Dharma Protocol

Basics

• Founded in: 2017
• Based in: San Fransisco

• Went live (4-2019), Version 2 is now (9-2019) in close beta, bringing "a lending application built on top of Compound protocol."
• DeFi
• p2p decentralized lending; "is building tokenized debt on the blockchain, to support a variety of use cases including leveraged trading and loan products."

Token

Token Details

dToken

• Wrappers around Compound tokens, a la rDai, but for services to take profits. In this case, 10% of interest to Dharma.

• From their blog (6-2-2020):

"In February, we will deploy a new system of smart contracts, called dTokens, which are a wrapper around Compound cTokens

Users will keep their full balance and all interest earned prior to the migration. Going forward, dTokens will retain one tenth of the interest earned in Dharma as a surplus that can be pulled by Dharma.

Wrapping all deposits in dTokens is an important prerequisite to various features on our roadmap, including scalability solutions for payments and privacy enhancements."

Tech

• Whitepaper can be found [insert here].
• Code can be viewed [insert here].
• Built on: Ethereum
• Programming language used:

Transaction Details

• Capacity (TPS):
• Latency:

Governance

• From Decrypt (15-10-2020):

"Dharma on Monday proposed to lower the threshold for submitting a proposal [to the Uniswap network] to alter the network from 10 million UNI (about $31 million, or a tenth of the market cap) to 3 million (about $1 million). It also wants to lower the amount of UNI the community must stake to pass a vote from 40 million UNI (~$120 million) to 30 million (about $90 million).

Others said, should the proposal pass when voting closes on October 19, it would be easier for Dharma and the other major proponent of the proposal, blockchain simulation company Gauntlet, to pass proposals, if they work together. That’s because Dharma and Gauntlet are big bagholders of UNI. The fear was that, should the proposal pass, Dharma, with backing from Gauntlet, would have enough power to follow through on its plans to use Uniswap’s treasury funds to pay its own community."

The proposal was not adopted (19-10-2020).

Upgrades

• From The Defiant (30-7-2020):

"Users of crypto wallet Dharma can now trade more than 2,000 tokens thanks to an integration with Uniswap, a first for a mobile app. Dharma’s upgrade also includes price charts and machine-learning-driven price alerts. The Coinbase Ventures-backed company is covering all gas fees for trading, which only includes ERC20/ETH pairs for now, with plans to add ERC20/ERC20 pairs in the future."

Roadmap

• Can be found here (10-2020).

Layer 2

• Dharma has set out to build their own layer 2 system, based on the Optimistic Roll-Up scaling paradigm. They aim it to be non-custodial and censorship resistant.

Audits

• Bug bounty program can be found [insert here]. None according to Blockchain Security DB (29-6-2020), which does show 2 audits (latest from 11-2019).

• "Our particular implementation has been audited by Trail of Bits."

Admin Key OpSec Risk Assessment

• The following information comes from a spreadsheet (4-2-2020) created by Chris Blec.

"Current Admin Key Config- Time Lock: 7 Days

Current Admin Key Config- Multisig: 3-of-5

Claimed Admin Key OpSec: None

Verified Admin Key OpSec: Unverifiable

Is security of deposited funds dependent on opsec of admin key?: Yes

Admin Key Address: Link

Documentation on Admin Key Powers: Tweet

Additional Info (if any)? Github Readme (section: Upgradability)"

How Decentralized is Dharma?

• Was classified Degree 1 DeFi on the HackerNoon rankings of 25-4-2019. "These DeFi products are non-custodial but use centralized price feeds, centrally initiate margin calls, centrally provide liquidity, centrally determine interest rates, and centrally administer platform developments & updates."

• A BIG side note, is that the blog was written by Kyle J Kistner who is Chief Vision Officer at bZx. He gave his own project the highest ranking. What a surprise.

• From the comprehensive blog post:

"Custody: Dharma uses their open-source debt kernel smart contract described in the Dharma whitepaper. A Dharma-controlled address is designated as the ‘underwriter’. The debt kernel smart contract routes borrower collateral to the collateralizer contracts which, for the active duration of the loan, has custody of borrower funds. This aspect of the system is non-custodial. Dharma’s loan origination process involves contract code that is closed source. When a borrower or lender sends assets to a supplied address to initiate a Dharma loan, the receiving address contains a contract that interacts with a watcher script located on a centralized Dharma server. If the watcher process goes offline or fails to use the correct gas price when redirecting the funds, the assets can be stuck until the transaction is resubmitted, which is currently done by the Dharma team. While this entails a temporary potential loss of control of funds for Dharma users, as their assets may sit in the smart contract system waiting to be processed, the Dharma team cannot steal the funds as they do not control users’ private keys. At a future date Dharma plans to publish documentation allowing users to process transactions themselves if they so desire.

