The Credit DeFi Alliance (CreDA) is a platform that opens up a new age of DeFi-based loans by offering what the industry lacks till now: trusted credit scores. CreDA achieves this by using AI to analyse an individual's financial standing and behaviour within the crypto space, through the same tried and tested methods used by traditional banking and credit unions, to establish how capable a person is to pay off any loans.
DeFi has certainly changed how the crypto economy works. The ability to lend and borrow capital without an intermediary has enabled millions of people to enjoy a whole new income stream. Though the profit ratios are good and (on the other side of the coin) the interest payout is high, DeFi today lacks a key feature that still holds it back.
With traditional loans, banks and other lending institutions use a credit score: a scale that defines a person’s credibility and ability to pay back loans. This adds a layer of trust in the system that allows lenders to provide capital with minimal down payment or collateral. Currently, the only way to take out a loan in DeFi is to put up existing assets as collateral. Add in the volatility of cryptocurrency markets and this means that the LTV ratio gets high, typically as much as 50%.
The result is a loan industry that offers much lower interest rates to borrowers, but still lacks the ability to fully leverage the goodwill of the borrower to unleash the hidden potential.
Credit Where Credit is Due
With the launch of CreDA’s unique Crypto Credit Score both lenders and borrowers can mitigate risk, while new users in the crypto space can have a lower barrier to accessing capital. This is achieved through CreDA’s platform, which links to an individual’s wallet data to see all past transactions across different blockchains (currently CreDA supports Arbitrum, BSC, Polkadot, Polygon, Elastos Smart Chain and HECO chains).
Cassie Zhang, CreDA’s Chief Operating Officer, explained the reason behind this:
“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.”
This unique approach towards building a traditional style credit rating for digital assets is set to be a game-changer, since a good score means that people will be able to benefit from lower borrowing rates, higher yields, low/no-collateral loans and additional incentives that make for smoother participation across Web 3 and, eventually, the metaverse.
NFT Based Network
CreDA doesn’t just provide a credit score. When users connect their wallets to the CreDA platform, they can then mint their score as a unique Credit NFT (cNFT). The cNFT can then be used on other partnering DeFi platforms to obtain better borrowing rates and other unique benefits. At the time of launch, CreDA is already partnering with UniSwap, SushiSwap, Elastos, FilDA, PolyNetwork, O3 Swap, WePiggy, Channels, and dForce.
With plans to have regular technology audits by CertiK, a renowned, industry leading blockchain security auditing company, and through the use of W3C compliant Decentralized Identifiers (DIDs), CreDA provides one of the most secure methods in bringing a credit scoring system to DeFi to allow for greater access to loans.
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. CreDA plans to eventually include offline data (incorporating traditional credit scores and physical assets of people) with DeFi, linking traditional and DeFi industries to provide a holistic financial picture and is set to radically change the way people take out both traditional and crypto loans.