# ARCx Credit Introduction ### What is ARCx Credit? [ARCx Credit](https://arcx.money) is a decentralized credit market on the Polygon network that offers dynamic maximum-LTV loans on ETH collateral based on a borrower’s DeFi Credit Score. The [DeFi Credit Score](/application/defi-credit-score) provides a credit risk assessment for individual wallet addresses based on historical on-chain borrowing activity. Through these systems, borrowers who use ARCx Credit will build their DeFi Credit Score and progressively unlock greater capital efficiency on their crypto-collateralized loans. Our ultimate aim is to build an accurate and efficient reputation-based credit market in DeFi. ### Why does ARCx Credit exist? A lender’s effective and efficient evaluation of a counter-party’s credit risk, and the subsequent pricing of their overall cost of capital, is the core mechanism at the heart of global credit markets. But despite the important role that reputation plays in mature financial markets, DeFi lending has historically relied on indiscriminate mechanisms of risk management, where all borrowers are treated equally, and given the same terms regardless of the real or historical credit risk they represent. The lack of an identity and reputation layer in the DeFi stack has forced the first generation of crypto credit markets to depend on highly inefficient collateral mechanisms to ensure credit markets remain solvent. These mechanisms require substantial capital buffers due to the high volatility of collateral assets. Market participants gain no advantage over time for being a creditworthy borrower, and are subject to the same onerous collateral requirements and interest rates as those participants with a poor or inexistent track record. Building accurate and efficient reputation-based credit markets would represent a step-change innovation for the DeFi lending industry, unlocking immense efficiencies. It would offer material improvements in the cost of capital for the majority of borrowers who demonstrate effective risk management behaviors. It would allow the most sound and creditworthy borrowers to increase their capital efficiency over and above that of other participants, providing a significant competitive advantage. It would allow lenders to supply liquidity preferentially based on the credit risk of individual borrowers, leading to the formation of a credit spread between different risk profiles. The development of an effective reputation layer supporting DeFi credit represents the next major frontier for crypto finance. ### How does ARCx Credit work? 1. We use the [DeFi Credit Score](/application/defi-credit-score) to provide a credit risk assessment for individual wallet addresses based on historical on-chain borrowing activity. Scores for each address are calculated and then published on-chain via a gas efficient and [secure oracle infrastructure](/risk-and-infrastructure/infrastructure). 2. We then offer personalized maximum loan-to-value (LTV) ratios to borrowers based on their [DeFi Credit Score](/application/defi-credit-score). Borrowers with higher scores will be able to access more debt with the same collateral level and LTV ratio. Scores are fetched from our [API](https://docs.arcx.money), and are then verified on-chain via our oracle infrastructure. 3. We continuously monitor system health and manage a number of unique [control parameters](/risk-and-infrastructure/risk-management/design-considerations) that allow us to refine our risk exposure and profit model over time. We share reports and analysis on our [Community Discord Server](https://discord.gg/arcx). ### How do I build my DeFi Credit Score? You can build your DeFi Credit Score by borrowing on [ARCx Credit](https://arcx.money) vaults while avoiding excessive risk exposure or liquidations; or by borrowing on a selection of third party borrowing platforms and avoiding liquidations relative to the rest of the market. This is enforced through three separate rules, which are calculated separately and then combined to derive the final Score. 1. [Daily Score Reward](/application/defi-credit-score/daily-score-reward): Evaluates your borrow usage (i.e. current LTV as a percentage of max LTV) on ARCx Credit vaults over the prior 120 days relative to a “responsible” borrower archetype and rewards points according to a “Rewards Curve” on a daily basis. Currently, the number of points earned each day peaks when a position is held at 60% borrow usage, and tapers off toward the lower (more conservative) or higher (more aggressive) ranges of the risk curve (\*) 2. [Survival Score Reward](/application/defi-credit-score/survival-score-reward) Evaluates your ability to avoid liquidations on any indexed third-party platform relative to the rest of the market, rewarding or subtracting points proportional to the “liquidation density” on a given day. Unlike the Daily Score Reward, which looks only at the previous 120 days of borrowing experience on ARCx Credit, the Survival Score Reward considers the borrowing experience of a wallet address over its entire lifetime outside of ARCx Credit. Currently, the maximum number of points a borrower can earn from the Survival Score Reward is 760. 3. [Liquidation Penalty](/application/defi-credit-score/liquidation-penalty): Subtracts a fixed number of points for every day in which a liquidation occurs. The penalty only applies for 120 days, similar to the Daily Score Reward. After this period, the penalty is removed from the Borrower’s score.. \* Note, as our system evolves, borrowers who have built trust with ARCx Credit will be able to maintain their high Scores while borrowing at their desired risk levels. By initially aligning the growth of the Credit Score with borrow usage, we aim to [discourage excessive risk exposure](#how-do-we-incentivize-responsible-borrowing), and by extension, [mitigate the risk](#how-are-risks-managed) to the protocol and to lenders. ### How does my credit score relate to borrow usage? The speed at which the [Daily Score Reward](/application/defi-credit-score/daily-score-reward) component of your DeFi Credit Score grows is directly related to Borrow Usage across your active positions on ARCx. Borrow Usage represents your current LTV as a percentage of max LTV, which is determined by the amount of collateral you have deposited and the maximum LTV you are offered by virtue of your DeFi Credit Score. ![Rewards Curve showing borrow usage (%) on the x-axis and the daily score reward multiplier on the y-axis. Note, both the rewards curve and the speed at which the Score grows are parameters controlled by Risk.](/files/MP4JSt6V7QCmGEmVZMa7) ![Position summary card on the app UI showing a Borrower with slow Credit Score growth](/files/Ls1c0K0uYwbg2L3rjK5H) ### Can my DeFi Credit Score go down? Your DeFi Credit Score may lose points in two ways. * Firstly, your score will eventually trend downward if your Daily Score Reward growth is slower than the rate at which those points are expiring (i.e. 120 days prior). This will happen if you stop borrowing entirely (and your borrow usage is 0%), if you borrow in excess of the “critical point” (i.e. your borrow usage is greater than 90%), or if you are simply borrowing at a less optimal borrow usage relative to what you were borrowing at 120 days prior. * Secondly, your score will diminish if any of your active positions are liquidated. Currently, a fixed penalty per liquidation per day is imposed. After 120 days, the penalty is removed and the liquidation event is no longer considered. ### What is the “optimal” borrow usage to grow my credit score? {% hint style="success" %} The current optimal borrow usage to grow your DeFi Credit Score is 60% {% endhint %} The shape of the Rewards Curve, including the optimal borrow usage and the amount of drop-off left or right of the optimal point, are parameters set by the Risk function. In our current iteration, the choice of 60% was based on an analysis of experienced stablecoin borrowers on Compound Finance who use ETH as collateral (i.e. it represents a position that balances efficiency with risk exposure given the volatility of ETH) In this analysis, we found those holding over $1K in debt tend to manage between 50% and 60% of their maximum loan-to-value (LTV). This was further explained through user research, where we found that experienced borrowers with larger loans viewed this range as representing a balanced “safety buffer” for their collateral. ![](/files/tBzlLDZikO7yJimWiE32) For more information, see [Daily Score Reward](/application/defi-credit-score/daily-score-reward). ### Which third-party borrowing platforms are currently indexed? In addition to using borrowing activity from ARCx to construct the DeFi Credit Score, we also index data from third-party platforms (e.g. Aave and Compound). For a list of third-party borrowing platforms currently indexed, see [Data Sources](/application/defi-credit-score/data-sources). The process of indexing a third-party platform takes time, but we are constantly adding more. If you would like us to start indexing a particular platform or protocol, please let us know by joining our [Discord](http://discord.gg/arcx) and speaking with our team. ### How do I borrow on ARCx Credit? {% hint style="info" %} Note, ARCx Credit is currently in Closed Beta. To join the waitlist, please visit and fill out the waitlist form. {% endhint %} In order to interact with ARCx Credit, you will first need to deposit collateral into one of our vaults (e.g. WETH-A). After depositing, you will be allowed to borrow up to your maximum loan-to-value (LTV) ratio. In order to maximize the speed at which your DeFi Credit Score grows, you can choose to borrow at the “optimal” Borrow Usage level. Once a borrow position is active, you can then view and manage your position over time, including depositing, borrowing, repaying, or withdrawing. Finally, since your DeFi Credit Score grows over time, you can revisit the app to see how your improved Score corresponds to a higher maximum LTV. ### How do I unlock better capital efficiency? A user who grows their DeFi Credit Score through responsible borrowing will unlock greater capital efficiency from their collateralized crypto assets within ARCx vaults. This is primarily achieved by mapping the DeFi Credit Score (a value between 0 and 999) with a range of maximum LTV ratios for each vault. To support this, we have implemented a three-tiered vault design, with each collateral asset having three distinct vault options distinguished by the range of max LTVs offered (”capital efficiency”), the minimum Score required to access the vault (”score threshold”), and the maximum amount of debt a borrower can access (”credit limit”). ![Borrow vaults table showing the score threshold and maximum LTV ratio offered for each vault](/files/F6Hh5hiY2DWnNFCTEVRY) * **Capital efficiency** describes the range of max LTV ratios that the vault offers depending on the user’s DeFi Credit Score. For example, a borrower with a score of 0 will have their position in the WETH-A vault liquidated at a max-LTV of 80%, while a borrower with a score of 999 will be liquidated in the same vault at a max-LTV of 90%. Because the DeFi Credit Score changes daily, so too will a borrower’s maximum LTV offered across different vaults. Additionally, while the “optimal” borrow usage for growing the DeFi Credit Score stays constant across vaults, the specific LTV that this borrow usage represents increases in higher tiered vaults. * **Score thresholds** prevent access to higher-tiered (i.e. more capital efficient) vaults until the borrower achieves the minimum DeFi Credit Score required. By default, everyone has access to the “A” vault, as it has a score threshold of 0. Vaults “B” and “C” offer comparatively higher maximum LTV ratios, and are gated to lower risk borrowers who achieve Credit Scores above the thresholds set. Should a borrower’s Score fall below the threshold, they will be unable to borrow more until their score returns to the required level. * **Credit limits** create a ceiling to the amount of debt that an individual can borrow from a specific vault. Rather than allowing a user to borrow an unlimited amount, the credit