Lending is a capital-intensive industry, especially for new entrants. In the coming months and years, Bloom will incentivize early participants to seed the initial network, build out complex infrastructure, and signal stability to its partners. Access to capital is crucial for all three of these objectives.
The Bloom protocol must see rapid adoption in order to become a pillar of the world’s financial ecosystem. We recognize that this is extremely ambitious. Our primary goal is to maximize the chances of Bloom’s impact and long term success, and it’s not going to happen without a stable financial base.
We want the community to feel comfortable with our intended use of crowdsale funds. If there are questions on anything outlined below, our team is always available on Slack to discuss.
Network Effects & User Acquisition
Bloom depends on strong network effects with steep starting conditions. We are building a multi-sided platform — a large part of the value lies in connecting participants with one another. We must attract users, lenders, data providers, and identity attesters onto Bloom early on. If we neglect any one of those groups, applications built on top of the protocol will be far less attractive to the other participants on the platform. Nurturing the ecosystem early on will multiply the value it can create far into the future.
We need to onboard millions of users to kickstart the next generation of the existing credit infrastructure. The more users we have on Bloom, the more lenders and attesters will want to use Bloom. Igniting this virtuous cycle is expensive, but must be accomplished for long term success.
In PayPal’s early days, they paid $10 for every new customer and referral. We do not intend to spend $10 for every new customer, but we will create similar community incentive programs for different groups to drive adoption. With a back-of-the-envelope calculation, you can see how quickly these costs add up.
Building the lending ecosystem
Beyond seeding the initial network, lending is a complicated business. Credit underwriting is specialized and context-dependent, and the talent pool of people who can build those models is competitive. Once you have the right people working on the problem, they still need data, tools, and processing power to do their job. These resources can be expensive, and data acquisition is particularly costly.
A key reason that credit bureaus have been entrenched for so long is because they have high barriers to entry. Bloom’s vision is to form a network of actors who all contribute data directly to an individual’s BloomID. Whether they like it or not, borrowers today have their information and creditworthiness automatically aggregated and stored by the bureaus for lenders to use. Our aim is disintermediate these middlemen who are aggregating your data, and that doesn’t come without costs. If it were easy, someone would have already done it.
Stability and a long-term view
Stable, long-term access to capital is also critical for institutional adoption. Banks, credit unions, and other credible institutions will not adopt technology that does not have a long term plan for financial stability. Significant funding early gives these organizations faith that Bloom will continue to exist.
Once the question of stability is addressed, there remain high switching costs for lenders to experiment with new risk models, new data sources, and new markets. Virtually every lender in the world currently relies in some way on the credit bureau infrastructure in order to issue credit. They know that there is a lot of room for the process to improve, but the risks and effort involved with switching are hard to justify in the short term. Bloom will serve to align the interests of all the players to benefit the health of the ecosystem
We recognize the risks our partners take by adopting an approach to credit that is as radically different as Bloom. We are exploring vertical-specific joint ventures with established lenders to use the Bloom protocol. These will be partially funded by the Bloom company in recognition of the risks those partners are taking to move the entire ecosystem forward. This allows us to hone Bloom’s scoring and identity systems on live lending volume with experienced lenders while also making financial sense for our partners.
Over the coming days and weeks, we will announce some of our foundational partnerships with lenders and other network participants. We have extensive plans for these partnerships, and.it’s been wonderful to get such a warm reception from well-respected players in the system. More on this front will be announced soon.
The road ahead
Many crypto projects suffer the same fate: a promising team with an interesting idea that never ends up being used by anyone. We will not let this happen to Bloom. Between aggressive user acquisition and maximizing the real-world usage of the Bloom protocol, we are well-positioned to make a product that is loved by users and lenders alike. Our team has managed over $100m in funds, built several successful businesses, and understands the importance of transparency and financial responsibility.
Bloom does not fall into a category of projects that can be developed and then let loose into the world with hopes that it will eventually become the status quo. Bloom requires methodical orchestration of business development, user acquisition, legal, and compliance work in each of the new markets we enter.
We’re building Bloom to be the new foundation for credit risk assessment globally, and our token sale is only the first step to make that happen.