What is DeCredit?

DeCredit is pioneering the DeFi lending sector by laying the foundations of a decentralized credit-based lending model that enables users to secure loans without deposit capital as collateral.

We all agree that nowadays, decentralized lending can act as a powerful tool by giving ordinary people more control over their financial assets.

Up to now, loans worth billions of dollars have been started and amortized by using smart contracts, enabling outstanding loan rates. Also, users were finally enabled to earn interest that was previously shared among intermediaries within the financial sector.

Some of the most favoured loaning platforms have been using over-collateralization as a way to secure a loan. All extra capital was raised in order for the platform to take out a smaller loan than the original deposit. This was, until recently, the only way to provide security to the lender in a decentralized manner. It basically meant that if the borrower does not meet all of his debts plus interest, the creditor can claim the original collateralized deposit.

DeCredit combines on-chain and off-chain credit assessments

DeCredit users are, therefore, enabled to receive off-chain credit ratings in order to secure loans. DeCredit uses so-called “credit authentication nodes” and “decentralized oracles” to offer various lending limits and interest rates to users. It utilizes the combination of on-chain and off-chain credit assessments that simplifies loan-securing since the client has control over his assets all the way.

Through the original usage of the DeCredit scoring System (DSC), an encoded algorithm assesses the potential credit risk for a user and calculates an exact credit score that outlines the solvency of any individual user out there.

Making Credit-Based Lending Global

A lot of people have already tried to secure a loan in a traditional way, such as banks and other creditors. The process itself is mundane, complicated and often extreme and makes securing a loan more and more challenging.

Still, in spite of all the challenges, one going through it could find himself lucky as billions of people around the globe have no access to banking infrastructure whatsoever.

DeCredit seems to be having the solution for the unbanked as well. By using the DeCredit platform, users don’t have to have a bank at all since securing the loan can be processed purely by being connected to the internet.

What are Credit Oracles?

Dubbed decentralized credit oracles, they are customized to the needs of each client. Basically, these credit nodes enable blockchain users to perform credit analysis and transfer it to the smart contract, where the results can be accomplished.

The main utility of Credit Oracles, is to enable blockchain platforms access to both on-chain and off-chain data sources.

Over-collateralization issues

As already mentioned, most lending protocols use over-collateralization of loans, especially in cases where there is no effective credit rating scheme.

Here are some problems when it comes to over-collateralization:

• Disqualifies credible users from getting credit

If user cannot deliver collateral with a value that is above the borrowing amount, they can’t access a loan.

Usually, in TradeFi, clients who have high credit scores can easily get a loan because they have proven to be financially responsible, meaning they have a track record of paying their debts on time.

By being implemented in the DeFi space, these innovations enlarge the system’s operations and increase adoption.

• Lacking liquidity

In TradeFi, liquidity is boosted through revenue-generating transactions. Users with good credit ratings get their loans, and in return, they pay back interest. However, when you deal with over-collateralized lending, this means the growth of liquidity is minimized.

How DeCredit solve over-collateralization problems?

DeCredit basically feeds off-chain credit records to DeFi protocols and therefore minimizes the reliance on over-collateralization.

By using blockchain, DeCredit is bringing in a provable strategy.

Traditional institutions usually approve all off-chain credits given if they are approved and if the credit solvency of borrowers is verified.

Off-chain credit data comes here as an add-on to on-chain credit. This means that given the matching level of loan-to-lending ratio, and after credit scrutiny, the borrower gets encrypted funds, a low mortgage rate and all in the stable currency from the liquidity pool.