Margin Calls: Dharma centrally monitors positions, centrally initiates margin calls, and supplies liquidity from their own personal liquidity pool.

Price Feeds: Prices are imputed by Dharma. The price feed does not play a role in enforcing good behavior.

Interest Rates: Interest rates on Dharma are centrally determined and currently subsidized by the operators of the platform in order to act as a loss-leader.

Development: The development of the Dharma core contracts and underwriting contracts are undertaken by Dharma itself. The underwriting contracts are open source and loan origination contracts are closed source.

Note: Dharma has recently revealed that it plans to move to a MakerDAO style liquidation mechanism. This would greatly increase the level of decentralization."

• From DeFi Watch (9-3-2020):

"Dharma users' smart wallets are all upgradeable via a 3-of-5 multisig admin contract with a 7-day timelock. Dharma is capable of making updates to the smart wallet code and is also capable of freezing accounts."

Dharma also responded:

"I’d like to share a few details on our admin key opsec:

• As you’ve already pointed out, we utilize a 3/5 multisig in order to upgrade our contracts. The multisig is extremely similar to Christian Lundkvist’s Simple Multisig, which is audited by Consensys Diligence, and our particular implementation has been audited by Trail of Bits.
• While, like other projects, I’d be hesitant to share too many details about our key management, I will say that we utilize a pretty involved, multi-stage process, with the signing stage isolated to an independent, offline context, and with redundant verification performed at each stage (both automatic and manual). The private keying material has never been “hot” at any point. (I’d be really interested in learning how this could be verifiable somehow!)
• The primary defense against malfeasance on our part when it comes to system upgrades, as you also highlight, is the 7-day timelock - I believe this is one of the more conservative durations in DeFI, but in our view it is important so that users have plenty of time to exit the system if there’s an upgrade they disagree with. We do our best to get the word out whenever we’re making changes, but I would love to work with anybody interested in setting up third-party monitoring tools for our contracts, or for DeFi at large, to send out alerts and additional context whenever upgrades or other changes are queued up or executed."

Usage

• "In Dharma's first week open to the public, users borrowed over 1M USD and lent over 1.4M USD. This volume was primarily denominated in Dai, as users levered up their ETH holdings." (According to Brendan from the team itself)

Subsidy Cuts and Fee's

• From DeFi Weekly #52 (27-11-2019)

"So when/if KYC happens, Compound's defensibility may go down as liquidity moves away. The reason why I say that is that actors in DeFi don't actually care about the entity providing capital, as long as it provides capital at good rates. We saw this first-hand with Dharma when they started subsidising loan origination. After the subsidies were cut we saw a sharp 40% decline in liquidity. Orders with the P2P loan matching were also present but I wouldn't count it as a large reason."

• From DeFi Weekly #57 (7-2-2020):

"Surprise surprise, Dharma charges 10% fee on interest earned by their users! Assuming they're coming close to the end of their Series A money, they need to start showing some kind of revenue for Series B investors as great team and story doesn't necessarily fly anymore. Assuming there's ~$1m locked up, with it earning 5% on average, and a 10% fee that means most likely $5,000/year in revenue that they can book. I don't think those numbers are going to do anything meaningful to the bottom line for raising more money but it seems that becoming regulated and providing easy on-ramps could help that number go up. However like we've seen in crypto, either you go 100% decentralised or 100% regulated. In their current form, Dharma is a bit of a hybrid that's starting to lean more towards being regulated.

I increasingly feel like Dharma is in a situation to where Veil was when they decided to fork Augur and become semi-centralised, semi-decentralised. You can already see the effects of alienating one group as crypto-natives are confused as to why you'd pay a 10% fee for "just a nicer UI"

The team's response is that non-crypto natives will be happy to pay as they're receiving a higher interest rate. Having personal experience with attempting something similar, non-crypto natives literally get scared when they hear their money is touching crypto. If you ask anyone with money and say "what if you could earn much more then regular interest rates?" and when they ask how you just mention the word "crypto" their brain switches off. Crypto still needs social legitimacy in order for people to try it out. Regardless, I wish Dharma the best of luck as navigating crypto is no easy feat - especially when you're in the drivers seat."

Team, Funding, Partnerships, etc.

Team

• Full team can be found [here].
• Brendan Forster; co-founder
• Nadav Hollander; co-founder

Funding

• Startup Dharma has finished its series A fundraising round, raking in some $7M to develop a decentralized exchange (DEX); Dharma's DEX will compete with Genesis and BlockFi; the startup's DEX utilizes smart contracts and P2P loan finding services on its domain to offer rates claimed to be half of the traditional average; some 400 firms are said to be on the waiting list.
• Backed by Coinbase Ventures (30-7-2020).

Partners 

• Has attended the program of Startup Studio.
• Part of the WBTC community.