limit provides a way to limit the quantum of losses born through unprofitable liquidations, particularly for higher tiered vaults. To more explicitly tie borrower behavior with the amount of debt we feel comfortable extending, credit limits for an individual vault can be determined dynamically based on the amount a user has borrowed in other vaults. The three-tiered vault design was selected to balance the user experience requirement of progressively and frictionlessly unlocking greater capital efficiency while borrowing, with the financial and risk requirement of minimizing losses through unprofitable liquidations. The design provides ARCx Credit with the ability to fine-tune a variety of risk controls at the individual vault-level (such as max-LTV ranges, score thresholds, and credit limits), helping to maximize net profit across our loan book. Additionally, since Lenders are able to supply funds to Borrowers with specific Score ranges (e.g. over 500 only), we create the conditions necessary for the market to determine a true credit spread between different Borrowers based on the DeFi Credit Score. For more information, see [profit model](/risk-and-infrastructure/risk-management) and [vault design and credit limits](/application/borrowing/vault-design). ### What costs are associated with borrowing on ARCx Credit? ARCx Credit charges borrowers an interest rate on outstanding loans, a borrow initiation fee, and a penalty for liquidations. For more information, see [fee structure](/application/borrowing/fee-structure). ### How frequently is my DeFi Credit Score updated? The DeFi Credit Score is updated on-chain via our merkle root oracle infrastructure every Epoch (currently set at 24 hours). But before Scores become active on the blockchain, they must first spend 1 epoch on the *SapphirePassportScores* contract as the “upcoming Merkle root”. This step of having a public “upcoming root” provides an additional layer of security and transparency, allowing for anyone to externally validate both the “current root” and the “upcoming root”. When a new root is thus published, the “upcoming root” becomes the “current root”, and the new root takes its turn as the “upcoming root”. This delay will be shortened over time. For more information, see [infrastructure](/risk-and-infrastructure/infrastructure). ### How are risks managed? The ARCx Credit protocol has been designed to avoid excessive exposure to any single party, and to rely on empirical data and rational incentives instead of trust. * The DeFi Credit Score is based on real statistical indicators of credit risk, and contains no subjective analysis of a debtor’s profile based on their identity. Trusting a brand name fund, trading desk or other market participant has proven to be extremely hazardous, subject to significant tail risks and the possibility of fraud. We believe that trusting on-chain data levels the playing field for market participants and will prove itself as a more reliable indicator for credit risk. * The rules of the DeFi Credit Score are transparent and easy to understand. Instead of building a “black box” machine learning model that ingests hundreds of data points to return a result, we enable lenders to do their own research to understand the counter-party risk of our users. Through explaining the rules clearly to both parties and publishing updated scores on-chain each day, we are providing the tools for lenders to evaluate the performance of our risk modeling more than other credit scores are willing or able to do. Ultimately the market determines the probative value of our scoring, and will price their liquidity accordingly. * ARCx Credit and DeFi Credit Score system health KPIs are monitored and publicly available to track for lenders, borrowers and investors alike. As discussed below, we control a number of parameters that influence how much risk we introduce into the system. Making this data and the process by which different parameters are updated more transparent is critical to building trust with market participants. * The three-tiered vault design and the addition of a dynamic credit limit based on previous borrowing actively prevent exploitation and debt concentration risk for the protocol. If a user deposits $1 worth of ETH, and borrows perfectly until they have a Score of 999, they will not then be able to borrow a large sum of money in Vault C. Besides this, ARCx Credit is also exposed to smart contract risk (i.e. the risk that a bug within the protocol code can be exploited). ARCx Credit is a new protocol that has been in development for over 12 months. Our contracts are scheduled to be audited by Trail of Bits in October 2022. ### How do we manage profitability? Protocol net profit is equal to the sum of fees generated by Borrowers (through interest, borrow fees and liquidations) minus the losses they incur to the protocol (through unprofitable liquidations). Borrowers in the highest tiered vaults pose the greatest risk to profitability, since liquidations there may lead to the accumulation of toxic debt in the system (i.e. debt which is not recoverable by liquidating the underlying collateral). To manage and optimize profitability, the ARCx Credit system provides a number of unique control parameters. Through understanding, monitoring and fine-tuning these parameters, ARCx Credit will deliver sustainable net profit across its loan book.
Control parameterDescription
Maximum LTV offered in each vaultThe primary way in which ARCx Credit exposes itself and its lenders to risk of unprofitable liquidations. Based on our analysis, we are comfortable launching with 100% max-LTV on ETH collateral for borrowers with a DeFi Credit Score of 999.
Fees charged to borrowersThe fees we generate through interest rates, loan instantiations and liquidations. Fees are earned from borrowers as they build their DeFi Credit Score, and may be used to cover losses born from unprofitable liquidations. At present, the interest rate is set by ARCx Credit, but in future this will be set dynamically based on supply / demand.
Score impact for borrowing (or the time required to improve your DeFi Credit Score)The length of time required for a borrower to build their DeFi Credit Score will influence the amount of fees we generate from an individual borrower before a liquidation might result in the accumulation of toxic debt
Score impact for liquidationsThe impact on a borrower’s DeFi Credit Score in the event of a liquidation. The impact should be configured such that it appropriately disincentivize liquidations, primarily by the opportunity cost of losing access to improved capital efficiency and the time required to rebuild the Score.
Shape and configuration of the Rewards CurveThe shape and configuration of the Rewards Curve that determines the Daily Score Reward. This includes defining the "optimal" borrow usage point (influencing where borrowers sit to grow their Scores), and the shape of the curve itself (e.g. providing more flexibility to borrowers in determining their own optimal positions without unnecessarily penalizing them with a lower Daily Score Reward)
Credit limit imposed on each vaultThe maximum amount of debt a borrower can access from a given vault, regardless of their collateral deposited. This prevents debt concentration risk in higher tiered vaults, and limits the quantum of losses on liquidation. Credit limits may be static (i.e. the same for all borrowers) or dynamic (i.e. based on how much debt a borrower has used in other vaults).
### How do we incentivize responsible borrowing? The design of [ARCx Credit](https://arcx.money) and the DeFi Credit Score aim to incentivize responsible borrowing behavior. This is based on two unique factors: 1. The time and effort required to build to a high DeFi Credit Score (which would be a sunk cost if a wallet is abandoned after liquidation) 2. The quantifiable benefit that a borrower receives from continued access to higher-tiered vaults (i.e. the capital efficiency gained) Since the growth of the DeFi Credit Score is explicitly tied to responsible borrowing behavior, users who want access to improved capital efficiency will be incentivized to borrow responsibly. Conversely, if the expected benefits of continued access to improved capital efficiency exceed the penalty for liquidation and the time and effort required to rebuild a Score, then borrowers will be incentivized to avoid liquidation. ### How do I join the Closed Beta? To ensure the system works as expected and to allow us time to refine our risk parameters, we have created a waitlist which you can [join now](https://arcx.money). We will be whitelisting addresses each week before a wider release following our audit with Trail of Bits in mid-October 2022. To get started: 1. Visit 2. Add your email address and click “join waitlist” 3. Fill in our optional research survey (this just helps us improve our product) 4. We’ll send you an email when your address is whitelisted ### Is there a token for ARCx? Yes. The [ARCx Governance Token](https://www.coingecko.com/en/coins/arc-governance) is the primary governance mechanism for the ARCx protocol. The token is used to vote and decide on the outcome of ARCx Improvement Proposals (AIPs). There is a ETH-paired liquidity pool on Uniswap (on Ethereum), which can be [accessed here](https://app.uniswap.org/#/swap?inputCurrency=0x1321f1f1aa541a56c31682c57b80ecfccd9bb288\&outputCurrency=ETH\&chain=mainnet). For more information, see [ARCX Token](/protocol/arcx-token). ### Who is behind ARCx? We are a team of product builders who believe that on-chain reputation will transform decentralized economies for the better. Come join us on [Discord](https://discord.gg/arcx) to learn more. *** # DeFi Credit Score The DeFi Credit Score is a numeric value (between 0 and 999) that describes the credit risk of an individual address based on their on-chain borrowing activity. The Score is constructed from three main components - the Daily Score Reward, the Survival Score Reward, and the Liquidation Penalty. These three components are combined to derive the final DeFi Credit Score. * The **Daily Score Reward** evaluates your borrow usage (i.e. current LTV as a percentage of max LTV) on ARCx Credit vaults over the prior 120 days relative to a “responsible” borrower archetype and rewards points according to a “Rewards Curve” on a daily basis. * The **Survival Score Reward** evaluates a borrower’s ability to avoid liquidations on any indexed third-party platform relative to the rest of the market, rewarding or subtracting points proportional to the “liquidation density” on a given day. * The **Liquidation Penalty** subtracts a fixed number of points for every day in which a liquidation occurs. The penalty only applies for 120 days, similar to the Daily Score Reward. After this period, the penalty is removed from the Borrower’s score. Through managing a risk-adjusted position over a period of time while avoiding liquidations, borrowers can unlock greater capital efficiency in DeFi through borrowing on the ARCx Credit. This section covers: 1. [Background & Opportunity](/application/defi-credit-score/background-and-opportunity) 2. [Daily Score Reward](/application/defi-credit-score/daily-score-reward) 3. [Survival Score Reward](/application/defi-credit-score/survival-score-reward) 4. [Liquidation Penalty](/application/defi-credit-score/liquidation-penalty) 5. [Data Sources](/application/defi-credit-score/data-sources) # Background & Opportunity Reputation-based credit is a foundational element of mature and efficient capital markets. A lender’s effective and efficient evaluation of a counter-party’s credit risk, and the subsequent pricing of their overall cost of capital, is the core mechanism at the heart of global credit markets. Trillions of dollars of debt is issued, priced, and repriced daily as the global credit market interprets a constant flow of new and historical data that forms a counter-party’s reputation. Despite the important role that reputation plays in mature financial markets, DeFi lending has historically relied on indiscriminate mechanisms of risk management, where all borrowers are treated equally, and given the same terms regardless of the