DCS (Decentralised Credit Score System)
Decentralized Credit System (DCS) empowers undercollateralized DeFi lending by calculating transparent credit scores using on-chain data, enhancing access to loans and promoting financial inclusion
Created on 6th October 2024
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DCS (Decentralised Credit Score System)
Decentralized Credit System (DCS) empowers undercollateralized DeFi lending by calculating transparent credit scores using on-chain data, enhancing access to loans and promoting financial inclusion
The problem DCS (Decentralised Credit Score System) solves
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
Challenges I ran into
Challenge 1: Calculating Credit Scores Dynamically
The main hurdle was dynamically calculating credit scores based on multiple variables such as repayment history, loan size, frequency, and duration. Ensuring these factors were correctly weighted and aggregated through a smart contract, while maintaining gas efficiency, was another complex task.
Solution: I implemented a basic credit scoring algorithm with hardcoded weights for each variable. While functional, I plan to optimize the formula further based on feedback and to reduce gas costs through better smart contract design.
Challenge 2: Wallet and Smart Contract Integration
Integrating MetaMask for wallet connection and interacting with deployed smart contracts was another challenge, especially when handling changes in accounts or network switching by users. This led to inconsistencies in fetching credit scores and submitting loan requests.
Solution: I used the Ethers.js library to manage wallet connections and smart contract interactions. To handle account changes dynamically, I set up listeners that refresh the UI whenever a user switches their wallet address or network, ensuring smoother interaction.
Despite these challenges, these workarounds allowed me to demonstrate the core functionality of DCS. Moving forward, I plan to streamline these processes for a more seamless user experience.
Tracks Applied (2)
Ethereum Track
ETHIndia
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