One of the ideas I am most proud of contributing to was “Trust” on Venmo. Part of Andrew Kortina and Iqram Magdon-Ismail’s original version of Venmo, the idea was to allow people who signed up for Venmo to “trust” (vs. friend or follow) other users. That gave the trusted person the ability to withdraw money from other users’ bank accounts at will, which made transacting with trusted friends easier and—more importantly—created a new type of micro-credit.
Venmo trust was a very disruptive idea that never quite made it to the mainstream. But I am increasingly convinced that one of the best use cases for blockchain is to re-implement what Venmo tried to do in a centralized way almost a decade ago. In doing so, this would provide a framework for peer-to-peer credit and monetary expansion.
The History of the Venmo Financial ‘Trust’ Graph
Trust was initially conceived as just a pragmatic product hack to make transacting with friends easier. Settling up with friends after dinner or drinks works better when whoever put down the credit card can just “pull” the money they are owed from their friends, rather than forcing them to take out their phones and “push” money to the person who paid.
However, the feature had much broader ambitions.
The idea was that if people were willing to “trust” people at scale, you would end up creating a “financial trust graph” rather than a “social graph.” Just like friendship long predates social networks, people lend each other small amounts of money in the real world today.
If you could digitize and map those trust relationships at scale in a service like Venmo, you could create powerful new financial products. Imagine a platform on which you had hundreds of people who trusted you financially, and in return trusted hundreds of other people (and each of those people had hundreds of their own relationships). It would change how you measure credit, extend loans, borrow money, etc.
Today, banks do a very simple low-information version of this already. They aggregate the trust of depositors, and then make loans out on their behalf. But a peer-to-peer system of trust could be far more efficient than the traditional banking system.
In a system like this there would be enormous incentive to “trust” only people you truly believe in, because you would have money at stake (unlike in social graphs where there is always pressure to add more friends). And the knowledge graph of peer-to-peer social trust would be far more information-rich than any simplified credit score run by a bank could be. So the integrity of the network and its efficiency for credit could in theory be extremely high.
Longer term, a framework like this could be a major driver of the economy. It could allow for credit creation not to flow top-down, from big institutions like banks and governments lending to people, but bottom up. Credit could extend how it does naturally—between people without banks in the middle.
It would also have a great social impact. I believe it is socially healthy for people to be directly cross-invested in their neighbors and members of the community. This used to be the case in small towns, but the globalization of finance has largely abstracted and removed our direct social cross-investment in each other.
When Venmo was acquired, the buyer decided to turn off the trust feature. It stopped pursuing the patents around the financial Trust graph (you can read the original now-abandoned patent application to learn more about the trust idea).
This is what tends to happen to traditional financial service products as they scale.
Prosper and Lending Club started out with disruptive models. But as they grew, they were forced to plug into the rest of the financial ecosystem and, in the process, became effectively lead generation for traditional lenders.
Venmo, as it has become a giant payment service, was forced away from its most disruptive ideas and towards an easy way to text money. Texting money is what was propelling growth, and it is obviously an easy and unchallenging idea for users to digest.
But the reality is that giving up on trust was, in my mind, sacrificing the most disruptive part of the service. Venmo became over time just another way to send money (though a great one).
Enter Crypto—When Everyone is Their own Bank, Everyone Should Make Loans
Recently I was having a conversation with David King, a community leader in the crypto space. The conversation turned, as it frequently does, to the question of actual use cases for blockchains and cryptocurrencies.
We ended up discussing how, if the often-quoted idea of crypto is that “everyone can be their own bank,” then what seems to be missing is the fact that one of the core things banks do is make loans. If people used cryptocurrencies to lend to each other, we could end up with a new form of credit—and a new form of monetary expansion.
The logical conclusion is that it was time to recreate the concept of Venmo “Trust,” but this time in a decentralized way on top of a blockchain-based product.
Beyond Bitcoin’s store of value, and the questionable use of Ethereum as a fundraising backbone through ICOs, maybe the use case for crypto is as the backbone for creating a decentralized trust network. That would allow consumers to easily extend each other micro-loans.
Here is how it would work at a high level. Each wallet / address in the system would be able to both hold currency and create a gesture of “trust” to other wallets in the system. That could be either in a bi-directional Facebook-style friend model or in a uni-directional Twitter-style follower model.
If wallet A trusted wallet B, it would mean that the owner of wallet B would have the ability to pull tokens or currency directly from wallet A at will. In other words, the owner of wallet B would have the ability to borrow money from the owner of wallet A.
The way this would work in practice is that individuals, and communities, would formally “trust” each other on a system like this (just as they do casually in the real world). That would give each other the ability to leverage each other’s capital.
This web of consumer trust would allow people to directly borrow potentially large sums of money from each other in aggregate by borrowing small amounts of money from many different people. This “liquid trust” would allow for cheaper sources of financing and capital, and it would also expand the money supply much the way large traditional banks do today.
In a web like this, building formal financial trust with people you know, the incentive to repay loans is extremely high. If you don’t, everyone will know, and you will rapidly lose trust. If you do, then the trust you can gain from good behavior is extremely valuable.
Where Crypto Particularly Shines vs. Centralized Systems
Because cryptocurrencies allow for more sophisticated smart-contracts, it would be easy for the “trust” gesture between two people on the system to come with rules attached. For instance, the person lending money could charge interest at a set rate, or there could be limits on how much each person could borrow from another.
Further, while it could be built by a centralized company like Venmo, this idea works far better on a decentralized public ledger. There, it becomes possible for anyone to trust the ledger of all the “Trust” relationships and micro-loans on the system and make their own judgments of the creditworthiness of any individual actor in the system.
And probably most importantly, the irreversibility of blockchains is also very useful in making a system like this work. In the case of Venmo as a service that was connected to people’s checking accounts, trust was a risky proposition. The wrong trust transaction at the wrong time could cause issues for whomever was lending out money to their friend if it caused them to bounce a check, miss rent, etc. Because of the extreme risk, Venmo had to allow the reversal of trust-based “loans.” But the ability to reverse a loan after you agreed ahead of time to make it weakens the signal of the trust gesture in the first place.
With a blockchain—where people kept separate accounts from their main checking account—and a guaranteed ledger of ordered transactions, it would be possible to truly enforce the value of a trusted relationship.
Actually building this would be a double-edged sword. The good news is that it would likely unlock, in a meaningful way, a huge amount of credit for the unbanked or underbanked and generate a lot of competition for the traditional lending industry. That would likely drive down the cost of borrowing for consumers.
The bad news is that allowing consumer-to-consumer trust to work at much larger scale will have some challenging social implications. When lending becomes a function of the people at scale rather than institutions, we lose a lot of the controls that are currently in place around what data is “fair” to use in determining credit-worthiness. A system like this would likely empower everyone, but it will empower some people more than others (as all social systems do).
But at the end of the day, the fact that this will be socially disruptive is probably an indication that it is important enough to do. I believe the good would outweigh the bad.
So, who wants to build it? I know Iqram and Kortina are excited. And it would be a hell of a way to resurrect the original Venmo vision.