real or historical credit risk they represent. DeFi market participants are largely unidentified, and lenders have no clear legal recourse against defaulting parties. The lack of an identity and reputation layer in the DeFi stack has forced the first generation of crypto credit markets to depend on highly inefficient collateral mechanisms to ensure credit markets remain solvent. These mechanisms require substantial capital buffers due to the high volatility of collateral assets. Market participants gain no advantage over time for being a creditworthy borrower, and are subject to the same onerous collateral requirements and interest rates as those participants with a poor or inexistent track record. Building accurate and efficient reputation-based credit markets would represent a step-change innovation for the DeFi lending industry, unlocking immense efficiencies. * It would offer material improvements in the cost of capital for the majority of borrowers who demonstrate effective risk management behaviors. * It would allow the most sound and creditworthy borrowers to increase their capital efficiency over and above that of other participants, providing a significant competitive advantage. * It would allow lenders to supply liquidity preferentially based on the credit risk of individual borrowers, leading to the formation of a credit spread between different risk profiles. {% hint style="success" %} The development of an effective reputation layer supporting DeFi credit represents the next major frontier for crypto finance. {% endhint %} *** # Daily Score Reward The Daily Score Reward evaluates your “borrow usage” (current LTV as a percentage of max LTV) on ARCx Credit vaults over the prior 120 days relative to a “responsible” borrower archetype and rewards points according to a “Rewards Curve” on a daily basis. In our current iteration, the number of points earned each day peaks when a position is held at 60% borrow usage, and tapers off toward the lower (more conservative) or higher (more aggressive) ranges of the risk curve. By aligning the growth of the Credit Score with borrow usage, we aim to discourage excessive risk exposure, and by extension, mitigate the risk to the protocol and to lenders. ![Position Summary card showing a borrower with an “optimal” position.](/files/n69urBHz2ZFDaIY8tZXM) The design of the Daily Score Reward aims to satisfy the following outcomes: * Users who borrow too close to their limit (borrow usage close to 100%) are risky and should not given a high score. * Users who borrow only a small fraction of their capacity (low borrow usage) are not borrowing efficiently and should not be rewarded with a high score. * Users who borrow efficiently, but maintain appropriate risk levels are the ideal borrowers. These users should maximize their score. To explain this further, let’s break down the Daily Score Reward. ### **"Borrow usage"** Borrow usage refers to your current LTV as a percentage of maximum LTV, where 100% triggers a liquidation event for a position. Borrow usage is shown prominently in the application. Firstly, the Position Summary card shows aggregate borrow usage across all active vaults. Secondly, the Borrow Vaults table shows borrow usage for each individual active vault. ![Borrow dashboard with two active vaults. The Position Summary card shows aggregate borrow usage across the two vaults, and the Borrow Vaults table shows the individual vault-level borrow usage values.](/files/5LD4KPzOTDEi0mHGJB4F) ### **"Optimal borrower"** {% hint style="info" %} ARCx defines the “optimal borrower” as someone who maintains 60% borrow usage across their active positions. {% endhint %} The shape of the Rewards Curve, including the optimal borrow usage and the amount of drop-off left or right of the optimal point, are parameters set by the Risk function. In our current iteration, the choice of 60% was based on an analysis of experienced stablecoin borrowers on Compound Finance who use ETH as collateral (i.e. it represents a position that balances efficiency with risk exposure given the volatility of ETH) In this analysis, we found those holding over $1K in debt tend to manage between 50% and 60% of their maximum loan-to-value (LTV). This was further explained through user research, where we found that experienced borrowers with larger loans viewed this range as representing a balanced “safety buffer” for their collateral. ![](/files/tBzlLDZikO7yJimWiE32) ARCx asserts that a borrow usage of 60% reflects someone who borrows efficiently, but maintains appropriate risk levels. To implement this assertion we reward points to users based on a defined “Rewards Curve”. ### **"Rewards Curve"** {% hint style="info" %} The Rewards Curve determines the number of points allocated at different borrow usage levels {% endhint %} The Daily Score Reward is calculated by mapping the borrow usage to a score impact. The mapping is performed using the “Rewards Curve” shown below ![Rewards Curve showing borrow usage (%) across the x-axis and the points multiplier on the y-axis. ](/files/xiZI61qN8BUj9rwfGcY9) The Rewards Curve is defined using the following base equation: $$ kxe^{-kx^2} $$ Specifically, the equation for the shape of the curve is: $$ F=\left{\begin{array}{ll} \frac{\beta-x}{\beta- P}e^{-\frac{1}{2}(\frac{\beta-x}{\beta-P})^{2}+\frac{1}{2}} & x\le\beta \\\ \ 0 & x>\beta \\\end{array} \right. $$ Where * $$x$$ is the borrow usage value (0-1) * $$\beta$$ is the borrow usage value at which the multiplier becomes zero (90% in the above), this is the “Critical Point”. * $$P$$ is the borrow usage value of the peak (60% in the above), called the “Optimum Point”. This relation is clipped at 0 for borrow usage values above $$\beta$$. This means that a user with a position above this value will not gain daily improvements to their credit score. The relationship between borrow usage and Credit Score growth is surfaced prominently in the application itself. ![Credit Score and Position Summary cards showing the relationship between borrow usage and the growth of the DeFi Credit Score.](/files/AS9LXkiOYbodnZpGwIge) On the Position Summary card, borrowers can see their borrow usage and how quickly their credit score is expected to grow. A personalized suggestion below the borrow usage bar will display a message guiding the borrower to optimize their position to maximize the growth of their credit score. To action this suggestion, the borrower would need to adjust their debt (either repay or borrow), or their collateral (either deposit or withdraw). On the Credit Score card, borrowers can see their current Credit Score, and the daily score impact over the past 24 hours. A line chart behind the Credit Score card shows how a borrower’s Score has changed over time. To illustrate the connection between Borrow Usage and the growth of your DeFi Credit Score, the borrow usage bar is broken into 5 segments that denote how their borrowing position will impact the growth of their Credit Score. The segments and their proportions are as follows: “Not growing” (0%), “Slow” (>0% - 25%), “Moderate” (25% - 50%), “Optimal” (50% - 70%), “Slow” (70% - 90%), and “Not growing” (90% - 100%). ### **"Past 120 days"** {% hint style="info" %} Only borrowing experience within the last 120 days are considered when calculating the Daily Score Reward component {% endhint %} The Daily Score Reward only consider borrowing behavior within the last 120 days. This means a Borrower has to continually borrow or their score will go down over time. However, the Daily Score Reward is designed to allow good Borrowers who maintain the optimal borrow usage to reach the top score of 999 within 120 days, even if they start with a score of 0. The selection of 120 days is based on the following considerations: * The mark of a reliable Borrower is how well they manage debt through tough market conditions. Historically, the price of Ethereum has never made it more than approximately 2 months without undergoing a crash of more than 10%. As such, we want to ensure that all borrowers who have reached the top score have experienced at least some market volatility in order to gauge how well they borrow. * We aim for a compromise between building an engaging Credit Score that the user can grow in a reasonable amount of time, and a score which is not too volatile so a borrower can expect their Score not to change too much day to day. With these considerations, we find a 120 day window to be appropriate. In our current implementation, we define the Score such that the optimum borrower reaches a score of 999 exactly within the window (from a starting Score of 0), and so the optimal daily impact is $$999/120=8.325$$ points per day. ### **"Daily basis"** {% hint style="info" %} The daily score reward is calculated by assessing borrow usage at the end of each hour, and it is updated on-chain daily. {% endhint %} Hourly granularity was chosen because it allows us to measure the borrowers behavior across a day. We award points to the credit score every hour and sum those points over each day to calculate the daily impact. # Survival Score Reward ### Introduction The Survival Score Reward evaluates a borrower’s ability to avoid liquidations on any [indexed third-party platform](#data-sources) relative to the rest of the market, rewarding or subtracting points proportional to the “liquidation density” on a given day. Unlike the [Daily Score Reward](/application/defi-credit-score/daily-score-reward), which looks only at the previous 120 days of borrowing experience on ARCx Credit, the Survival Score Reward considers the borrowing experience of a wallet address over its entire lifetime outside of ARCx Credit. A borrower with previous experience on a selection of third party borrowing platforms will have a DeFi Credit Score between 0 and 760 based on this Score component alone. The Survival Score Reward therefore establishes the minimum bound for the DeFi Credit Score, where the only way a borrower can reach 999 is to borrow on ARCx (by virtue of the Daily Score Reward). ### **Score design principles** {% hint style="info" %} By looking at how well a borrower “survives” periods of high volatility, we can calculate a propensity for them to avoid liquidation in the future. A borrower who has demonstrated they can survive market downturns will score higher {% endhint %} The rules of the Survival Score Reward should reflect the following: * A **good borrower** is one who: * Avoids liquidations during periods of high volatility. * Recognizes that their position may be in danger and reacts appropriately to avoid liquidation. * A **bad borrower** is one who: * Does not avoid liquidation during periods of high volatility. * Does not recognize that their position is in danger and fails to act in a timely manner to avoid liquidation. Additionally, the following points are taken into consideration: * A borrower who has been liquidated previously should not score as high as a borrower who has never been liquidated. The top reward should be given to the borrower who has never been liquidated. * The impact of a liquidation is dependent on the market. We want to reward borrowers who avoid liquidation in uncertain markets more than borrowers who avoid liquidation in strong markets. This is almost counter-intuitive, since sudden market crashes catch borrowers off-guard, while liquidating in a bull market seems like a borrower being careless. However, we want to recognize borrowers who avoided liquidation when many others did not. This means weighing liquidations in falling markets more heavily than liquidations in strong markets. * A borrower must have been borrowing to be awarded any points. Hence, top scoring borrowers are guaranteed to have been borrowing the longest. This works to reward experience. ### Liquidation density {% hint style="info" %} “Liquidation density” is a key metric used to calculate the Survival Score Reward, and is based on the amount of liquidations that occur on a given day. {% endhint %} The liquidation density is defined as follows: First, we calculate the number of liquidations on each day over the history of a given 3rd party platform (in the example below we show Aave V2 liquidations on