Overview

Locale Lending dApp Overview

https://lending.locale.cashlending.locale.cash

Overview

Locale connects borrowers seeking capital with investors looking for yield through transparent, on-chain lending pools. The platform uses privacy-preserving verification to assess creditworthiness without exposing sensitive financial data.

The Three Participants

1. Borrowers

Businesses or individuals seeking loans with:

• Privacy-preserving identity verification

• Bank account connection for cash flow analysis

• Dynamic interest rates based on financial health

2. Investors

Capital providers earning yield by:

• Staking USDC in diversified lending pools

• Receiving share tokens representing their stake

• Earning returns from borrower interest payments

3. Pool Managers

Platform administrators who:

• Create and configure lending pools

• Set risk parameters and fees

• Monitor pool health and performance

The Lending Flow

sequenceDiagram
    participant B as Borrower
    participant L as Locale Platform
    participant P as Plaid
    participant C as Cartesi
    participant S as Smart Contracts
    participant I as Investor

    Note over B,I: Phase 1: Onboarding
    B->>L: Connect Wallet
    B->>P: Complete KYC
    P-->>L: Identity Verified
    L->>S: Mint BorrowerCredential (SBT)

    Note over B,I: Phase 2: Loan Application
    B->>L: Submit Loan Application
    B->>P: Connect Bank Account
    P-->>L: Transaction History (90 days)
    L->>C: Calculate DSCR
    C-->>L: Risk Score + Interest Rate

    Note over B,I: Phase 3: Funding
    I->>S: Stake USDC in Pool
    S-->>I: Receive Share Tokens
    L->>S: Create Loan
    S->>B: Transfer Loan Funds

    Note over B,I: Phase 4: Repayment
    B->>S: Make Repayments
    S->>I: Distribute Yields

Key Components

1. Identity Verification (KYC)

Borrowers verify their identity through Plaid's identity verification service:

1. Document Upload - Government ID + selfie

2. Data Verification - Name, DOB, address matching

3. Credential Issuance - Soulbound NFT minted on-chain

The BorrowerCredential is non-transferable and proves KYC completion without exposing personal data.

2. Bank Connection

Borrowers connect their bank account via Plaid OAuth:

• Read-only access to transaction history

• No ability to move funds

• Encrypted storage of access tokens

• Automatic sync for ongoing monitoring

3. DSCR Calculation

The Debt Service Coverage Ratio (DSCR) determines loan eligibility and interest rates:

DSCR = Net Operating Income / Debt Service

DSCR Value	Risk Level	Interest Rate
≥ 1.50	Low	5%
1.25 - 1.49	Medium-Low	7%
1.00 - 1.24	Medium	10%
< 1.00	High	15%

DSCR is calculated off-chain via Cartesi rollups and verified on-chain via zero-knowledge proofs.

4. zkTLS Verification

Locale uses zkTLS (via Reclaim Protocol) to prove data authenticity:

1. TLS Session - Bank data fetched over HTTPS

2. Commitment - Hash of data committed on-chain

3. Zero-Knowledge Proof - Proves data validity without revealing contents

4. Verification - Smart contract verifies proof

This ensures borrower data is authentic without exposing sensitive information.

5. Lending Pools

Investors stake in pools with specific characteristics:

Pool Type	Description	Risk Profile
Small Business	Working capital loans	Medium
Real Estate	Property-backed loans	Lower
Consumer	Personal loans	Higher
Mixed	Diversified portfolio	Balanced

Each pool has:

• Minimum stake amount

• Management fees (basis points)

• Performance fees (on returns)

• Cooldown period for withdrawals

6. Smart Contract Interaction

All fund flows happen through audited smart contracts:

graph LR
    subgraph "Investor Actions"
        I[Investor] -->|stake()| SP[StakingPool]
        SP -->|shares| I
        I -->|requestUnstake()| SP
        SP -->|after cooldown| I
    end

    subgraph "Borrower Actions"
        B[Borrower] -->|receives| LP[SimpleLoanPool]
        B -->|makeRepayment()| LP
    end

    subgraph "Pool Operations"
        LP -->|distributeYield()| SP
    end

Security Measures

Layer	Protection
Smart Contracts	UUPS upgradeable, role-based access
Credentials	Soulbound (non-transferable)
Bank Data	Encrypted, read-only access
DSCR Proofs	Zero-knowledge verification
Funds	Multi-sig admin controls

What Happens When...

A Borrower Defaults?

1. Loan marked as defaulted after grace period

2. Pool absorbs loss (distributed across investors)

3. Borrower credential may be revoked

4. Collection procedures initiated

An Investor Wants to Withdraw?

1. Request unstake (initiates cooldown)

2. Wait 7-day cooldown period

3. Complete unstake to receive USDC

4. Shares burned, funds returned

Interest Rates Need Adjustment?

1. DSCR recalculated based on new transactions

2. Rate change proposed via Cartesi notice

3. Admin approval required (if > 2% change)

4. Smart contract updated