.

 

The DACU only touches digital assets, so it will have to work with third party providers for all other ancillary services, such as the provision of bank cards to members or an Digital Asset exchange for the conversion of loan amounts or to acquire Digital Assets in order to deposit with the DACU.

Identity management can be outsourced too to a third party, for example to the partner Digital Asset exchange. If you wanted to make the structure even lighter you could ask all members to apply for Estonian e-ID and you could have a partnership with Estonia whereby the DACU team helps members fast track acquiring e-IDs (kind of like a Consular office) (in fact you could make that part of the ‘common bond’ requirement that everyone in the DACU has to have an Estonian e-ID).

An interesting angle for DACUs, is that they could be used as a micro-lending platforms for the developing world but authorised from the UK. Also, you could build a DAO on Ethereum to disburse small emergency loans to members where needed (for example during closed hours). You could use Abra as the delivery mechanism of the micro-loans for members.

Of course a DACU is not going to appeal to everyone’s risk appetite. Also, the discussions with the PRA will be very interesting about the concept of decentralised security via the bitcoin network and also they may argue that the DACU is not receiving deposits if it only receives bitcoin, in which case you would need to switch to credits on a distributed ledger (such as SETL.io or Ripple). Also, another point is that the DACU is a great training ground to build up a strong client base to then upgrade to the first DAB (Digital Asset Bank). One step at a time. Anyone interested in the DACU idea please reach out at info@blog.diacle.com.