Ethereum). ![](/files/CW6IF64Y1LfIm8Zpzocy) We can now define “liquidation density” using a centered moving sum of the liquidation count over 7 days. It is centered to account for eminently approaching liquidations and reward users who risk-adjust prior to a market downturn. These values are normalized to the range \[0, 1]. ![](/files/DQC8B9C0WL6eOtyq7wFC) The liquidation density is defined separately for each 3rd party data source. ### Reward Calculation This liquidation density can be used to construct a points system. On any day, a Borrower is rewarded with points proportional to the liquidation density if they **do not** get liquidated, and lose points proportional to the liquidation density if they **do** get liquidated on that day. Mathematically, the reward is constructed as follows. Define the “**liquidation density**”, $$L(t)$$, at any point in time, $$t$$, as a value between \[0, 1]. Let $$i$$ be an index denoting the date. So, $$i=0$$ corresponds to the starting date of the calculation ($$t\_0 = t\_{i=0} = 17/12/2020$$ in the figure above). So, $$L\_i=L(t\_i)$$ is the liquidation density on the date $$t\_i$$. Next, we define a “**liquidation index**” as a Boolean value for whether the borrower was liquidated on the date $$t\_i$$: $$ \lambda\_i= \left{\begin{array}{ll} 1 & \text{borrower liquidated at } t\_i \\\ \ 0 & \text{borrower not liquidated at } t\_i \\\end{array} \right. $$ Similarly, we define an “**eligibility index**”, as a Boolean showing whether the borrower was borrowing sufficient amounts of debt on day $$t\_i$$. The threshold for this is set to $500: $$ \sigma\_i= \left{\begin{array}{ll} 1 & \text{debt} \ge $500\text{ at } t\_i \\\ \ 0 & \text{debt} \lt $500\text{ at } t\_i \\\end{array} \right. $$ Then we calculate the **daily impact**, $$I\_i$$, as: $$ I\_i = \sigma\_i L\_i - 2\omega \lambda\_i (L\_i+\epsilon) $$ The first term is the “positive” impact the borrower receives for borrowing on day $$i$$. The second term is the “negative” impact the borrower receives for being liquidated on day $$i$$. In the above equation, $$\epsilon$$ is a a scalar added to the liquidation density in the negative component. This ensures the borrower will always be penalized for a liquidation, even when there has been no other liquidations in the market. We are using $$\epsilon=0.5$$. The constant $$\omega$$ represents the width of the rolling window used in the sum of liquidation counts. In the present case, $$\omega=7$$. The figure below may be helpful in understanding the magnitudes of the two components in the above equation (note the different y axis scales of the two panels). ![](/files/VymFLw8LNG9ensZQ6gyH) We then compute the sum of the daily impact over all days in the past $$ S=\sum\_i I\_i $$ This method satisfies the following: * A more experienced borrower (held debt for longer) has the potential to grow a higher score. * Liquidations negatively impact the total. The larger the density of liquidations at the time of liquidation, the larger the impact of that liquidation. Conversely, avoiding a liquidation during these periods rewards the borrower more. * The more “liquidation peaks” the borrow survives, the higher their score will be. A borrower who only survives one peak will score lower than a borrower who survives two, and so on. A borrower receives a separate score for each 3rd party lending platform they have borrowed on. This is limited to platforms we have so far indexed. So to compute their final Survival Score, we combine the individual scores to a value between 0 and 760. This Survival Score is then added into the DeFi Credit Score. ### Data sources {% hint style="info" %} The Survival Score Reward uses borrowing data from third party platforms {% endhint %} For information on which third-party lending platforms and assets we index, see [data sources](#data-sources). # Liquidation Penalty ### Introduction The Liquidation Penalty defines the number of points taken away from the DeFi Credit Score if the Borrower is liquidated on their position. This penalty is currently set to the following values: * Vault A: $$-250$$ points per liquidation per day. * Vault B: $$-300$$​ points per liquidation per day. * Vault C: $$-350$$ points per liquidation per day. ### Score Impact The Liquidation Penalty subtracts points for every day and every vault in which a liquidation occurs. The penalty only applies for 120 days, similar to the [Daily Score Reward](/application/defi-credit-score/daily-score-reward). After this period, the penalty is removed from the Borrower’s score. # Data Sources ### Survival Score Reward The Survival Score Reward considers liquidations that occur on third party lending platforms outside of ARCx. Transaction data from these platforms are continuously ingested and modelled to update the Survival Score Reward. The current list of indexed platforms include: 1. Aave V2 on Ethereum 2. Aave V2 on Polygon 3. Compound Finance on Ethereum The process of indexing a third-party platform takes time, but we are constantly adding more. Our ultimate goal is to build the reference Credit Score used across DeFi. If you would like us to start indexing a particular platform or protocol, please let us know by joining our [Discord](http://discord.gg/arcx) and speaking with our team. ### Daily Score Reward & Liquidation Penalty The Daily Score Reward and the Liquidation Penalty only consider borrowing activity on ARCx Credit. # Borrowing ARCx Credit is a decentralized credit market on the Polygon network that offers dynamic maximum-LTV loans on ETH collateral based on a borrower’s [DeFi Credit Score](/application/defi-credit-score). This section covers: 1. [Managing a Position](/application/borrowing/managing-a-position) 2. [Vault Design](/application/borrowing/vault-design) 3. [Liquidations](/application/borrowing/liquidations) 4. [Fee Structure](/application/borrowing/fee-structure) 5. [Assets](/risk-and-infrastructure/assets) # Managing a position ### Connect your wallet to the Polygon Network ARCx Credit operates on the Polygon network, a scaling solution for Ethereum. Before interacting with the application, you will need to connect and use your Web3 wallet on the Polygon Network. We recommend using [Metamask wallet](notion://www.notion.so/products/set-up-metamask) as your Web3 wallet, though we support any wallet compatible with [Wallet Connect](https://walletconnect.com/). * Log in to your wallet * Go to site * In the search box insert ***polygon mainnet*** * Click the ***connect your wallet*** button on the top right * Click ***add to Metamask*** button ### Connect your wallet to ARCx Credit Visit and click “connect wallet” on the top right corner. This will open up a prompt to select either Metamask or Wallet Connect. Clicking on either option will prompt your wallet to connect to the website. Once connected, the “connect wallet” button will be replaced by your connected wallet address. If you wish to disconnect your current wallet, you can do so by clicking on this button and selecting “disconnect”. ![Wallet connect from the arcx.money landing page](/files/AcDEQMyxq29eLp12W7zp) ### Select a vault Once you have connected your wallet, head over to the Borrow Vaults section of the app and select a vault for the collateral you would like to use. Note, we offer three vaults for each collateral type, with each distinguished by the level of capital efficiency you can unlock. ![Borrow Home Page (highlighting the Vault Selector)](/files/NtkH3hp0BZFH6cPNrq5L) Vaults with higher capital efficiency (i.e. higher maximum LTV) can be unlocked as you build your DeFi Credit Score. For more information, see [vault design and credit limits](/application/borrowing/vault-design). ### Deposit collateral You will now find yourself on the vault action page. To deposit collateral, (1) select “deposit” from the action selector dropdown; (2) select the amount of collateral you would like to deposit (or hit the “max” button); and (3) click deposit. Note, the first time you do this, you will need to approve the use of your collateral by signing a transaction with your Web3 wallet. ![](/files/XHFJQBmAOnhy2WhjUCDs) ### Borrow stablecoins Once you have collateral deposited into a vault, you will then be able to start borrowing. As shown in the screenshot below, to do this, (1) select “borrow” from the action selector dropdown; (2) select the amount you wish to borrow (or hit either the “optimize” or “max” buttons); and (3) click borrow. The “optimize” button calculates and pre-fills the amount you should borrow or repay in order to maximize the growth of your DeFi Credit Score. ![Vault Action Page (highlighting input fields and transaction initiation button)](/files/uggI6WBI0lH07zFS9LhZ) Below the input field, you will notice the transaction impact values changing. You will find the impact of the transaction on your vault position, including current LTV, deposited collateral, borrowed amount, available credit, and collateral liquidation price. Note, "available credit" is based on either the deposited collateral and maximum LTV, or the vault-specific credit limit (whichever is lower). ### View your positions With one or more active vaults, you can view the status of your positions from the Borrow Home Page. Under (1), you will find your overall position summary across all active vaults. This section shows your borrow usage, as well as the amount borrowed, deposited and interest rate being charged. There is a graphical representation of borrow usage, how this ties back to the speed at which your DeFi Credit Score grows, and a suggestion on how to improve your position. Under (2), you will find the borrow usage of your active vaults shown on the right-hand side. ![Borrow Home Page (highlighting the Position Summary card and Vault section)](/files/0r7vKkgewPREWSontcqe) To view detailed information at an individual vault-level, simply return to the vault action page. From here, you will find your vault-level borrow usage, a recommendation for what to do to optimally grow your DeFi Credit Score, and other basic position information. ### Avoid liquidation Liquidation events will negatively impact your DeFi Credit Score. To avoid liquidations, it is important that you monitor the market and actively de-risk your borrowing positions during periods of high volatility. Should any of your active positions exceed 90% borrow usage, a warning message will appear on the Borrow Home Page, as shown below next to (1) and (2), to alert you to either repay your loan or add additional collateral. ![Borrow Home Page (highlighting the liquidation warning message)](/files/IxjtlBp5aJDH6sbhifuk) ### Manage your positions With an active vault, you can easily manage your positions by returning to the Vault Action Page. The process for repaying and withdrawing is the same as for depositing and borrowing. Simply change the action selector dropdown, input your amounts and click the primary button at the bottom to initiate the transaction ### Exiting your position To completely exit a vault, you will need to repay all of your debt and then withdraw all of your collateral. To do this, you can simply click the “max” button beside the input field to ensure everything is repaid and withdrawn from the vault. If you follow these steps, the transaction initiation button will read “Exit”, and this will completely empty the vault of your collateral. # Vault design We have implemented a three-tiered vault design, with each collateral asset having three distinct vault options distinguished by the range of max LTVs offered (”capital efficiency”), the minimum Score required to access the vault (”score threshold”), and the maximum amount of debt a borrower can access (”credit limit”). ### Vault A, B and C Each collateral type has three associated vaults, named “A”, “B” and “C”. * The “A” vault is available to every Borrower, and the range of max LTV values are set conservatively. For example, WETH-A offers between 80% and 90% max LTV, where a Score of 0 = 80%, and a Score of 999 = 90%. * The “B” and “C” vaults offer comparatively higher max LTV values. For example, the WETH-B vault offers up to 95% LTV, and WETH-C up to 100% LTV. ![Borrow vaults table showing WETH vaults A, B and