How TrafiGuard uses Bloom to Provide SME Financing on the Blockchain
Many global small and medium enterprises (SMEs) have limited access to financing which creates an uneven playing field for those who cannot acquire traditional data. Those outside the US struggle to finance their endeavors due to lack of a credit score, SMEs are cornered into financing through alternative options with high-interest rates. On the flip side, these alternatives will struggle to effectively validate sellers and transactions, inevitably increasing the risk for all parties. These international buyers and sellers are who TrafiGuard lends its services. Built on 0x’s Bloom platform, TrafiGuard uses a form of self-sovereign identity to deliver its mission statement as the “[Global] Trade Finance Solution for Micro Small and SMEs”.
The “solution” allows the buyer to deposit funds into the TrafiGuard smart contracts, which are locked in the Compound protocol via USDC to collect interest and provide collateral allowing the seller to take out a loan in its local currency. The process is as follows: First both the buyer and seller must connect with the TrafiGuard Smart Contract. Then the buyer is required to submit proof of their digital identity via encryption on Bloom. In order to secure the loan, however, the seller must prove they are valid and trustworthy through steps that will then be stored as proof in the blockchain. The first involves the seller submitting their Bloom decentralized ID and ‘credit score’.
TrafiGuard bridges the gap between global SME financing and global, verified players by removing documents that are often barriers in determining how trustworthy the user is in relation to risk via Bloom. Users are able to track their Bloom-unique credit score, utilization, age of credit, payment history, and inquiries, similarly to how credit karma is structured except with inclusivity. This opportunity allows international SMEs to become stronger candidates for financing regardless of their country’s differing credit systems. This is also beneficial for buyers or lenders since they are able to access risk efficiently and with more accuracy through Bloom’s Truth Platform.
Bloom’s Truth Platform is composed of Validator, SourceSpring, and SafeSwap, to attain cryptographically secure alternative solution to KYC/AML compliance for the digital age.
The seller must provide approved income, tax returns, and any additional financials to the connected data providers. The third and fourth steps regard the actual shipment of goods, in which case the seller must provide a Bill of Lading verification and a voyage complete event for settlement. All proofs will be supplied via Chainlink oracles to the smart contract. Here, multiple protocols are executed to enact the process. The first being Bloom’s share kit and smart contract bridge, (Currently under development through the name ‘OnRamp’) handles validation and trustworthiness; Chainlink external adapters that supply proofs to the smart contract, compound CTokenhandler & Comptroller, and USDC stable coin for money flows and lending. Sample transactions and references are documented on their GitHub page for those who are not well versed in blockchain.
Once all these steps are completed, a risk score is calculated and depending on the score, the seller can take out a loan. The buyer deposits an amount of currency in USDC into the compound protocol. There it is locked, leaving it to accrue interest and be used as collateral for security purposes. The seller has the ability to take out a loan between 10% to 50% of the deposited collateral. Once the goods arrive at their destination, the deposited amount from the buyer will be cleared with the loan and sent to the seller, with the financial also taking a share.
TrafiGuard’s system is redefining trade finance, especially for those who trade and finance on an international level. Bigger companies that were held back before are able to finance their businesses, leaving small and medium enterprises struggling to obtain a loan or paying high-interest fees. With multiple varied credit scoring systems, it becomes complicated to gauge how secure or risky a seller is and if the seller is truly who they say they are, resulting in SMEs being underfinanced with limited alternatives and buyers who are constantly taking uncalculated risks. TrafiGuard’s system, while it does require a certain degree of knowledge pertaining to blockchain and program development, is much more accessible and stricter with validation, resulting in buyers who feel more at ease with financing sellers, which in turn creates a flowing market.
