CreDA is the world’s first decentralized credit rating service modeled after the traditional consumer credit agencies, providing users with a personal and secure crypto credit score. The objective of this blockchain-based rating system is to avail everyone the opportunity, the underbanked and unbanked, to access loans in the DeFi space without collateral.
The financial world is rapidly evolving, digitizing through blockchain technology. Payment gateways are taking advantage of the opportunities that the technology presents to facilitate transactions from across the world instantly. CreDA leverages this technology to provide a true architecture for the nascent crypto industry. Not only does this DeFi application enable access to capital without a high amount of collateral, but it creates a link between on-chain and conventional financial systems, while simplifying transactions between users.
DeFi and Financial Inclusiveness
Undoubtedly, Covid-19 hit the world hard, impacting financial inclusion. Before the pandemic, the world experienced the longest period of sustainable growth, lifting more than a billion people out of poverty. The emergence of Covid-19, however, upended livelihoods and sent hundreds of millions of people back into poverty.
According to the World Bank, over 1.7 billion adults globally are without a bank or mobile money account. Interestingly, the issue isn’t limited to developing countries. FDIC points out that 16% of adults in the United States in 2019 were underbanked, while 5.4% were unbanked. While this number may likely reduce, the number of underserved people may have increased.
Bank of America revealed that more than 200 million users now utilize digital asset payments. Yet, only a few institutions are able to provide these users with a loan. In the decentralized space, lenders operate in the typical over-collateralized manner with LTV below 50%, complicating barriers to entry and shutting off users that are in need.
For instance, a user that wants to take a loan of $10,000, would have to make a deposit of $20,000 to the platform. Why do these lenders employ an overcollateralized loan model? It’s due to a lack of trust in the system. Lenders must de-risk by demanding hefty amounts to be put up in order to receive loans – something that has become a standard practice in the DeFi space. When blockchain and DeFi emerged, there was a notion that decentralizing the industry will enhance access to capital for people who lack access to traditional banking. That hasn’t been the case so far.
William Zhang, Security Architecture Lead at The World Bank Group and advocate for data as capital explains that, “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,” he says. “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 behavior and allows new users to earn trust within the system could unlock new possibilities for nearly 2 billion people around the world.”
CreDA provides the trust structure required to unlock billions of capital for people without access to conventional banking. CreDA’s credit rating is the missing piece of the puzzle. Its introduction in the DeFi space will help everyone, including the unbanked and underbanked access capital without the demand for crippling amounts of collateral.
How CreDA’s Credit Score Works
The CreDA platform enables users to link their wallets, mint a Credit NFT (cNFT), and borrow loans with no or low collateral.
When you connect your wallet to CreDA, it provides you with a unique credit score that turns users’ crypto experiences into creditworthiness. It provides on-chain credit ratings using the CreDA Oracle, deep learning AI that examines the historical transactions of the user in the crypto space. The data is used to calculate the credit score that is then minted into a credit NFT. cNFTs unlock various use cases, such as reduced borrowing rates. So, before obtaining a loan, CreDA checks your crypto credit score this way and rewards good on-chain behavior. This builds trust and opens up the opportunity for greater financial rewards across the DeFI ecosystem and within new digital spaces such as the metaverse..
But the CreDA platform offers more than just a credit score. Borrowers can also leverage assets from the CreDA fund pool as collateral to borrow on other DeFi protocols. Higher rewards are provided to those who contribute to this pool along with an available guarantor option should the borrower default on their loan.
One of the focal points of CreDA is to provide a safe and secure experience for users. Data is fully encrypted and secured by DIDs. At the moment, the protocol is undergoing a security audit with CertiK for a secure user experience.
The current world economy calls for innovative ways to prevent millions of people from falling into extreme poverty. CreDA has taken that huge step in the evolving DeFi landscape to help the unbanked and the underbanked while also opening up opportunities for new entrants to the world of DeFi and new frontiers such as the metaverse.
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