C.](/files/IYOXtGo1hNE30CVva68H) ### Capital efficiency Capital efficiency describes the range of max LTV ratios that the vault offers depending on the user’s DeFi Credit Score. For example, a borrower with a score of 0 will have their position in the WETH-A vault liquidated at a max-LTV of 80%, while a borrower with a score of 999 will be liquidated in the same vault at a max-LTV of 90%. Because the DeFi Credit Score changes daily, so too will a borrower’s maximum LTV offered across different vaults. Additionally, while the “optimal” borrow usage for growing the DeFi Credit Score stays constant across vaults, the specific LTV that this borrow usage represents increases in higher tiered vaults. ### Score threshold Score thresholds prevent access to higher-tiered (i.e. more capital efficient) vaults until the borrower achieves the minimum DeFi Credit Score required. By default, everyone has access to the “A” vault, as it has a score threshold of 0. Vaults “B” and “C” offer comparatively higher maximum LTV ratios, and are gated to lower risk borrowers who achieve Credit Scores above the thresholds set. Should a borrower’s Score fall below the threshold, they will be unable to borrow more until their score returns to the required level. In this situation, borrowers will be limited to deposit, withdraw or repay functionality from that vault. ### Credit limits Credit limits create a ceiling to the amount of debt that an individual can borrow from a specific vault. Rather than allowing an unlimited borrow amount, the credit limit provides a way to limit the quantum of losses born through unprofitable liquidations, particularly for higher tiered vaults. This system allows us to offer borrowers flexibility in how they structure their loans while providing us a higher degree of freedom in exposing ourselves to different types and sources of risk. To more explicitly tie borrower behavior with the amount of debt we feel comfortable extending, credit limits for an individual vault can be determined dynamically based on the amount a user has borrowed in other vaults. The current implementation of ARCx Credit imposes a static credit limit of $10,000 for the WETH-A vault, $10,000 for WETH-B and $1,000 for WETH-C. However, we are actively working to implement dynamic limits into the product shortly. # Liquidations A liquidation is a process whereby the collateral deposited in a vault is sold when the Borrow Usage on that vault exceeds 100%. This will happen when the collateral decreases in value or the borrowed debt increases in value against each other. During a liquidation event, the Borrower’s collateral is sold at a discount to a liquidator in return for repaying a Borrower’s debt ### Liquidation process During a liquidation event, the Borrower’s collateral is sold at a discount to a liquidator in return for repaying a Borrower’s debt. Half of the income generated by the liquidator is collected by ARCx, and the other half is retained by the liquidator. For example, if the Borrower had $100 of debt and $120 of collateral. Then if the position were liquidated with a 10% discount, the liquidator would repay the $100 of debt, and receive $$$100/(1-0.1)=$111.11$$ worth of collateral in return. The liquidator then returns $11.11 of profit from the event. From this profit, \~$5.56 is collected by ARCx, and \~$5.56 is retained by the liquidator. For the Borrower, they will correspondingly loose $11.11 of their collateral, and the remaining $8.89 is left in the vault. This mechanism safeguards ARCx Credit from accruing toxic debt. ### ARCx liquidation engine To ensure that at-risk collateral is sold as soon as is required, ARCx Credit has also deployed its own liquidation engine (instead of solely relying on third party liquidation bots). By managing our own liquidations, all revenue generated from the liquidation is kept by the protocol and can be fed back into the supply pool to recover losses due to toxic debt. Reliance on external liquidators has the benefit of security in times of significant volatility, however it also syphons revenue from the protocol to pay the liquidators. This loss of revenue actually aggravates the potential for toxic debt and the higher the liquidation discount, the lower the LTV threshold is for toxic debt to be left in the system. The contract for our liquidation engine can be found [here](https://polygonscan.com/address/0x6742765a665867B0C35b94f213aE8f627b40C6fa#code). ### Net profit or loss from liquidations When a liquidation occurs, the liquidator effectively repays the Borrower’s debt. When that happens, part of the debt is also interest. At that moment, part of the interest goes to ARCx and part goes to the suppliers, just like in a normal repay event. If there is toxic debt in the system, the amount is deducted from the supply pool by effectively reducing the value of the token (supply pool token arcxLP). # Fee Structure | Collateral | Borrow fee | Interest rate | Liquidation fee | | ---------- | ---------- | ------------- | --------------- | | WETH | 0.2% | 2.5% | 10% | **Definitions** * The borrow fee is a pro rata fee taken at each borrow event. The fee is added to the outstanding debt and is paid off when the Borrower makes their first repayment. * The interest rate is the annualized percent your debt will increase each year compounded continuously. Some of the interest paid is returned to the supply pool (90%) while the rest is kept by ARCx. * The liquidation fee is the discount liquidators get when purchasing collateral flagged for liquidation. The liquidation revenue is split between the liquidator and ARCx according to the *liquidationArcFee*. In the case of self-managed liquidations, 100% of revenue is kept by ARCx. This revenue is then fed back into the supply pool to benefit suppliers. # Supplying ARCx Credit have supplied $100K from the treasury into our lending pools for the Closed Beta. During this period, we have limited the functionality for supplying as we test and refine the system. However, we will shortly allow anyone to lend assets to Borrowers on the platform. Similar to our vault design, the supply pools have been divided into three distinct options (A, B or C), with each corresponding to the equivalent borrow vault of the same name. In combination with the vault-specific Score Thresholds, Lenders will be able to provide liquidity to Borrowers with specific DeFi Credit Scores (e.g. only Borrowers with DeFi Credit Scores above 500). In return for providing liquidity, Lenders receive a portion of the fees generated by Borrowers. The profit earned from a Borrower is equal to the net revenue earned from that Borrower minus the losses they incur from unprofitable liquidations. This section covers: 1. [Supplying and withdrawing](/application/supplying/supplying-and-withdrawing) 2. [Expected returns and risks](/application/supplying/expected-returns-and-risks) # Supplying and withdrawing ### Connect your wallet to the Polygon Network ARCx Credit operates on the Polygon network, a scaling solution for Ethereum. Before interacting with the application, you will need to connect and use your Web3 wallet on the Polygon Network. We recommend using Metamask wallet as your Web3 wallet, though we support any wallet compatible with [Wallet Connect](https://walletconnect.com/). * Log in to your wallet * Go to site * In the search box insert ***polygon mainnet*** * Click the ***connect your wallet*** button on the top right * Click ***add to Metamask*** button ### Connect your wallet to ARCx Credit Visit and click “connect wallet” on the top right corner. This will open up a prompt to select either Metamask or Wallet Connect. Clicking on either option will prompt your wallet to connect to the website. Once connected, the “connect wallet” button will be replaced by your connected wallet address. If you wish to disconnect your current wallet, you can do so by clicking on this button and selecting “disconnect”. ![Wallet connect from the arcx.money landing page](/files/AcDEQMyxq29eLp12W7zp) ### Managing supply pools Once you have connected your wallet, head over to the Supply page. Here you will find supply pools A, B and C, which correspond with borrow vaults A, B and C, as well as a supply history table that shows a list of transactions into or out of the pool. As a reminder, ARCx Credit has implemented a three-tiered vault design, with each collateral asset having three distinct vault options distinguished by the range of max LTVs offered, the minimum Score required to access the vault, and the maximum credit limit a borrower can access (regardless of their deposited collateral). For example, by supplying USDC into Pool A, you are lending USDC to borrowers in WETH-A (and any other “A” vault subsequently launched). ![Supply page](/files/COng3GH6edOC5cv8ZnCG) After selecting a supply pool, you will be able to supply or withdraw assets by (1) selecting the action type from the dropdown menu; (2) selecting the amount you wish to supply or withdraw; and then (3) clicking the primary action button. ![Supply action modal](/files/f8wRafsOpjFBKZODg8Ib) # Expected returns and risks ### Fees In return for supplying assets to Borrowers, Lenders will receive a portion of fees generated on the platform. Currently, 90% of the interest and borrow fees are returned to Lenders, while 10% goes to ARCx to fund further development and growth. ### Risks The profit earned from a Borrower is equal to the net revenue earned from that Borrower minus the losses they incur from unprofitable liquidations. Revenue is earned from interest, borrow fees and liquidations, while losses are sourced purely from liquidations. For LTV values close to or above 100% (e.g. for a user with a Score of 999 borrowing in the WETH-C vault), a liquidation event may result in toxic debt (i.e. where the value of the sold collateral is less than the debt outstanding). The liquidation mechanism must always compensate the liquidator for performing the liquidation. Usually this compensation comes out of the Borrower’s excess collateral in the case of an over-collateralized loan. If there is not excess collateral to cover both the debt and the liquidators compensation, then the offset is taken from the pool, representing toxic debt. Note that in the case of a 100% LTV liquidation, value is removed from the supply pool and sent to the ARCx fee collector. However, ARCx can return the liquidated funds to the pool to cover the loss in value, and thus the system as a whole may break even. # Risk management Lending money in DeFi is inherently risky, particularly when Borrowers are anonymous and suffer no real-world consequences to defaulting on their loans. To navigate this risk, conventional DeFi lending platforms generally require all loans to be over-collateralized regardless of who the Borrower is. In doing so, Borrowers are incentivized to repay, or else the collateral will be sold on their behalf with a penalty. ARCx Credit, on the other hand, treats every Borrower as an individual, and extends personalized collateralization requirements based on the DeFi Credit Score. As Borrowers improve their DeFi Credit Score and borrow at increasingly higher LTV ratios, ARCx Credit exposes itself to a greater chance of losses from unprofitable liquidations. It is important to note that even over-collateralized positions (i.e. where LTV is less than 100%) can still become under-collateralized by the time of liquidation due to a rapidly falling collateral price, the delay of the liquidator, and slippage. In developing the ARCx Credit product, it was therefore important to appropriately model and manage risk in order to control for losses born through unprofitable liquidations. This section covers: 1. [Inflows and outflows](/risk-and-infrastructure/risk-management/inflows-and-outflows) 2. [Design considerations](/risk-and-infrastructure/risk-management/design-considerations) 3. [Control parameters](/risk-and-infrastructure/risk-management/design-considerations) 4. [Profit modeling](/risk-and-infrastructure/risk-management/control-parameters) # Inflows and outflows ### Inflows ARCx Credit is a lending platform, where users can deposit collateral and borrow stablecoins from a lending pool. In return for facilitating this transaction, Borrowers are charged fees on their debt (an interest rate and a borrow fee). A portion of these fees are added back into the lending pool, increasing the value of the Lender’s contribution, while another portion is kept by ARCx Credit, generating revenue which is used to fund development and growth. The table below summarizes the revenue sources of ARCx Credit
Revenue sourceDescriptionBeta parameters
