Speed read 3Jane: Unify on-chain and off-chain credit, borrowing at 0% Collateral

What will 3Jane do to connect bank credit to the chain and borrow at 0% Collateral?

Authored by: KarenZ, Foresight News

In the current DeFi lending ecosystem, ordinary users who want to borrow funds usually need to provide over-collateralized on-chain assets, and are only limited to ETH, stablecoins, or some mainstream crypto assets. This not only restricts the utilization of funds, but also excludes many potential users. Even for unsecured loan services, they are often limited to specific groups such as off-chain private credit companies or institutional market makers. This situation greatly reduces the inclusiveness and capital efficiency of DeFi lending.

However, the emergence of 3Jane may break this shackles. Its core idea is to integrate on-chain and off-chain credit data, and to issue loans based on users' comprehensive credit rather than purely on some on-chain assets. In other words, users can use DeFi assets, CEX assets, bank assets, and future cash flows as credit evaluation criteria, and obtain loans without collateral.

What is 3Jane?

3Jane released the white paper on February 25th. According to the official introduction, the 3Jane protocol is a credit-based point-to-pool currency market, providing algorithmic, real-time unsecured USDC credit lines for yield mining users, traders, enterprises, and AI agents. 3Jane provides capital based on verifiable financial proof, covering the entire financial profile of users in DeFi assets, centralized exchanges, brokerage accounts, and bank accounts.

In addition, 3Jane can also provide operating capital and growth financing for highly productive but asset-light enterprises and AI agents, covering financial markets, service markets, and resource markets, with credit assessments based on their future cash flow.

3Jane stated in December last year that it would be built on the Base network, however, the latest whitepaper only emphasizes that it will be launched on Ethereum. 3Jane will only be open to US users in the early stages.

3Jane founder @_yakovsky spent three years at Ribbon Finance (later merged into Aevo), joining the protocol as a smart contract engineer just 1 month before moving to growth strategy and leaving Ribbon Finance in April 2024.

How does the 3Jane protocol work?

The 3Jane protocol mainly revolves around the three core functions of the core currency market, credit assessment, and credit reduction:

I. Core Money Market (Deposit and Loan):

This is a bilateral market that serves as a connection between lenders and borrowers:

1. Credit side: Users deposit USDC into the pool to mint USD3, and can also choose to pledge USD3 for sUSD3. All USDC is first deposited into the Aave V3 USDC pool, generating aETHUSDC which is then redeposited into the 3Jane core money market to ensure idle capital receives Aave's underlying returns.

It should be noted that USD3 and sUSD3 are both yield-bearing tokens compliant with the ERC-4626 standard. ERC-4626 is a standard for tokenizing treasuries, allowing any yield-bearing token to be compatible with any DeFi application, enhancing composability and accessibility. sUSD3 is a subordinated debt of USD3 with a cooling-off period before redemption into USDC.

2. Borrower: Borrowers only need to connect their ETH address and bank account (via Plaid) to instantly generate a 0% collateral, open-term, personalized interest rate USDC credit instrument. When the borrower withdraws the credit line, funds are withdrawn from the Aave pool.

2. Credit underwriter

3Jane's off-chain credit assessment algorithm 3CA is its core technology, responsible for generating credit limits, default risk interest rates, and repayment rates based on user assets, cash flow, and credit status, and chaining the results with zkTLS proofs (from the Reclaim protocol).

• Asset Sources: Including CEX, banks, brokerage accounts, as well as DeFi assets (assets deposited into pools on all EVM chains, mainstream coins, altcoins, stablecoins, collateral, re-collateralization, money markets, DEX liquidity pools, CDP, derivatives DEX, cross-chain bridges, NFTs, SoFi, and RWA assets).
• Cash Flow: Income, tokens locked for voting, and revenue situation.
• Credit Situation: Based on Cred score, Blockchain Bureau score, and Equifax/TransUnion VantageScore 3.0). These credit protocols evaluate credit based on each user's every transaction - from loan borrowing, repayment, liquidation, token holdings, address age, income generation, interactive exchanges, etc.

The Reclaim protocol uses zkTLS proof to verify any data on the Internet. 3Jane, with the help of the Reclaim protocol, avoids traditional hard credit checks (such as SSN) by directly extracting credit and other data from the user's logged-in Credit Karma account.

Three, Credit Reduction

3Jane uses the following three strategies to maximize the prevention of default situations:

1. Reduce the 3Jane score of defaulting users, thereby reducing future credit limits and increasing future interest rates.

2. Distribute the defaulting party's late payment interest repayment to all existing borrowers in proportion.

3. Start non-performing loan (NPL) auctions and introduce debt collection agencies.

As for whether the debt collection mechanism will cause user privacy issues, in order to protect privacy, unless the user defaults, 3Jane will not store user identity information. When connecting to the bank, 3Jane obtains full name, email, phone, and city/state information, and stores it in multiple clouds after sharding encryption. Only when there is a default, and when accepting a debt collection challenge at a certain debt collection agency, private user data will be shared. In addition, the cooperating debt collection agency needs to have access to the TLOxp database, which provides 100 billion data points to help locate debtors.

How to repay? What will happen if there is a default?

3Jane stated that every month, borrowers must pay the minimum repayment amount. The 3Jane protocol adopts a relatively flexible and borrower-friendly approach when designing repayment rules.

Specifically, the minimum amount that the borrower needs to repay each month is not a fixed sum of principal and interest, but rather the lower of two calculation methods. The 3Jane whitepaper states, "Borrowers only need to repay the lower of the lifetime appreciation since the credit limit was withdrawn and the interest rate plus repayment rate."

My understanding is that the monthly repayment amount is the lower of the two calculation methods:

1. The cumulative growth value of the borrower's asset portfolio (including on-chain and off-chain assets) and cash flow since the first withdrawal of the credit line.

2, 3Jane sets the principal repayment ratio based on credit assessment and the interest the borrower needs to pay.

The core of this design is to avoid imposing excessive repayment pressure on borrowers, especially when the market is volatile or the assets perform poorly. What if the cumulative growth value is negative, how to repay? The author is currently not clear about the specific details. Perhaps 3Jane will take into account the volatility of unstable assets when issuing loans.

After the new repayment trigger, the borrower has a certain grace period to repay the debt. After the grace period, the borrower enters the arrears period, during which additional default interest is accumulated on the unpaid principal. If the debt is not repaid before the arrears period block timestamp, it will enter a default state, at which point the 3Jane credit reduction module automatically triggers the initiation of non-performing loan (NPL) auctions.

Summary

By integrating on-chain and off-chain credit data, 3Jane has broken the restriction of over-collateralization in the DeFi lending ecosystem, providing users with unsecured loan services based on comprehensive credit.

I believe that 3Jane avoids direct competition with traditional finance and instead serves the specific needs of the crypto ecosystem, targeting highly active users in the Web3 ecosystem, who often hold diversified assets or cash flows, providing them with more liquidity on-chain.

The concept of 3Jane's unsecured loans is eye-catching, especially in the forward-looking construction of the Web3 credit system. However, the realization of these advantages needs to be based on the reliability of data and algorithms, as well as the accuracy of credit assessment and the efficiency of handling bad debts. For users and investors, it is necessary to fully understand these risks before participating and pay attention to the project's audit reports, test network performance, and subsequent development dynamics.