CreDA (Credit DeFi Alliance), the world’s first decentralized credit rating service has officially launched its platform following a successful open beta. Modeled after traditional consumer credit agencies, CreDA introduces the concept of personal credit scores into the $200 billion decentralized finance (DeFi) ecosystem populated by cryptocurrencies such as Bitcoin, Dogecoin and Ethereum.
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Leveraging existing blockchain infrastructure, CreDA provides a trust architecture for the relatively young and volatile ecosystem and a link between on-chain and traditional financial systems. It aims to simplify transactions for users, minimize risk for lenders and enable access to capital without the need for high amounts of collateral which is currently required by DeFi lenders.
According to Bank of America, over 200 million users are now part of the digital asset universe, yet very few financial institutions would provide them with a loan. Even within the DeFi space, lenders operate in an over-collateralized manner with typical loan-to-value (LTV) ratios below 50 per cent. This means that a DeFi platform with a 50 percent LTV would require a user to deposit at least $10,000 to take out a loan of $5,000. Also most platforms only accept crypto assets as a form of collateral, creating further barriers for participation.
“In traditional finance, the total value of credit-based, unsecured loans is several times that of collateralized mortgage loans,” explains Cassie Zhang, CreDA’s Chief Operating Officer. “Credit ratings are a vital, missing component within the DeFi space. The introduction of CreDA credit scores will enable unprecedented imagination and innovation to protocol users and developers alike. But more importantly, CreDA fulfills the promise of blockchain and decentralized finance, providing the trust architecture needed to unlock capital for the billions of people without access to traditional banking.”
CreDA will allow users to link their wallets, mint a credit NFT (cNFT) and borrow low or non-collateralized loans all from within the same platform. Users will also be able to use their cNFT on partner platforms to avail similar benefits as well as other incentives for staking and lending. At launch, CreDA’s partners include: UniSwap, SushiSwap, Elastos, FilDA, PolyNetwork, O3 Swap, WePiggy, Channels, and dForce.
How the credit scoring works:
CreDA provides on-chain credit ratings using the CreDA Oracle, which employs artificial intelligence (AI) to examine the user’s historical transactions in the crypto space across multiple blockchains. This data is used to calculate a credit score that is then minted into a secure non-fungible token called a credit NFT (cNFT). The cNFT enables the user to unlock preferential rates and incentives across a variety of use cases e.g. reduced borrowing rates on DeFi platforms.
Built on the Ethereum Layer 2 network, CreDA will operate across multiple chains including Arbitrum, BSC (Binance Smart Chain), Polkadot, Polygon, HECO (Huobi ECO Chain) and ESC (Elastos Sidechain).
According to CreDA’s developers, the Credit Oracle has already retrieved the data of billions of on-chain activities related to more than 50 million addresses. This large initial data pool helps to build a reliable and trustful credit model that will continue improving as more data is collected from users who connect and mint their credit scores.
One major focus for CreDA is ensuring a safe and secure experience for users. To do this, data is fully protected, secured by industry leading, W3C compliant DIDs, which are minted as part of a users cNFT. For launch, CreDA is also undergoing a strict security audit with a leading blockchain security group, Certik, and will perform similar audits regularly.
The aim for the CreDA protocol is to eventually combine traditional (off-chain) and blockchain (on-chain) data to compute a holistic user credit score that allows for more flexibility and access between people’s virtual and ‘real world’ lives. This will become even more relevant as technology advances and society continues to embrace virtual spaces, such as the Metaverse.
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“As Benjamin Franklin once said, ‘If you want to know the value of money, try borrowing some!’ says Zhang. “The DeFi landscape is quickly evolving, but there is still one factor that is missing — credibility. The CreDA protocol enables DeFi platforms to model risk profiles across their user base and offer personalized rates and services, making them more competitive versus industry peers.
“CreDA finally gives credit to the communities, the decentralized global networks of researchers and technologists who are building this new digital landscape. And it enhances the experience for the growing numbers of people who are questioning the restraints of the old financial systems and who want to get in on the action.”
Through participation in the CreDA protocol and virtuous on-chain activity, users can benefit from preferential margin rates, improved credit ratings, and a range of incentives based on their credit score.
Fulfilling the promise of DeFi
In the early days of DeFi and blockchain technology, there was a vision that by decentralizing the industry, there will be improved access to capital for people who don’t have access to traditional banking. However, the reality hasn’t been so straightforward, as the lack of trust in the system means that lenders must de-risk by demanding crippling amounts of collateral, which has become the standard in DeFi.
CreDA fulfills the promise of blockchain and decentralized finance, providing the trust architecture needed to unlock capital for the billions of people without access to traditional banking. What’s more, by turning people’s crypto experience into creditworthiness, CreDA legitimizes peoples on-chain behaviour, which can allow for greater access to traditional loans.
“Whether you’re a rural farmer in sub-Saharan Africa or a fresh college graduate in Los Angeles, there are still a lot of barriers for accessing capital within the traditional financial systems,” says William Zhang, Security Architecture Lead at The World Bank Group and advocate for data as capital. “While blockchain and DeFi have helped democratize data and finance, there is still a lack of trust that can be limiting for people without existing collateral. But a solution that provides access by rewarding good on-chain behaviour and allows new users to earn trust within the system could unlock new possibilities for nearly 2 billion people around the world.”
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