Credit DeFi Alliance (CreDA) is a new platform that aims to merge a person’s on-chain DeFi data with a traditional style credit rating system to offer a much needed trust layer for DeFi, and provide users with the chance to get low or even no-collateral loans.
Financial Inclusion or Separation?
Cryptocurrencies and decentralized finance (DeFi) were supposed to change the financial landscape. Lower entry barriers, frictionless marketplaces and the ability to include as many people as possible were hailed as revolutionary aspects of the blockchain-powered crypto landscape. Certainly, this promise has been fulfilled for those lucky enough to get involved early, especially for those who leveraged DeFi to create sources of income that are not possible with traditional investments and banking systems.
But for many, the nature of the decentralized web has led to the lack of a crucial component in DeFi that has helped propel traditional finance: trusted credit ratings. While in traditional finance most people have a credit history that is recorded and tracked over time, such a thing has not been possible in the $200 billion DeFi market.
This is why, in DeFi, over-collateralization of loans is the norm. In many cases, the loan-to-value (LTV) ratio is below 50 percent. 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. At the same time, the disconnect between DeFi and traditional finance means that a borrower’s real-world credit score is of no value.
Crypto Credit Ratings By CreDA
CreDA is an AI-augmented DeFi service that offers users a chance to turn their crypto assets and on-chain activities into a Crypto Credit Score. This score represents a level of trust for DeFi platforms to offer better rates and incentives, such as a low or even a no-collateral loan. This is made possible through the CreDA platform which lets users connect their wallets to CreDA’s deep-learning AI which determines their ability and likelihood of paying back loans.
CreDA’s overall value to the long-term viability of the DeFi sector is similar to the impact of credit services commonly found in legacy financial systems according to CreDA’s Chief Operating Officer, Cassie Zhang, who says:
"In traditional finance, the total value of credit-based, unsecured loans is several times that of collateralized mortgage loans. 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."
Users begin by connecting their personal wallets to the platform through a W3C compliant Decentralized Identifier (DID). The AI analyzes all transactions on multiple chains (BSC, Polkadot, HECO, Polygon, ESC, etc.) and builds a credit score. This unique score, along with the users Decentralized Identification (DID), is minted as a credit NFT (cNFT), which acts as a trust certificate and can be used as a means to show credit capability on partner platforms, granting access to preferred services, such as a lower borrowing rate.
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. Future off-chain data from traditional sources will level up CreDA’s Credit Rating dramatically as well.
CreDA is working towards building a secure and reliable credit scoring system for the DeFi sector, a place where the word trustless is starting to mean the opposite to what was intended.
To ensure that people have access to its services at launch, CreDA has partnered with major DeFi platforms including UniSwap, SushiSwap, Elastos, FilDA, PolyNetwork, O3 Swap, WePiggy, Channels and dForce.
Security of the CreDA ecosystem is ensured through the use of W3C compliant DIDs which are embedded in the cNFT when it is minted. The CreDA platform also undergoes regular audits, most recently by Certik, a leading blockchain security audit firm, ahead of CreDA’s official launch.