To transform real-world lending to become more fair and inclusive, we need a more fulsome picture of a user’s financial and non-financial activities on-chain and off-chain. A wallet address alone isn’t sufficient to represent a user’s creditworthiness.

With the ambitious vision of transforming global access to credit, Masa Finance started to build a full-stack on-chain lending infrastructure for retail borrowers in 2021. They quickly realized that a foundational layer was missing in the new paradigm of decentralized lending: identity.

Consider the potential impact: less than a quarter of the world’s adult population (1.5 billion people) have credit scores, yet there are 3.3 billion people who are “creditworthy” at some scale, but entirely “credit invisible.” This is because their credit history is not associated with them in the traditional banking system. For the first time, a secure on-chain identity can give the 3.3 billion credit-invisible people access to a global liquidity pool and greater participation in both their local and the global economy.

Nearly 25 percent of Americans have no credit score and for many of those who can access the system much of their creditworthy behavior is not tracked by the scoring systems.  The New York Times Magazine article, "The High Cost of Bad Credit" June 11, 2023, details misaligned incentives and the error prone and opaque processes of centralized credit ratings and notes that "In many ways, credit scores have become the arbiter of who gets to live the good life…”

To address these issues of financial inclusion and economic opportunity Masa decided to build the fundamental identity primitive: web3’s first soulbound identity protocol. An identity protocol is a foundational layer, and soulbound tokens (SBTs) are the building blocks. SBTs are non-transferrable, non-fungible tokens that include nuanced, socially programmable privacy parameters that can serve as a web3 user’s identity. Think of them as a credit score that you own and control access to (upside - no more Equifax scale data leaks!).

They are looking specifically to unlock web3 and web2 credit and lending to the Global South, composable identity in a vast developer ecosystem, and web3 SSO and KYC. Each one of these products comes with minute, negligible fees that if scaled, can bring a ton of new liquidity and access to traditionally exclusionary markets.

This team brings immense consumer digital experience to the web3 space, has been in the web3 space for 10+ years, and understands what it takes to acquire, engage, and retain users in a way that is not common with most crypto protocols. They do not throw out features and hope for the best—they go to the market, iterate, and retain users.

What is Masa Finance?

In order for the Masa Protocol to enable the ownership and ephemeral sharing of data from any soul linked source - not just financial or credit—Masa has implemented the world's first Soulbound NFT authentication and private transaction layer. This has been built in stealth and deployed to Ethereum mainnet, BSC, Polygon, and Celo. This groundbreaking technology allows for an OAuth-like authentication layer for soulbound (SBT) NFTs.

Masa will be submitting an EIP to Ethereum for the standardization of SBTs in due course. This unlocks a market beyond lending that will allow developers to mint, soul link, and authenticate, any soulbound credential through Masa and their APIs. Masa opened up developer access to its SBT Authentication Protocol in September 2022.

Developers will be able to quickly launch composable Masa Identity SBTs on the Masa protocol. Masa as of September 2022 has 650+ developers registered for early access to the Masa SBT Developer Ecosystem. They intend to open source Masa’s SBT standard and submit it to Ethereum as an EIP, which will make will onboarding developers to the Masa SBT Developer Ecosystem easier, and developers will be able to deploy standardized SBT smart contracts, mint, burn, request private data, and countersign SBTs with the consent of the end user. The Masa SBT Developer Ecosystem will be launched as a smart contract interface and a low-code developer API – providing both a web3-native and a low-friction onboarding for developers to Masa’s SBT Identity protocol.

Why did we invest?

The most important thing to understand about this team and product is that DeFi’s existence beyond this decade probably hinges on solving for identity. The scrutiny from regulators will not go away until this elephant in the room is resolved. However, it must be done in a privacy-preserving web3-native way. The market has been calling out for a solution such as this for close to a decade.

This is further emboldened by the fact that for at least a decade, projects have been claiming to bring financial resilience and access to “the Global South”, but no one has yet to crack this very important nut that development economists, NGOs, and governments have tried and failed to. The timing is perfect for another attempt, but instead of being distracted by cross-border financial regulation and compliance, this team can start with a rock solid approach to KYC as the foundation for it all.

They already have a strong community engagement arm that has managed to acquire and sustain 100,000+ DAUs (daily active users) on a monthly basis, but they are now planning to integrate GoodGhosting, a lending protocol with ZK technology for web3 credit. They are already integrated with Blackcopper in Nigeria to provide SME lending across Nigeria and soon across most of sub-Saharan Africa.

In the months since solidifying these partnerships and shipping three products (user acquisition & loyalty, user verification, and credit underwriting) to four major blockchain ecosystems, the team has realized protocol revenue (a major achievement in the bear market of 2023), engaging a larger community 300,000+ users, with 800,000 SBTs minted, with a B2C approach. The B2C approach is notoriously difficult to execute in crypto, and we’ve been impressed with the team’s ability to think through the entire experience funnel and optimize it at every juncture.

Lastly, we made this investment because the Masa Finance team deeply impressed us. This business is at the end of the day about people, founders and contributors and the communities they serve. Co-founder Calanthia Mei was an investor at PayPal Ventures for 3 years, across multiple geos, giving her deep experience in fintech regulation, international financial regulation, and the understanding of consumer fintech go-to-market necessary to make this product a success, or pivot to find success. Cofounder and CEO Brendan Playford has a long history in the space, from running large bitcoin mining operations, to building web2 credit and lending APis for emerging markets. He’s a proven technologist and founder with one previous exit.

The biggest opportunity in front of the team is to provide on-chain KYC on-ramps to the TradFi world for those cut out of the regular financial system by using the SBT identity protocol, and as they build the partnerships outlined above, this opportunity will unlock massive value for everyone in the web3 ecosystem. We’re excited to join the team on this leg of the journey. Onward!

Nothing contained herein constitutes investment, legal, tax or other advice nor is to be relied upon in making an investment or other decision. This article contains the opinions of the author, and such opinions are subject to change without notice. Furthermore, it may also include data and opinions derived from third party sources. Cerulean Ventures does not accept liability for the accuracy or completeness of any such information or opinions which can be subject to change without notice.