ASKR | Devpost

Implementation Details

Inspiration: The Problem 💡

The current, centralized model of the financial system has enabled for the creation of massive amounts of wealth and prosperity; it is this very system, however, that has enabled for the perpetuation of the myriad of global challenges and risks we currently face.

Billions of individuals and small businesses remain unbanked, with the majority of unbanked people that ones that require access to capital and the modern financial system the most; although banking is practically universal in high-income economies, the rest of the world continues to lag behind. Furthermore, the systemic barriers in place mean that even individuals with the access remain excluded.

The largest source of debate amongst investors stems from the risk-adjusted rate of return upon investments. The bond market, which is estimated to be $119 trillion globally, offers investments fixed-income options for their portfolio. The largest issue with bonds, however, is their rate of return, which not only often fails to beat inflation, but prevents investors from receiving a higher yield as they might from an index or mutual fund.

Junk bonds offer significantly more promising yields, but investors bear a much higher credit risk. In order to construct an effective fixed-income portfolio, diversity is essential, but this is often infeasible due to capital, with investors having to face a significant tradeoff between risk and yield.

What it does 🤝

Investors

The premise of the idea is the Decentralized Debt Backed Security (DeDBS). The DeDBS operates much as traditional bonds, except unlike traditional bonds, it is backed by a diversified pool of hundreds of pieces of debt.

The DeDBS serves to make capital raising for consumers and smaller businesses/organizations easier while allowing for investors to receive a higher risk-adjusted rate of return than traditional fixed-income securities.

Each DeDBS is stored on the blockchain and divided into tranches, which are categorized according to risk level. There are three tranches: Senior Secured, Mezzanine, and Unsecured. Investors in the Unsecured tranche receive the highest yield, but also bear the greatest credit risk. There are also various DeDBS options dependent on maturity and loan type.

Investors invest a principal amount in their desired tranche, which will be a multiple of 100. The principals from the investors are gathered into the Lending Pool on the network. The network now makes the funds in the Lending Pool available for lending to borrowers, who are programmatically assigned credit ratings based on a myriad of factors, dependent primarily on their computed probability of default.

These loans are then classified by credit ratings and organized into DeDBS according to a per bond quota for High Grade, Medium Grade, Non-Investment Grade Speculative, and Highly Speculative loans. As a result, each DeDBS is backed by a diversified pool of loans, reducing the net risk of the security while still allowing the overall yield to go up.

During each coupon payment, comprised of both portions of the principal and the fixed agreed-upon interest rate, and which is standardized and automated for borrowers - who are required to post appropriate collateral during a coupon period -, the coupons for the corresponding loans in the DeDBS are pooled together. The app itself takes a 2% management fee from the total pool. The remaining funds are proportionally distributed across the various tranches, with each investor receiving the specified yield.

Borrowers

Borrowers submit a request for a loan of their desired amount (which is a multiple of 50 and is capped at $5000 for a single loan), alongside their personal and financial details, which are used to appropriately price their credit risk. There will be very, very few circumstances under which an individual or entity will be denied a loan, and there will be no discrimination in lending based upon socioeconomic status, demographic, location, etc. Borrowers create a fiat wallet upon registration, which is where they will receive the funds, as well as post collateral prior to a coupon date.

They are then assigned an interest rate for the various possible maturities (which depend upon the principal loan value), computed based on their creditworthiness and distribution of default risk amongst investors. Due to the demand from investors and the growing availability of capital, interest rates across will be driven down, even for less creditworthy individuals. They then have the option of selecting their desired plan or cancelling their request.

If they proceed with their request, and there are enough funds within the network, their request is fulfilled; otherwise, they are placed in a queue and their request is fulfilled as soon as possible.

Once their request is fulfilled, the money is deposited directly to their "fiat wallet" on the network, where they can spend their funds. They will always need to have collateral for the first interest & principal payments within this wallet before they can spend the funds, and proceed to post collateral for the duration of their loan.

If a loanee desires, they can also repay their loan prior to the set duration at no additional cost to them.

Additional Info:

ASKR uses government ID verification
In terms of collateral there are certain services that can create nfts for your assets

Challenges we ran into 🔧

Struggles with consistent work First off, it's the first time we worked towards such a long hackathon. Our team is used to 1-2 days of straight work to get a final project done. The Finastra Youth Hackathon was different in that it was over a longer period of time and the emphasis was on the business concepts more than on the final tech demo/project. Our team struggled to put in consistent work toward to final project. We got off to a really good start with lots of brainstorming and ideation sessions but there was a slight lull period in the middle where we didn't get much done. We were able to fix this by calling more frequent meetings, especially leading up to the final deadline.

Idea Research It took a significant amount of time to establish an idea that was both feasible and which aligned with the core principles of this hackathon. Especially since some members of the team were relatively new to the world of finance and had to do a lot of research to understand where a solution could be formed.

Accomplishments that we're proud of 🏆

Our team is proud of the idea we created, considering that prior to the hackathon, we had minimal exposure and practically no experience within the FinTech sector. Through each of our unique experiences and areas of expertise, however, we were able to create a business idea that not only achieves the goals set out by the hackathon, but the goals we set out for ourselves in creating an idea that can be implemented using current technologies and have a direct impact at both a global & local scale.

Additionally, we're proud of how much we've grown as developers, leaders, and individuals throughout the course of the hackathon. We further developed our communication, collaboration, and problem solving abilities, and learned how to analyze problems through a variety of lenses.

What we learned 📚

Throughout the hackathon, our team not just gained a deeper understanding of the mechanics that underpin the modern financial system, and credit markets in particular. However, we also gained a greater awareness of the systemic barriers and flaws that arise from the current centralized financial system.

We began analyzing how these gaps could be bridged by utilizing ideas and ideologies from past financial innovations - in this case, the original Asset-Backed Security - and harmonizing them with the future state of finance via the use of the blockchain and smart contracts.

Furthermore, our team learned more about the project development lifecycle and implemented specific techniques such as Agile. We became better communicators, which was essential due to the online-only format of the hackathon, as well as more creative problem solvers, developing an integrated thinking methodology to approach challenges.

What's next for ASKR 🧭

We hope to add increased verification checks, as well as streamline the repayment pipeline for borrowers, ensuring their credit risk is minimized for investors. Furthermore, we hope to create an assessment algorithm that provides a fair rate, taking into account both the borrower's details and the parameters of their loan.