Alan | Stacked

May 5, 2021

5 min read

Digital Identity in DeFi

Disclaimer — I have a financial interest in Everest’s success. However, the opinions below are my own.

Everest — A Digital Identity

There’s no more denying the bull run is here (and it’s been that way for months). If you’ve been involved in crypto for more than the last twelve months this is now the moment we’ve all been waiting for. It seems as though each programmed cycle brings upon us a new innovation in the crypto space and narrative along with it.

In 2017, it was the year of the corporate blockchain. Projects came and went, for most just a flash in the pan. In hindsight, it was obvious. Money was flowing freely in the space and investors had a fully euphoric take on just about everything they were pitched. Projects raised more funds than they knew what to do with because they could and teams were filled with inexperienced operators who were set out to fit a square peg into a round hole. The projects that navigated their roadmaps, pivoted, or succeeded on their original purpose have flourished in the current environment.

Flash forward to 2020, by all measures I believe we’ll look back on this period of crypto history and see DeFi (decentralized finance) as one of the largest narratives driving market euphoria this time around. If you believe history repeats itself then I think there’s value in making bets on where potential pitfalls for the industry are ahead of time. Enter everyone’s favorite topic that they just can’t get enough of REGULATION.

I see crypto’s next looming obstacle that it will need to overcome as being swift, overbearing, and overfitted regulation by government bodies that will act without understanding. Many new entrants into government positions have become loud about their support for our industry and gone out of their way to create friendly environments such as in Montana. If true, it’s likely that areas of the market that have so far been able to avoid the government hammer will take the hardest hits by new regulation: decentralized protocols and finance. The American government, and most governments for that matter, do not play around when it comes to KYC (Know Your Customer) and AML (anti-money laundering) requirements. DeFi, or decentralized finance makes following these expectations from governments almost impossible in its current state with recent innovations such as AMM (automated market-making) and trustless swaps of digital assets. These innovations are important, they open up a world of finance that has been closed off from so many in the world for far too long and will be the greatest equalizer of our generation. I believe it’s beyond important to protect them at all costs and ensure they can continue to operate and be accessible by as many people as possible as accessibility has been a core belief of the Bitcoin community from the beginning.

I believe that it’s only a matter of time until governments do their best to come down on protocols such as Aave, Uniswap, SushiSwap, PancakeSwap, and Curve to name a few. When regulation inevitably passes, there are two paths forward for projects operating within this space. They can choose to do their best to block necessary regions from interacting with their protocols (good luck) and continue to operate in the “dark” which limits their TAM (total addressable market), or they can be the first to cooperate with the best of their ability and be the first and potentially only to offer a compliant solution.

Everest — Digital Identity Compliance

Enter Everest $ID. Everest has several goals it has set out to accomplish, but where I’d like to focus our time today is on the digital identity aspect of their goals as a project.

Everest has created the ability to link your live biometric data along with necessary personal identification such as your driver’s license, passport, social security number, and more to your digital wallet, thus creating a digital identity. The interesting thing about their solution to your digital identity is that only the information that is required by the requester is shared, keeping all other stored data private.

The need for crypto is inherently difficult to understand for many in developed countries. If you’re living in the United States, the dollar is probably just fine for you in everyday life. Despite its relative stability, I’m skeptical of any centralized currency due to the inevitability of inflation and other reasons I won’t get into here. Let’s focus instead on parts of the world where decentralized money and an accessible digital identity is quite literally the key to a better financial life. Everest worked with the government of Indonesia on an energy subsidy integration with the intention to reduce fraud and corruption. People in rural areas of Indonesia lack access to mobile devices with the ability to capture biometric data such as face scans. Everest’s technology was used by the government of Indonesia to send out modern-day survey collectors to sign up citizens to receive their energy subsidy. While the energy subsidy process is ripe for fraud and corruption causing citizens to have their subsidy stolen in the traditional process, Everest’s biometric data collection allowed the government to verify the identity of users receiving the benefit and ensure they received the benefit directly. Once users are onboarded on Everest’s platform, they have integrations with solutions such as Aave and FTX to allow users who have long been kept out of modern financial instruments due to lack of a formalized system of acceptable ID access to new products.

Very likely for the first time people who have been completely forgotten in the modern financial system could have access to a stable currency such as USDC or USDT which they can then lend on Aave. Further than that, an FTX integration with their digital identity attached could give them access to tokenized stocks opening up ownership of American companies to millions of underserved, underbanked, and financially struggling people.

Everest is in the development stage and will need to focus on its UX and usability for this new system to be widely accepted. One of the most impressive features that I found in the platform is the incentive system that I believe will help drive a positive network effect. People with smartphone access in these underdeveloped nations can act as an affiliate for Everest and will earn a small percentage of fees and interest earned by a user after signing them up. Similar to the example with the Indonesian government, Everest can send out representatives into these countries with an incentive to drive user growth and adoption. I believe the next “crypto winter” is going to likely be driven by overbearing regulation. Due to that belief, I started to look for bets in the space that could potentially help the flourishing ecosystem around DeFi continue to push forward when the inevitable crackdown comes. Everest has the technology ready to help protocols address the need for digital identity verification and in my opinion, will be a key partner in the way that these protocols attempt to stay compliant.