One of my favorite crypto use cases is borrowing for one-off expenses.

I recently paid a large deposit. Instead of selling my savings account assets, I borrowed stables on Morpho to offramp via Coinbase. Et voilà.

In a few minutes, a crypto loan replenishes my bank account. This is a more seamless experience than anything outside of crypto. I realised it was so good because it was instantaneous because it did not require any human verification.

In crypto, loans are secured by assets worth more than the loan, similar to the mechanics of a mortgage. As long as I remain solvent, meaning my collateral’s value exceeds the loan value by a margin of security, my credit score or risk doesn’t matter. When I borrow, I don’t need permission to someone who’d verify my claims - everything is in a smart contract that will enforce those rules. There is no need for verification and the operation is thus instant.

A major cost in lending is verifying borrower information. The industry relies on underwriting models that use personal information (age, salary, employment, etc.) to make risk assessments and lending decisions. For the model to be accurate, the information must be verified - self reporting isn’t enough. Every additional user has a high marginal cost due to verification.

I argue that crypto and zero-knowledge proofs bring verification costs to zero. You don’t need to pay a credit score provider to know if I’m employed if I present a cryptographic proof generated from my payroll provider’s website. Lenders don’t need to know your salary if you locked collateral in a contract to borrow.

What happens when verification costs approach zero? I anticipate several outcomes:

1. The user experience is improved because loans are instantaneous. Lending companies on crypto rails will offer a better user experience.

2. Loan costs decrease. Traditional lenders must shrink to remain competitive and pass savings to consumers, or new players emerge with lean cost structures to compete on price. A similar situation occurred with traditional banks that lost revenue from net interest margin to neo-banks passing those savings to users.

3. Verification companies either disappear or get integrated with the risk assessment function. The top 5 credit scoring companies have a combined market capitalization of $120 billion. They sell verified data. If users can self-authenticate the data, their margin will be pressured.

4. The market grows as previously unprofitable borrowers due to verification costs become a profit center.

Crypto and zero-knowledge change lending economics. As verification costs evaporate, you can operate with leaner organizations, offer instant loans at better rates, and service underserved customer segments.

ZK applications enable use cases constrained by verification costs. My mental model for thinking about promising ZK app is to look for places where people are likely to lie because verification is too expensive or unpractical.

To make sense of new technology, you need to understand the costs they decrease, which leads to understanding the new design space it opens.

For instance, the internet brings marginal costs to zero. It costs nothing for Google to serve one more user, and it makes no difference to an author whether their blog is read by 27 people or a billion. The internet is infinitely scalable on the backend. This property upended industries, created products we use daily, and generated billions in shareholder value.

The key to creating new internet businesses was to capitalise on the absence of marginal costs. Media is a prime example. Before the internet, media companies had non-negligible marginal costs for each additional customer, involving printing and delivery. Within these parameters, your advantage lies in local implementation, and printing/distribution economies of scale, more so than the content itself.

On the other hand, online media like blogging has zero marginal costs. An author can become a leading voice in a niche and attract readers worldwide. The absence of marginal costs leads to both a radically changed cost structure and a massively expanded market. One-man businesses making millions in revenue like

One of my favorite crypto use cases is borrowing for one-off expenses.

I recently paid a large deposit. Instead of selling my savings account assets, I borrowed stables on Morpho to offramp via Coinbase. Et voilà.

In a few minutes, a crypto loan replenishes my bank account. This is a more seamless experience than anything outside of crypto. I realised it was so good because it was instantaneous because it did not require any human verification.

In crypto, loans are secured by assets worth more than the loan, similar to the mechanics of a mortgage. As long as I remain solvent, meaning my collateral’s value exceeds the loan value by a margin of security, my credit score or risk doesn’t matter. When I borrow, I don’t need permission to someone who’d verify my claims - everything is in a smart contract that will enforce those rules. There is no need for verification and the operation is thus instant.

A major cost in lending is verifying borrower information. The industry relies on underwriting models that use personal information (age, salary, employment, etc.) to make risk assessments and lending decisions. For the model to be accurate, the information must be verified - self reporting isn’t enough. Every additional user has a high marginal cost due to verification.

I argue that crypto and zero-knowledge proofs bring verification costs to zero. You don’t need to pay a credit score provider to know if I’m employed if I present a cryptographic proof generated from my payroll provider’s website. Lenders don’t need to know your salary if you locked collateral in a contract to borrow.

What happens when verification costs approach zero? I anticipate several outcomes:

1. The user experience is improved because loans are instantaneous. Lending companies on crypto rails will offer a better user experience.

2. Loan costs decrease. Traditional lenders must shrink to remain competitive and pass savings to consumers, or new players emerge with lean cost structures to compete on price. A similar situation occurred with traditional banks that lost revenue from net interest margin to neo-banks passing those savings to users.

3. Verification companies either disappear or get integrated with the risk assessment function. The top 5 credit scoring companies have a combined market capitalization of $120 billion. They sell verified data. If users can self-authenticate the data, their margin will be pressured.

4. The market grows as previously unprofitable borrowers due to verification costs become a profit center.

Crypto and zero-knowledge change lending economics. As verification costs evaporate, you can operate with leaner organizations, offer instant loans at better rates, and service underserved customer segments.

ZK applications enable use cases constrained by verification costs. My mental model for thinking about promising ZK app is to look for places where people are likely to lie because verification is too expensive or unpractical.

To make sense of new technology, you need to understand the costs they decrease, which leads to understanding the new design space it opens.

For instance, the internet brings marginal costs to zero. It costs nothing for Google to serve one more user, and it makes no difference to an author whether their blog is read by 27 people or a billion. The internet is infinitely scalable on the backend. This property upended industries, created products we use daily, and generated billions in shareholder value.

The key to creating new internet businesses was to capitalise on the absence of marginal costs. Media is a prime example. Before the internet, media companies had non-negligible marginal costs for each additional customer, involving printing and delivery. Within these parameters, your advantage lies in local implementation, and printing/distribution economies of scale, more so than the content itself.

On the other hand, online media like blogging has zero marginal costs. An author can become a leading voice in a niche and attract readers worldwide. The absence of marginal costs leads to both a radically changed cost structure and a massively expanded market. One-man businesses making millions in revenue like