How do you obtain a loan in a decentralized and permissionless financial system? The predominant structure for on-chain credit requires over-collateralization. A borrower must lock up their ETH (for example) to borrow a stablecoin like USDC. Is this the most capital-efficient way of borrowing? In traditional finance, there are credit scores. What about decentralized finance?

What is Union Protocol?

Union protocol allows any address on the Ethereum network to accumulate a credit line on-chain in a permission-less crypto-native way. The protocol does not underwrite risk. It remains a neutral party, solely providing a transparent mechanism for one or more addresses to “vouch” for another address. A “network of trust” can form around a specific address, which provides a signal for the user’s creditworthiness to a potential lending party.

Will you “vouch” for me?

Vouching is a key part of the Union protocol ecosystem. One party demonstrates their “trust'' in another party by “vouching” for them. How does this work in practice? A wallet vouches for another by pledging its stablecoin (DAI). The more DAI a wallet stakes in the protocol, the more they can vouch.


Union is paid as interest to users who stake their DAI or “vouch” (extend credit) on the platform. Union token holders maintain governance rights over the protocol, but one needs 1% of the total supply to even propose a change.

Early days

Small loan amounts and demanding user interface. An address can borrow a minimum of 100 DAI and a maximum of 5,000 DAI on the platform. Currently less than 2 ETH, this credit limit will hardly satiate the leverage-hungry borrower. Also, there’s no autopay, so borrowers must continually remember to pay back their on-chain loan. Set those calendar reminders - payback loan on Union. We checked Union protocol’s “developer FAQ” page, still under construction. It’s early days…

Opportunities with composability

Union is not a specific product, but a primitive. This means it’s designed for products to be built on top of Union. Traditional credit products like credit unions, credit lines, installment loans, and venture debt could be provided upon the Union platform. Of course, this depends on user adoption of the model, but it’s an intriguing proposition. A peer-to-peer underwriting system for a permissionless and anonymous financial system. With a system that caters to developers and builders, products built on top of unions could be the engine for user acquisition. It’s compelling.

The Jewelry store NFT

A jewelry store called NFT? To reward early participants, Union gave “ring of trust” non-fungible tokens (NFTs). Interesting user acquisition strategy!


What happens when someone cannot pay me back? With Union protocol, it’s “tough luck.” This is an uncollateralized and unsecured credit network. There is no asset backing the loan, only trust. Union suggests it's “advisable to only vouch for and lend to addresses you feel you can trust.”


Imagine a world where a prominent venture capital firm could “vouch” for their portfolio companies via Union Protocol. An early-stage project, with credit needs, could be supported by a network of reputable addresses to “vouch” for them.

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