Interest rateThe main source of revenue for ARCx Credit is the interest rate on loans. ARCx Credit facilitates the lending of debt to Borrowers who lock up collateral in our vaults, and in return, Borrowers must pay interest on their debts, much as they would in TradFi2.50%
Borrow feeThe borrow fee is a pro rata fee taken at each borrow event. The fee is added to the debt and is only paid back when the Borrower repays for the first time0.20%
Liquidation feeDuring a liquidation event, the Borrower’s collateral is sold at a discount to a liquidator in return for repaying a Borrower’s debt10.00%
The table below summarizes how revenue is shared between ARCx Credit, the Lenders and the Liquidator
Revenue sourceRetained by ARCx CreditRetained by lendersRetained by liquidator
Interest rate10%90%n/a
Borrow fee10%90%n/a
Liquidation fee50%n/a50%
### Outflows Liquidations can be a source of both revenue and loss depending on the LTV ratio of the position at the time of liquidation. When the LTV is sufficiently below 100%, the liquidation yields revenue without loss, with value extracted from the Borrower and paid to the liquidator and the protocol. For LTV values close to or above 100% (i.e. the outstanding debt is similar in value to the collateral backing it), losses can be incurred to the protocol through the accumulation of toxic debt. The liquidation mechanism must always compensate the liquidator for performing the liquidation. Usually this compensation comes out of the Borrower’s excess collateral in the case of an over-collateralized loan. If there is not excess collateral to cover both the debt and the liquidators compensation, then the offset is taken from the pool, representing toxic debt. # Design considerations The ARCx Credit protocol has been designed to avoid excessive exposure to any single party, and to rely on empirical data and rational incentives instead of trust. * The DeFi Credit Score is based on real statistical indicators of credit risk, and contains no subjective analysis of a debtor’s profile based on their identity. Trusting a brand name fund, trading desk or other market participant has proven to be extremely hazardous, subject to significant tail risks and the possibility of fraud. We believe that trusting on-chain data levels the playing field for market participants and will prove itself as a more reliable indicator for credit risk. * The rules of the DeFi Credit Score are transparent and easy to understand. Instead of building a “black box” machine learning model that ingests hundreds of data points to return a result, we enable lenders to do their own research to understand the counter-party risk of our users. Through explaining the rules clearly to both parties and publishing updated scores on-chain each day, we are providing the tools for lenders to evaluate the performance of our risk modeling more than other credit scores are willing or able to do. Ultimately the market determines the probative value of our scoring, and will price their liquidity accordingly. * ARCx Credit and DeFi Credit Score system health KPIs are monitored and publicly available to track for lenders, borrowers and investors alike. We also manage a number of [unique control parameters](/risk-and-infrastructure/risk-management/control-parameters) that influence profitability. Making this data and the process by which different parameters are updated more transparent is critical to building trust with market participants. * The three-tiered vault design and the addition of a dynamic credit limit based on previous borrowing actively prevent exploitation and debt concentration risk for the protocol. If a user deposits $1 worth of ETH, and borrows perfectly until they have a Score of 999, they will not then be able to borrow a large sum of money in Vault C. # Control parameters Protocol net profit is equal to the sum of fees generated by Borrowers (through interest, borrow fees and liquidations) minus the losses they incur to the protocol (through unprofitable liquidations). Borrowers in the highest tiered vaults pose the greatest risk to profitability, since liquidations there may lead to the accumulation of toxic debt in the system (i.e. debt which is not recoverable by liquidating the underlying collateral). ### Risk control parameters To manage and optimize profitability, the ARCx Credit system provides a number of unique control parameters. Through understanding, monitoring and fine-tuning these parameters, ARCx Credit will deliver sustainable net profit across its loan book.
Control parameterDescription
Maximum LTV offered in each vaultThe primary way in which ARCx Credit exposes itself and its lenders to risk of unprofitable liquidations. Based on our analysis, we are comfortable launching with 100% max-LTV on ETH collateral for borrowers with a DeFi Credit Score of 999.
Fees charged to borrowersThe fees we generate through interest rates, loan instantiations and liquidations. Fees are earned from borrowers as they build their DeFi Credit Score, and may be used to cover losses born from unprofitable liquidations. At present, the interest rate is set by ARCx Credit, but in future this will be set dynamically based on supply / demand.
Score impact for borrowing (or the time required to improve your DeFi Credit Score)The length of time required for a borrower to build their DeFi Credit Score will influence the amount of fees we generate from an individual borrower before a liquidation might result in the accumulation of toxic debt
Score impact for liquidationsThe impact on a borrower’s DeFi Credit Score in the event of a liquidation. The impact should be configured such that it appropriately disincentivize liquidations, primarily by the opportunity cost of losing access to improved capital efficiency and the time required to rebuild the Score.
Shape and configuration of the Rewards CurveThe shape and configuration of the Rewards Curve that determines the Daily Score Reward. This includes defining the "optimal" borrow usage point (influencing where borrowers sit to grow their Scores), and the shape of the curve itself (e.g. providing more flexibility to borrowers in determining their own optimal position without unnecessarily penalizing them with a lower Daily Score Reward)
Credit limit imposed on each vaultThe maximum amount of debt a borrower can access from a given vault, regardless of their collateral deposited. This prevents debt concentration risk in higher tiered vaults, and limits the quantum of losses on liquidation. Credit limits may be static (i.e. the same for all borrowers) or dynamic (i.e. based on how much debt a borrower has used in other vaults).
### Incentive model The design of ARCx Credit and the DeFi Credit Score aim to incentivize responsible borrowing behavior. This is based on two unique factors: 1. The time and effort required to build to a high DeFi Credit Score (which would be a sunk cost if a wallet is abandoned after liquidation) 2. The quantifiable benefit that a borrower receives from continued access to higher-tiered vaults (i.e. the capital efficiency gained) Since the growth of the DeFi Credit Score is explicitly tied to responsible borrowing behavior, users who want access to improved capital efficiency will be incentivized to borrow responsibly. Conversely, if the expected benefits of continued access to improved capital efficiency exceed the penalty for liquidation and the time and effort required to rebuild a Score, then borrowers will be incentivized to avoid liquidation. # Profit modeling This section contains analysis on unit level and aggregate profitability for the system as it is configured in the Closed Beta. ### Unit-level profitability Here, we describe the net profit expected from an individual Borrower in the worst case liquidation scenario. Based on our vault design and risk parameters, we conclude that vault “C” is a risky vault whereby a liquidation can in fact yield a loss (assuming a Borrower with a 999 Score / 100% LTV loan, and the liquidation is executed by an external liquidator). For the purposes of this analysis, we will first articulate the journey of a Borrower who reaches the most risky position of having debt with a LTV of 100% in WETH-C (i.e. the Borrower with the greatest chance of creating toxic debt in the system). **Journey to 999 Credit Score** 1. All Borrowers begin with a Score between 0-300, depending on their historical borrow experience on third-party platforms, according to the Survival Score Reward. 2. New Borrowers have access to only the WETH-A vault, with a maximum possible LTV of 90%. 3. The Borrower grows their Score until they reach a score of 500, which unlocks WETH-B. 4. The Borrower enters WETH-B with a maximum LTV of 95% and continues to borrow until they reach a Score of 750. 5. The Borrower reaches a Score of 750 and unlocks WETH-C. 6. The Borrower enters WETH-C and borrows until they have reached a score of 999. Throughout this journey, the Borrower will be earning the platform revenue from interest and borrow fees until the point at which the Borrower can create toxic debt in the system. The longer it takes the Borrower to reach this point, the more revenue will be generated (but the total loss will remain constant). The net profit from a Borrower who starts with a DeFi Credit Score of 0 is determined by: | Vault | Earned from borrow fee | Minimum time in vault (days) | Earned from interest rate | Losses when they liquidate | | ------ | ---------------------- | ----------------------------- | -------------------------------------- | -------------------------- | | WETH-A | $$0.002d$$ | $$120/999\times500=60$$ | $$d(e^{\frac{0.025\times60}{365}}-1)$$ | None | | WETH-B | $$0.002d$$ | $$120/999\times(750-500)=30$$ | $$d(e^{\frac{0.025\times30}{365}}-1)$$ | None | | WETH-C | $$0.002d$$ | $$120/999\times(999-750)=30$$ | $$d(e^{\frac{0.025\times30}{365}}-1)$$ | $$-0.05d$$ | Note that even if the Borrower never repays in WETH-C and the interest is not paid out directly, the accrued interest is subtracted from the loss experienced. The liquidated debt is actually larger than the initial borrow amount removed from the pool, and thus the toxic debt is lessened. Adding up these components we arrive to: $$ \begin{aligned} P&=3\times0.002\times d+d(e^{\frac{0.025\times60}{365}}+2e^{\frac{0.025\times30}{365}}-3) - 0.05\times d\\ P&\approx-0.0358d \rarr -3.58%\text{ of debt} \end{aligned} $$ So, for this user, who starts with a score of 0 and is liquidated by an external liquidator, we can expect to make a loss of 3.58% of the value of their debt. The expected loss is greater in the case of the Borrower who begins with a score of 300. The calculation is almost exactly the same, except the time spent in WETH-A is shorter (24 days instead of 60 days): $$ \begin{aligned} P&=3\times0.002\times d+d(e^{\frac{0.025\times24}{365}}+2e^{\frac{0.025\times30}{365}}-3) - 0.05\times d\\ P&\approx-0.0382d \rarr -3.82% \text{ of debt} \end{aligned} $$ So in the very worst case scenario, where the highest-scoring Borrower who has borrowed optimally liquidates at an LTV of 100%, we will yield a maximum loss of $3.82\\%$ of the value of their borrowed amount in Vault “C”. In conclusion, we cannot ensure positive unit-profitability with the current design in the worst case scenario. **Notes:** * If ARCx performs the liquidation using our own bot, then the profit is actually net positive, at $1.18% of the value of the debt. * The dynamic credit limit is particularly important for Vault C as it effectively limits the quantum of loss in the event of a worst case liquidation. * We have assumed the liquidation engine, DEXs, the application, contracts, data pipelines and score rules work as expected when they need to. * The analysis does not consider extreme