DeCredit is a DeFi 2.0 protocol that enables the DeFi market by introducing credit loan models, which connect credit authentication nodes and Oracle credit machines to lending products, based on existing encrypted collateralized loan models, with the goal of gradually reducing and eventually eliminating collaterals, enabling resource allocation, as well as the blockchain paradigm that inclusively providing the traditional financial lending sector. By doing this, DeCredit leverages the tremendous momentum generated by DeFi to provide liquidity support to a wider range of entities and individuals.
DeCredit is committed to leading the DeFi protocol 2.0 market. DeCredit extends the crypto-collateralised lending model with a credit-based lending model, aiming to introduce off-chain credit ratings to the DeCredit platform using credit authentication nodes and Oracle machines to provide differentiated lending limits and interest rates based on on-chain and off-chain credit assessments in order to bring more lending markets into the market.
The Systematic Architecture of DeCredit
DeCredit is a multi-chain deployment system architecture. DeCredit is built on a cross-chain architecture, based on the BSC chain with immediate plan to integrate on Ethereum and Polkadot enhanced multi-chain architecture. Moreover, the Binance Smart Chain (BSC) is a public chain with great potential. Hence, DeCredit will actively lay out the BSC ecology and is committed to becoming the leading lending product on the BSC.
Ethereum is a blockchain-based software platform that allows users to send and receive value around the globe using its native cryptocurrency, ether, without the need for a third party. However, it is capable of much more. Smart contracts are code-based programs that are recorded on the Ethereum blockchain and perform particular operations automatically when certain criteria are satisfied. This can range from sending a transaction when a specific event occurs to lending funds after collateral is deposited into a particular wallet. These smart contracts are the foundation for all Ethereum-based decentralized applications (dapps) as well as all other blockchain-based dapps.
Polkadot provides a more comprehensive view and solution to address scalability, speed, and cost, allowing for more personalized blockchains, interoperability and upgrades between blockchains, and inter-chain autonomy, as well as enabling seamless internal and external communications for DeCredit loan scenarios, and building cross-chain asset transactions and lending practices with true interoperability and continuous scalability.
Polkadot and Ethereum 2.0 are both sharded blockchain protocols. As such, they provide scalability by executing transactions in separate shards and provide a protocol to send messages between shards. Polkadot operates differently from the Ethereum network in its drive to become a heterogeneous blockchain network. It connects to the main Polkadot Relay Chain through parachains and parathreads. Through the platform’s bridges, the chains can also link to external networks. There are three different types of chains in polkadot.
Moreover, the Binance Smart Chain (BSC) is a public chain with great potential. Hence, DeCredit will also actively lay out the BSC ecology and is committed to becoming the leading lending product on the BSC.
The Key Features of DeCredit Protocol
3.1 Decentralized Multi-type of Asset Staking
DeCredit builds liquidity pools based on decentralised protocols, which we call M pools. M pools are primarily funded by cryptocurrency stakings and to start with we will support main cryptocurrencies. The users deposit their crypto assets into the liquidity pool and lenders lend out funds from the pool. At the same time, DeCredit has also established a D-stablecoin liquidity pool, which is primarily used for credit lending. In terms of liquidity pool risk management, DeCredit uses a fully see-through funds management algorithm based on the blockchain and the whole process is operated on-chain by smart contracts.
3.2 Credit Lending
The DeCredit credit lending product is based on a liquidity pool that introduces off-chain credit assessment into the lending product, gradually reducing collateral in the credit lending and finally achieving zero collateral, thus avoiding the current DeFi over-collateralisation dilemma. For example, on a given DeFi lending platform, if you want to borrow 100 USDT, you must stake 150 USDT, which is a very low utilisation rate. While DeCredit credit lending can reduce the collateral ratio. The DeCredit credit loan facility is able to reduce the collateral ratio. If the said user is a L2 user after the credit assessment, the user may just stake 70 USDT to borrow 100 USDT. Along with the more frequent default-free loans and the maturity of the DeCredit ecology, the collateral ratio will become lower and lower with manageable risks.
The mechanism of DeCredit credit loan works in a decentralised, smart contract driven manner, through collaborative Oracle (Phase 2) feed price. Under the credit model algorithm assessment, the borrower’s creditworthiness and repayment ability are effectively assessed and the borrower is given a lending ratio corresponding to credit scores. And after a credit rating, the borrower receives stable cryptocurrencies from the liquidity pool at a low collateral rate.
3.2.1 Aggregated Credit Investigation Oracles on a Global Footing
Along with the maturity of Oracle credit machines in some regions, we will explore the construction of a global aggregated Oracle credit machines and upgrade the Credit-Scoring algorithm to make it applicable to a globally integrated credit
product and Oracle governance mechanism.
