CreDA is a new concept that uses the blockchain to create Crypto Credit Scores for decentralized finance (DeFi). It is designed with tools from traditional finance in mind, but its capabilities are expanded due to the greater flexibility of digital finance and crypto.
Without credit scoring, DeFi lacks many of its beneficial features, especially for new users, as the lender demands exorbitant amounts of collateral to account for the risk. Such an approach is a result of the inherent volatility of cryptocurrencies and the anonymous nature of users.
But overcollateralized loans do not attract the majority of users and in fact, keep many people from adopting this superior technology.
CreDA’s approach radically changes this situation.
CreDA’s Crypto Credit Score assesses the borrower’s on-chain behavior, assets and history and using proprietary algorithms, creates a Crypto Credit Score, thereby reducing the risks for the lender. This has the potential to cause an explosive growth in the DeFi lending market, a large influx of funds into DeFi, and a widening of the cryptocurrency market to a size comparable to the traditional financial (TradFi).
But what is the key of the technology? And how can someone have a credit profile while remaining anonymous?
It all comes down to one of the key elements of CreDA’s platform: an Elastos Decentralized Identifier (DID).
DIDs Essentials
According to the industry standard for decentralized identifiers, developed by W3C, DIDs are a type of identifier that enables a verifiable, decentralized digital identity using blockchain technology. It’s based on the so-called self-sovereign identity paradigm and can be implemented independently of any centralized registry and identity provider.
Put simply, DIDs are designed to enable individuals and organizations to generate their own identifiers using systems they trust.
One of the basic ways is that the user submits a self-owned credential that is decentralized and more anonymous than a traditional username. Decentralized identity can be described as a trust framework inside the blockchain and other decentralized networks.
Basically DIDs should conform with “know your customer” and anti-money laundering regulations.
In a decentralized identity framework, the user receives credentials proving his identity from multiple issuers and stores them in a digital wallet. The user can then present proof of their identity to any entity that requests it, and this entity can verify the proofs via the blockchain. The identifying information is not stored on the ledger, only in a wallet managed by the user.
This way, DIDs provide greater privacy and control over the user’s own data.
As an important element of CreDA’s technology stack, DID’s provide the relevant identifiers without the need for a credit history that could include out-of-date or inaccurate data. This opens up the opportunity for two billion of the world’s unbanked to create a credit profile with little more than an internet connected phone and a DeFi wallet.
This is why DID technology is not just a buzzword: It promises a complete restructuring of the currently centralized physical and digital identity ecosystem into a decentralized and democratized architecture.
Where does DID come from?
To obtain a credit score in traditional finance, you need a personal identifier to which a person’s credit history is linked. Personal data is held by the organization to which the person applies. It can control the data as it sees fit.
There is also a serious risk to privacy, as was seen by the Equifax data breach, which occurred in the summer of 2017 at the American credit bureau Equifax.
The hack was one of the largest cybercrimes related to identity theft, exposing the records of almost 150 million Americans, 15 million British citizens and about 19,000 Canadians.
DeFi and cryptocurrencies attract people because their privacy is preserved.
CreDA offers a solution that does not break this privacy, but generates and assigns a digital credit score via DID technology through Elastos.
A user’s DID is connected with their on-chain activity in across most major blockchain networks and provides a complete map of their activity. This is enough for a reliable Crypto Credit Score to be generated without the need for personal data.
When a DID is created, all user network activity is tied to it. No additional effort is required from the user, it is enough that he creates a wallet and connects it to CreDA. The CreDA Oracle starts the process of modeling a user’s behavior and generating a credit score based on the public and network data associated with that wallet.
The score along with the DID are then minted as a credit NFT (cNFT), which can allow interoperability on other Web 3.0 platforms.
Through their platform and the unique combination of technologies, including Elastos DIDs, CreDA has created an innovative and robust trust architecture that ensures DeFi can not only compete with TradFi, but surpass it in its flexibility, ease of access, security and privacy.