market events (e.g. crashes, de-pegging, chain congestion). Losses may be higher under extreme circumstances. ### Aggregate profitability While the analysis above shows how the net profit of an individual Borrower may be negative in the worst case scenario, the aggregate profitability across many Borrowers may in fact be positive. The fundamental thesis of ARCx Credit is that, on average, the revenue we generate from Borrowers will outweigh the expected losses born through unprofitable liquidations. ARCx Credit is therefore an experiment, which will be validated by real-world usage and refined through continuous improvements in our risk parameters and unique control parameters. Underpinning our thesis about ARCx Credit are two key assumptions that will be validated through monitoring real-world usage: Firstly, the benefit of improved capital efficiency will incentivize borrowers to maintain their DeFi Credit Scores by appropriately managing risk and avoiding liquidations. Borrowers will eventually be able to quantify the value of their on-chain reputation in financial terms, making it possible to understand the point at which repaying an accumulated toxic debt on an address is a rational decision if it means preserving a high DeFi Credit Score. In general, when toxic debt is created, there is no such incentive to motivate a Borrower to repay, as Borrowers can simply spin up a new wallet address with zero cost. The DeFi Credit Score and ARCx Credit on the other hand impose a real cost to dissuade this kind of behavior - specifically the time and effort required to substantiate your borrowing experience and to build your Score. Secondly, the distribution of net profit by Borrower will naturally skew positive based on the control parameters we have established. This is based on the following assumptions, which will be monitored closely as part of our routine risk management efforts: * Not all Borrowers will follow the shortest path to reach a DeFi Credit Score of 999, since managing position at the “optimal” borrow usage levels requires continuous monitoring and adjustments. * Some Borrowers may not want to hold the “optimal” borrow usage level (e.g. they may be more risk averse, or risk prone, which decreases the speed at which the DeFi Credit Score grows). * Not all Borrowers will want to hold borrow positions open for the amount of time required to build their score to 999. * Not all Borrowers will avoid liquidations in the “A” and “B” vaults, which are lower risk (and more profitable) for ARCx Credit. ### Conclusion The design of ARCx Credit and the DeFi Credit Score makes it very unlikely that borrowing under normal conditions will lead to loss for the protocol. Unlike other DeFi lending protocols, ARCx Credit does not actively ensure unit-level profitability through its risk parameters. However, loss from an individual Borrower will only occur in a specific sequence of events and will more than likely be compensated by revenues from other Borrowers. As discussed, the effectiveness of our system in generating sustainable profit will be understood and refined through real-world usage. We have decided to take a conservative approach to begin, but over time we are confident that our assumptions will prove to be valid. To understand how the experiment is progressing, please follow the journey on [Discord](https://discord.gg/arcx). # Infrastructure ARCx Credit has launched one of the first crypto-native Credit Score for DeFi. To do this, we invested heavily in researching and building the most suitable architecture to balance the competing tradeoffs of speed, cost, reliability, security and decentralization. This section covers: 1. [Context and challenges](/risk-and-infrastructure/infrastructure/context-and-challenges) 2. [Infrastructure overview](/risk-and-infrastructure/infrastructure/infrastructure-overview) # Context and challenges ### Requirements of the DeFi Credit Score To deliver the DeFi Credit Score, the infrastructure needs to: * Ingest and store transaction data from the blockchain * Perform heavy calculations to derive a unique Credit Score for each wallet address * Continuously ingest new transaction data and frequently update the Credit Score * Allow us to modify the Credit Score parameters as required by an in-house risk function * Publish all Credit Scores on-chain in a gas-efficient and secure manner * Be verifiable on-chain to prevent fraud or exploitation * Allow for external validation and verification to ensure Credit Scores are correct * Scale publishing process to allow the indexing of many wallet addresses ### Challenges to overcome The ARCx infrastructure was developed to overcome key data engineering challenges applicable to a range of use cases in crypto (not just the DeFi Credit Score). The following section briefly explains the challenges applicable to powering an on-chain Credit Score and other on-chain or off-chain use cases. **(1) Data collection** Ethereum and other major blockchains process millions of transactions each and every day. With terabytes of history and the need to ingest and enrich new data continuously, the cost and knowledge required to understand both current state and historical states of the blockchain is extremely high. To do this effectively, we needed to develop sophisticated data engineering pipelines and invest heavily in cloud storage and computing resources. So although blockchain transactions are widely accessible through the public ledgers, having a comprehensive and continuously updating dataset is most likely out of reach for most projects. **(2) Data interpretation** Individuals and their on-chain activity are represented as hexadecimal numbers known as “addresses” and “transaction hashes” respectively. Behind each transaction, an address (or user) is simply trying to achieve some objective, whether that’s swapping, staking, borrowing, voting, or any other arbitrary action facilitated by smart contracts. The challenge lies in understanding the context of such transactions and creating insights to craft meaningful wallet-level attributes that support a business objective. For the purposes of the DeFi Credit Score, the challenge is in understanding what factors demonstrate responsible borrowing behavior. This unlocks the ability to offer better capital efficiency in DeFi, thus creating a strong point of differentiation and driving business success metrics (e.g. loan book size). Moreover, these unique custom attributes are not sufficient as stand-alone data points (e.g. “holds X tokens” or “has staked Y”). There is a second layer of computation required for understandable interpretation of multiple variables (e.g. “has done X, but not Y, and holds unrealized losses with Z token”). For this to be effective, we need to run advanced calculations across all wallet addresses on a continuous basis, updating our calculations and tweaking our formulas as new data comes in. **(3) Data use** Armed with continuously updating attributes for each wallet address, we can proceed in applying them towards a business objective. For ARCx Credit, this meant allowing our liquidity market to use the latest Credit Score of a given wallet address, verify it on-chain, and unlock borrower-specific offers in real-time (i.e. personalized max-LTV offer). # Infrastructure overview ### **Score creation** The DeFi Credit Score is processed using custom data pipelines that pull on-chain data sources. Our pipelines are flexible, which allows us to increase the scope of data included in the Credit Score as required. The decision to use custom ETL pipelines allows our score designers to experiment with complex score logic with minimal effort (compared to endless SQL queries, for instance). Having a large, accessible and tailored dataset enables quick adjustments and in-depth analyses. ### **Score publishing** The DeFi Credit Scores (and other on-chain scores) are combined into Merkle Trees, with its Merkle root (i.e. the root of all combined trees) being published on every blockchain we support. This process occurs every Epoch, which is currently set at a 24 hour window. To save on resources and processing time, subsets of scores are combined into smaller Merkle Trees, so as to be created in parallel. Then, the roots of each tree are combined into another Merkle Tree, and the process is repeated. The final Merkle Tree thus contains all the Credit Scores and are verifiable against the final Merkle Tree’s root deployed on each respective blockchain. All roots on each blockchain are equivalent at each epoch. This also means Credit Scores are chain agnostic (i.e. same score on each blockchain). Before a new root becomes active on the blockchain, it must first spend 1 epoch on the \*[SapphirePassportScores\* contract](https://polygonscan.com/address/0xec73bB9Ce38aFE712A4b9a820bc34A2ddf50e990#readProxyContract) as the “upcoming Merkle root”. This intermediary step of having a public “upcoming root” provides an additional layer of security and transparency, allowing for anyone to externally validate both the “current root” and the “upcoming root”. When a new root is thus published, the “upcoming root” becomes the “current root”, and the new root takes its turn as the “upcoming root”. This also allows for integrity and security checks for an entire epoch before any root goes live. This entire process provides many failsafes while also providing a gas-efficient and cryptographically secure way to publish scores on-chain. ### **Score verification** Applications wanting to use a score on-chain will need to fetch its proof, which can be found via our [publicly accessible REST API](https://docs.arcx.money). Third parties can verify any score on-chain by passing its proof to the `verify(...)` function on our [SapphirePassportScores contract](https://polygonscan.com/address/0xec73bB9Ce38aFE712A4b9a820bc34A2ddf50e990#readProxyContract). ### Comparison table Alternative solutions to the problems described above exist, but these suffer from a variety of challenges as described below:
OptionProsCons
Merkle Root Publishing
  • No external dependency
  • Gas efficient (single Merkle Root)
  • Low data integrity risk
  • Highly flexible
  • Transparent

  • Slower score updates
  • Large infrastructure to build
Publish on-chain through existing oracle service
  • No need to build extra infrastructure
  • Faster score updates
  • Gas intensive
  • High data integrity risk
  • Not as transparent
  • Not flexible
  • External dependency
Build competing oracle service
  • No external dependency
  • Faster score updates
  • Gas intensive
  • High data integrity risk
  • Not as transparent
  • Immense infrastructure to build
# Assets ARCx offers the following options for collateral and debt assets ### Collateral | Vault name | Credit Score Entry Threshold | Asset | Lower max-LTV bound | Upper max-LTV bound | Credit limit | Liquidation discount | Interest rate | Borrow fee | | ---------- | ---------------------------- | ---------------- | ------------------- | ------------------- | ---------------- | -------------------- | ------------- | ---------- | | WETH-A | 0 | Wrapped Ethereum | 80% | 90% | Static ($10,000) | 10% | 2.5% | 0.2% | | WETH-B | 500 (temp) | Wrapped Ethereum | 85% (temp) | 90% (temp) | TBD | TBD | TBD | TBD | | WETH-C | 750 (temp) | Wrapped Ethereum | 90% (temp) | 100% (temp) | TBD | TBD | TBD | TBD | ### Debt | Pool name | Supplied by ARCx | | --------- | ---------------- | | Pool A | $80,000 | | Pool B | $15,000 | | Pool C | $5,000 | Note, the A, B and C Pools correspond with the collateral vaults of the same name. Therefore, supplying to Pool A will lend assets to borrowers from Vault A (e.g. WETH-A) # Contracts The table below summarizes the contracts currently in use by ARCx Credit
Smart ContractAddressChainDescription
WETH Core - A0x05efe26f4a75EA4d183e8a7922494d60adfB27b3PolygonSmart contracts with custody of WETH funds of borrowers of risk profile A.
WETH Core - B0xE106dDE30B538a0F86146862d131FC6733C6EEe4PolygonSmart contracts with custody of WETH funds of borrowers of risk profile B.
WETH Core - C0x1990BAbB67C1d297Fde4b3e540e6a32148654F44PolygonSmart contracts with custody of WETH funds of borrowers of risk profile C.