As personal credit investigation is a complex proposition that requires multiple dimensions of user data in order to provide credible credit assessments and needs to be applicable to the regulatory policies of each country, DeCredit will adopt a development path from credit certification centres, to regional decentralization and then to collaborative decentralisation.
3.2.2 Credit-Scoring Algorithms
The Credit-Scoring algorithm uses mathematical and statistical algorithms to build different models based on the information entered by the user or the credit information, to analyse the user’s profile in a comprehensive manner and to calculate the individual scores of several dimensions, and finally to give the final composite score of the individual. User qualifications and models will be executed using smart contracts. As shown above, the assessment module of individual credit qualification includes such modules as debt ratio, property analysis, enquiry analysis, borrowing behaviour, overdue analysis, other factors score, etc.; the algorithm will make a comprehensive judgment on each individual score by building a special model, then based on the score of each individual, the final comprehensive score of the individual information will be calculated for final outcome. One must note that, all data will be managed on the blockchain system.
An individual credit score reflects his/her creditworthiness in a range of scores, generally defined as the higher the score the lower the risk (or the better the credit). Decision makers will be provided with the final output score, and analyze the risks of low scores, thus taking action to avoid and mitigate the risks. Different business scenarios present different preferences for risk levels and the DeCredit will choose whether or not to provide services to users based on the risk preferences.
3.4 Distributed Storage of Credit Data
The basic concept of credit is information sharing. We will adopt a distributed storage (e.g. IPFS) scheme to store credit data, achieve decentralised sharing of credit data and scoring data, and promote the trans-border data flow of credit data.
Credit data producers act as nodes, and the static description data, relationship data, behavioral data, reputation data, credit data and their affiliated resources are stored as data DNA on the distributed network and such data will be further assetised and stored in the chain to form trusted digital assets. DeCredit the data will be recorded on the blockchain relatively according to their scenarios in ways of recording the users’ data in the form of agreement through simple and efficient data collation and compression.
A chain of trusted relationships of DeCredit will be naturally formed based on the traces left by credit data producers, their relationships and the level of trust from other protocols. Additionally, traceability and rights confirmation will be available and data can be disseminated and exchanged within the chain of trust and ensuring the privacy rights within the network.
Strengthened by the team’s experience in the credit sector, DeCredit has joined forces with various organisations to create shared high-risk customer lists, forming a decentralised blacklist of fraudulent figures. We have also built a list repository platform, which is updated, maintained and validated by all institutions through smart contracts, and offers a blacklist rewards program that rewards every valid blacklist data upload with tokens. DeCredit’s blacklist repository will be recorded on the blockchain and jointly maintained by institutional nodes in a distributed storage approach, offering the advantages of consistency, sharing and openness.
3.5 Privacy Preserving Credit Data of Users
There are two privacy protection issues with personal credit data stored on the blockchain: data confidentiality and the right to erasure. Data confidentiality refers to the fact that credit data is only visible to the user and the right to erasure refers to the right of the user to request erasure in certain circumstances.
According to the EU Parliament’s study, protecting credit data by means of “multi-level encrypted storage of personal data on the blockchain”, has the potential to solve the confidentiality and erasability of credit data and meets the EU’s GDPR standard for privacy.
In order to protect the user’s data, first there is a need to ensure that the data is not publicly available, but the user’s credit data is so personal that even if it is stored on the DeCredit project’s servers, there is no guarantee that only the user will know about it. While if it is placed on the blockchain, the data volume would be too great a burden on the blockchain.
Considering this, we use the “off-chain data storage plus on-chain DNA fingerprinting” approach, where we store the hash value, which is the proof of the authenticity of the data on the blockchain, and the hash value of the same offline file is exactly the same. When a call is required, a pointer to the hash operation shall be presented, then the data will be retrieved and proof is provided by comparison.
The solution to satisfy the right to erasure is the following: the DNA values of personal data are stored in the DeCredit chain.
DeCredit utilized the encryption algorithm called Advanced Encryption Standard (AES) 256 with Galois Counter Mode (GCM), known as AES256GCM. AES256GCM is a block cipher mode of operation that provides high speed of authenticated encryption and data integrity. In GCM mode, the block encryption is transformed into stream encryption, and therefore no padding is needed. GCM has been proven secure in the concrete security model. It is secure when it is used with a block cipher mode of operation that is indistinguishable from a random permutation; hence security depends on choosing a unique initialization vector for every encryption performed with the same key.
The encryption process is carried out by DeCredit using an AES-GCM triple key, consisting of one proprietary to DeCredit, one Persistence key, and one held by the user, with an AES256GCM encryption algorithm, where the Persistence key is generated by the smart contract and stored on the server, as shown in Fig.3. If a user exercises his or her right to deletion and requests that the information on the chain be removed, this can be done by destroying the Persistence key, which is encrypted with AES256GCM.