The Decentralized Credit Scoring System (DCS) solves the problem of capital inefficiency and limited access to loans in the decentralized finance (DeFi) space by introducing a trustless, transparent credit scoring system. Here's how it addresses critical challenges:

Problem 1: Overcollateralized Loans in DeFi

In DeFi, users are typically required to provide collateral worth more than the loan they want to borrow (overcollateralization). This model excludes smaller players who lack sufficient capital to participate, thus limiting their ability to leverage DeFi lending protocols like Aave and Compound.

Solution: Credit-Based Loans

DCS allows users to borrow based on their on-chain credit score, which is calculated from their borrowing and repayment history across multiple DeFi platforms. By offering undercollateralized loans (loans that require less or no collateral), users with a strong credit history can access better lending terms. This makes DeFi more inclusive and capital-efficient, allowing more people to borrow without locking up excess capital.

Problem 2: Lack of Transparency and Trust in Credit Scoring

In traditional finance, credit scores are managed by centralized entities that lack transparency, making it difficult for individuals to verify or improve their scores.

Solution: Decentralized and Transparent Credit Scores

DCS leverages publicly available blockchain data to calculate credit scores based on objective, transparent criteria like loan repayment history, loan-to-collateral ratios, and frequency of borrowing. This ensures fairness and transparency in determining borrowing terms, as all credit-related data is verifiable on-chain.

Enhanced Security

Built on blockchain, DCS offers a trustless system where sensitive credit information is secured cryptographically. No third parties control the data, ensuring greater privacy and security for users