Lending Pool - A0x59b8a21a0b0ce87e308082af6ffc4205b5dc932cPolygonPool of stablecoins which are lent to borrowers of risk profile A.
Lending Pool - B0x1321f1f1aa541A56C31682c57b80ECfCCd9bB288PolygonPool of stablecoins which are lent to borrowers of risk profile B.
Lending Pool - C0x69b37541d1C00c949B530ccd3d23437188767160PolygonPool of stablecoins which are lent to borrowers of risk profile C.
ARCx Scores0xec73bB9Ce38aFE712A4b9a820bc34A2ddf50e990PolygonContract responsible for validating scores on-chain. Used to verify credit scores amongst other scores.
ARCx Scores0x548ab653a6ab2e54debf05f3a728b602ac1c2e69EthereumContract responsible for validating scores on-chain. Used to verify credit scores amongst other scores.
# API ARCx provides public endpoints related to web3 reputation. Please refer to our [developer documentation](https://docs.arcx.money/#overview) for more information. # ARCx Token ### Purpose of the Token The core function of the ARCx Governance Token is to be the governance mechanism for the ARCx protocol itself. The token is intended to align incentives between various stakeholders within the ecosystem to promote sustainable growth and fair governance. The ARCx Governance Token currently allows token holders to vote on expenditure from the treasury. In the future, ARCx token holders will be able to vote to receive cash flows generated from the network and participate in native on-chain governance to upgrade the protocol itself. For more information on voting, please visit the page on [Governance](/protocol/proposals-and-voting) ### Tokenomics [AIP4](https://forum.arcx.money/t/aip4-simplifying-and-improving-the-arcx-tokenomics/120) passed on the [3rd September 2021](https://snapshot.org/#/arcx.eth/proposal/QmNgKXxL8GosVEc8bfniXPMzMSF5bNVatW5smmazsf4UJ8) involving a one-off mint of approximately 60 million ARCX to get the total supply to 100 million tokens. From here a new schedule was formed for the Angel investors, ARCx Team and $KERMAN holders (detailed below) with various unlock dates and a stream started where relevant. The initial unlock dates were pushed back to flatten the inflation curve. The below chart shows the release of ARCX tokens over time. ![](/files/Iton1eNOvi1YYBFYqtdY) ### Token Distribution Breakdown The below pie charts show how the different allocations change at two instances in time. Each chart shows the total **locked** allocation and its change to becoming unlocked (circulating). ![](/files/okKXLqyPbSZGWA4KwVUe) **Note:** There are still some ARCX OLD tokens (around 600 at the time of writing) that are yet to be migrated across. This will add to the circulating supply as and when they migrate. There is no time cap on this, the [migration portal](https://migration.arcx.money/) will remain open indefinitely. ![](/files/yCYO5SBJrfkKHXsj28Gj) **Update:** Following the passing of [AIP5](https://forum.arcx.money/t/aip5-boosting-arcx-liquidity/135), over 5 million ARCX from the treasury was added to the Uniswap v3 position. This has resulted in an increase of 5% to the circulating supply. ### Token Split and Migration After a successful snapshot vote on [AIP-2](https://arcx.substack.com/p/aip-2-arcx-token-split-110000) - the ARCx community has proceeded with a split of the ‘Old ARCx Governance Token’ 1:10,000. This will result in a total supply of 100,000,000 ARCx Governance Tokens. As an indication, if you hold 1 ARCx worth $10,000 pre-split, you would get 10,000 ARCx post split - each worth $1.00. The migration contract is accessible through the arcx.money website, which will allow Old ARCx token holders to burn their old tokens and mint new ARCx tokens. This contract will run in perpetuity, meaning that there is no risk of a holder missing out on the migration. The original ARCx Governance Token will be called the ‘Old ARCx Governance Token’ and the new token post-split will simply be referred to as the ARCx Governance Token. The core function of the ‘post-split’ ARCx Token will be exactly the same - to govern the protocol, and to use it as a tool to incentivize growth and integrations with other protocols. You can [migrate your tokens here](https://migration.arcx.money/). ### Token technicals Listed below are all the addresses related to the ARCx token. | **Address** | **Description** | | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | |

0x1321f1f1aa541a56c31682c57b80ecfccd9bb288

| **Official ARCx Governance Token Address.** Minting capabilities controlled by the ARCx team | | [**0xed30dd7e50edf3581ad970efc5d9379ce2614adb**](https://etherscan.io/address/0xed30dd7e50edf3581ad970efc5d9379ce2614adb) | **(Old) ARCx Governance Token** before 10,000:1 split authorized by Arcx Improvement Proposal-2 (AIP-2) | | [**0x1debbc50322150eb44de3b663d5faa89c12b07ff**](https://etherscan.io/address/0x1debbc50322150eb44de3b663d5faa89c12b07ff) | **ARCx Emissions Distributor.** 19.1% of the supply goes to the community treasury, 15.5% to the core team & 5.41% to the original angel round**.** | | [**0xafa06707a4c859722480b35822620d2eb14af59e**](https://etherscan.io/address/0xafa06707a4c859722480b35822620d2eb14af59e) | **Vested Phase 2 tokens** that will be distributed 6 months after the launch of the token. | | [**0xa53ab7f36c147b4bfca3c9c236de660f30a9d948**](https://etherscan.io/address/0xa53ab7f36c147b4bfca3c9c236de660f30a9d948) | **Unsold Phase 2 tokens** that can be sold at the discretion of the ARCx team. | | [**0x4317D259fCCe32ebbB508C27b12F4AfACA074AE3**](https://etherscan.io/address/0x4317D259fCCe32ebbB508C27b12F4AfACA074AE3) | **ARCx DAO Treasury Address.** Funds are voted on via Snapshot voting and executed via a multi-sig. | | [**0x88CDF983117505Fee6433277D14C298ECfBEeAd6**](https://etherscan.io/address/0x88CDF983117505Fee6433277D14C298ECfBEeAd6) | **Vested Core team tokens.** Initial lock up for 6+6 months, vested continuously for 36 months after. Total 4 year vesting. 15.5% total, 1% allocated to $KERMAN holders (see below) | | [**0x75Aa7a55df3BD077c3238a5eB9722290a4c8A3C0**](https://etherscan.io/address/0x75Aa7a55df3BD077c3238a5eB9722290a4c8A3C0) | **Vested Angel round tokens.** Initial lock up for 6+6 months, earned continuously via emissions for a total of 4 years. | | [**0xBaDADFcac026820Af874b9ed52d4D19435b6cf0B**](https://etherscan.io/address/0xBaDADFcac026820Af874b9ed52d4D19435b6cf0B) | **Additional Core team (social token) allocation.** 1% (from the Core team 15.5%) is distributed to $KERMAN holders. More details around claiming for this will be made in the coming months. | | [**0x2Db5553872382De018efD3eB36B7e077dBf3b8f3**](https://etherscan.io/address/0x2Db5553872382De018efD3eB36B7e077dBf3b8f3) | **ARCx Growth Allocation Address.** Treasury allocation managed by the Llama team. [Details here.](https://forum.arcx.money/t/introducing-arcx-growth-allocation-i-deploy-treasury-productively/61) | **Note:** 6+6 months refers to 6-months pre-token tradability and 6-months post-token tradability. This was a decision taken by the Core team and Angel investors to ensure that the token tradability event was as fair as possible to network participants. # Governance Any community member of ARCx can work towards a governance proposal on the [ARCx Forum](https://forum.arcx.money/). A key component of community governance involves open communication. ARCx Improvement Proposals (AIPs) should generally involve the following workflow: 1. Informal discussion on the Discord Server and/or Community Calls 2. Formal discussions on the ARCx Forum through a work-in-progress (WIP) proposal 3. Final draft of the ARCx Improvement Proposal (AIP) for voting 4. Voting on Snapshot ### **Discord Server** Discord serves as the primary informal medium for community discussion. There are a wide number of channels available to those who join, and we try encourage active discussion on decisions concerning the protocol. The Discord server is regularly moderated by ARCx team members, who relay messages from the community to the relevant member of ARCx as necessary. ### Weekly Community Calls ARCx hosts regular community calls on Mondays at 9pm UTC in Discord. During these calls, the team delivers high-level status updates on goals and work completed, and we encourage any server member to ask questions either beforehand or during the call in the text channel. ### Formal discussions The ARCx Forum is the hub for more formal discussion and debate. An ARCx Improvement Proposal (AIP) should be born from open discussion within a post or on a new post, leading to a Work-in-progress (WIP) proposal, and finally an AIP in its final form to be voted upon. We encourage you to create an account on the [ARCx community forum](https://forum.arcx.money/) and get involved. ### Voting In the event an AIP gains significant traction within the community, it can then be voted on via Snapshot voting. Snapshot voting allows the community holding the token at a specific moment (block height) in the ETH blockchain to vote on a proposal without spending gas fees. You can find our Snapshot page [here](https://snapshot.org/#/arcx.eth/). An AIP may enact changes to the core protocol. For a vote considering an AIP to ‘pass’ and become binding, it must gain a quorum of at least 51% of the total voting power in the network. # Support This page contains answers to common support questions: 1. [Is ARCx Credit available yet?](/protocol/support/is-arcx-credit-available-yet) 2. [How do I contact support?](/protocol/support/how-do-i-contact-support) 3. [How do I leave feedback?](/protocol/support/how-do-i-leave-feedback) # Is ARCx Credit available yet? As part of our risk and product development objectives, we have chosen to share ARCx Credit with a limited number of trusted users first before a broader public release. The purpose of our Closed Beta program is to test and refine the application in a low risk environment ahead of our audit with Trail of Bits in October 2022. We have created a waitlist for those interested in using the app first. To join, simply visit and fill in your information. Over the coming weeks we will gradually whitelist new addresses to use the app. If you are particularly interested in getting started, please reach out to our team via [Discord](http://discord.gg/arcx) or [Twitter](http://twitter.com/arcxmoney). # How do I contact support? To contact our support, you can join our [Discord](http://discord.gg/arcx) and leave us a support ticket. When you enter our server, look for the “Help” section, click on the “support” channel, and click “open a ticket” ![](/files/E0ttaqf1ZaIX4pJARZYm) # How do I leave feedback? We value every piece of feedback we receive. If you would like to share some feedback, you can let us know by Tweeting @arcx or joining our [Discord](http://discord.gg/arcx) and speaking with the team there.