Revolving Credit Lines with Union

In today's world, how do we make payments? What do we use to make payments? What do we do to take out loans? How do we repay loans? We are at the mercy of traditional banks and their systems for facilitating each one of these. But are they always safe and trustworthy? The answer is not clear. They are safe, but there are also tons of cases every day where we hear that one or another scam has taken place with several users. However, with the rise of Web3 and blockchain, the issues that customers face, such as scams more often than not with traditional payment methods, can come to an end. Decentralized Finance (DeFi) plays an important role in facilitating this. Decentralized financial systems offer services such as lending, investing, or exchanging crypto assets without relying on a traditional centralized intermediary. DeFi allows for financial transactions and agreements that are faster, cheaper, permissionless, trustless, more private, and censorship-resistant.

Introduction to credit lines

Now, let's come to credit lines. What exactly is a credit line?

When you need money, you may consider getting a personal loan, which provides a lump-sum amount. However, if you don’t know exactly how much money you may need, you may want to consider a line of credit. A line of credit is a flexible loan from a bank or financial institution. It is essentially a revolving loan that allows you to access the money you need as you need it, up to a certain limit. Similar to a credit card with a set credit limit, a line of credit is a defined amount of money that you can access as needed and use as you wish. Then, you can repay what you used immediately or over time, and as the money is repaid, you can borrow up to that limit again.

Relationship of Union with credit lines

How is Union related to credit lines?

Union is building the Credit Primitive for DeFi. It is open source and a permissionless protocol to enable credit on Ethereum. They believe that open, permissionless, community-owned financial applications are the future of decentralized finance. Union introduces new ways to gain access to credit, starting with nothing more than an Ethereum address.

Key features of Union

What are some of the key features of Union?

Below listed are some of the key features of Union

Personal Credit Line: By leveraging the services provided by Union, you can build and maintain a personal on chain credit line and draw from your balance at any time you want.
Portable Credit: To access your credit on chain, you need not be in a particular place nor require a credit card to access the credit, and you can access it even from the farthest corner of the world.
Pseudo Friendly: There are some times when a person may want to build and provide credit anonymously. With Union, you can provide and build credit pseudonymously.
Layer-2 ready: While working with Web3 and blockchain, transaction fees can be a problems for many users. The transaction fees on the Ethereum network tend to be high most of the time, discouraging people from carrying out transactions on the network. But the Union protocol is available on layer-2 rollups such as Arbitrum and Optimism where the transaction fees tend to be lower in comparison to the Ethereum network.
Cooperation: Union is very cooperative, as you can receive, sign and accept credit lines from anyone including people or groups. You can also vouch for a selection of your trusted contacts and help them build a meaningful credit line onchain.
DAI backed credit: Users who stake DAI to provide credit to others can stand a chance to earn UNION in the process.

Key activities of the Union Protocol

Now, let’s look at the key activities of the Union Protocol:

Members vouching for members: Any member can set an amount they trust at any other address. A member can't vouch for themselves. A vouch can be removed by either the vouchee or the voucher. A vouch can only be removed if unused.
DAI staking: Users can stake DAI or any other token using Union. There are three types of stakes:

Free stake: Stakes that are withdrawable and earning and aren’t backing an active borrow.

Utilized stake: Stakes that are earning and non withdrawable and are backing an active borrow.

Defaulted stake: Stakes that are not earning and not withdrawable and are backing a delinquent borrow.
Members borrowing Funds: Members can borrow funds from various users and after a member withdraws or borrows credits they have a balance owed. They can repay as much or as little at any time, including a pay off all setting.

Credit Relationships in Union

There are various types of relationships in Union. They are as follows:

1 -> 1 : This is a type of relationship where a single person lends money to another person.
Many -> 1 : This type of relationship is where groups work together.
1 -> Many
Many -> Many

What does Union do differently from others and which was not possible first?

Increases efficiency
Brings real world trust onchain
Provide Smart Contracts get credit lines.

In this blog, we have gone through what Union does and how it is revolving credit lines onchain.