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Using Your Credit History in Web3: How Hybrid Evaluations Can Lead to Better Credit Access for All


Your credit score is important. Whether it’s buying a house, signing a contract for services, financing a car, and much more besides, your credit score acts as a barometer of your ability to access capital. Anyone lending to you will see it and use it as one of the core bases of their lending decision and, crucially, the rate of interest you have to pay to borrow the money.

Yet they are ripe for improvement. SoLo Protocol provides crypto loans using real-world transaction data explored through machine learning, combining it with on-chain analytics, to produce a truly unique credit score, and a lending service that’s fit for the web3 generation.

Why Credit Reports Have Issues

Credit reports are not a perfect system. Credit scores, gathered by agencies like Equifax, Experian, and dozens of other providers, do not tell the whole picture. They are absolutist in their approach, and getting your credit file amended can be like walking through the 7th circle of hell, even if the reason there is a blemish is not your fault in the first place. However, for better or worse, your credit score currently acts as the main scaffolding for all your future financial decisions in a TradFi system. This should change.

This kind of reductionist attitude to rating an individual’s credit is problematic. Some who have poor credit in traditional finance systems may be very wealthy, but still unable to access a mortgage for a house. There are many out there who have become successful in web3, and who are crypto-rich, but to whom a bank wouldn’t even consider lending to. That, also, is a problem. Credit scores are due a makeover, and a new approach, and SoLo is creating that approach.

With new financial systems currently being built on chain, and an increasingly skeptical attitude towards the services provided by big banks thanks to innovations in the DeFi space, then adoption is likely to continue at great speed, especially when the next bull market hits, and the web3 terrain is so much more highly developed to accommodate it.

How Adoption WIll Bring Credit-Worthy Users to Web3

This will result in plenty of normal users coming into crypto viewing it as more than simply a speculative asset. There will be a desire by users with no web3 experience to begin purchasing land, NFTs, gaming tokens, corporate experiences, and more, all through the funnel of the metaverse. This means there will be entrants into the space who may have impeccable credit scores built up over the years, but no access to the web3 capital they need, short of having the entire principal already saved away.

These users will be looking for under-collateralised loans in web3 just as they may look for a car loan or mortgage in the ‘real world’. They have stable jobs, steady incomes, and are used to advancing their life through credit so they can buy houses, invest, and grow.

There will be a desperate need for lending and borrowing in DeFi that is not over-collateralised. Over-collaterised loans, where the loan is less than the deposit used to acquire it, is all well and good for power traders who are effectively operating a leveraged long on the underlying assets, but useless for the vast majority of users who are not looking to yield farm or increasing capital efficiency – they just want to borrow money.

How Solo Protocol’s Hybrid Credit Scores Will Issue Fairer Loans

SoLo Protocol is a service that will use adaptive machine learning to capture open banking data about a user, and then merge it with on-chain analytics to create a hybrid method of determining creditworthiness. No one else is doing this, SoLo is the first.

This type of machine-learning credit evaluation has also been used to tremendous effect by Credit Kudos, who were recently acquired by Apple. SoLo wants to grab this paradigm and apply it to web3. Credit scores are unfair to tens of millions of Europeans and Americans who are ‘credit invisible’ or have very little credit history. Young people and migrants are particularly susceptible to this, even if they have a good history of meeting rental and cellphone obligations.

“It will open up access to crypto and web3 for non-crypto natives who can leverage their great credit score and access finance for the new metaverse.” says Tom G, co-founder of SoLo, “It’ll also let crypto-natives who have successful portfolios borrow the capital they need to perform ‘real world’ activities like buying houses, cars, repair work – and much else besides.” The use of on-chain analytics to help assess a user’s web3 profile means the Solo Protocol will be able to issue loans to people who may not be able to get traditional services, but whose web3 footprint means they deserve financing.

Solo Protocol’ ’s hybrid credit system makes them different from most DeFi protocols. They see value in gleaning credit worthiness from real-world transactions, and by bringing them to bear on the blockchain it has the potential to help supercharge growth in web3 by creating wealth on-chain through standard savings and loans that look a lot like a TradFi operation, but in web3. For example, in the beta, a user can connect their Wise account – alongside many other banks – and have that data assessed in order to evaluate the loan amount SoLo can provide.

Moreover, these savings and loans, because they are built on personal data and open banking data, have the potential to be cheaper than traditional DeFi borrowing. DeFi borrowing rates – even though collateral deposits are greater than the sum borrowed – are extremely high, because the users borrowing the sums aren’t desperate for cash or trying to buy assets – but are enacting complex trading and yield farm strategies. It’s the difference between an investment bank loaning to a hedge fund and a retail bank loaning to an individual. The first is useful for some, the second is useful for all.

SoLo Protocol Brings TradFi Systems to DeFi Innovation

SoLo Protocol is quite different from most DeFi protocols. In many ways, it mirrors TradFi services, but improves on them by hybridising on-chain analytics with off-chain open banking data parsed with machine learning. Personal data used by the protocol is only accessed should a user default, and the SoLo Protocol is decentralised and runs on the Ethereum and Polygon network.

Yet the SoLo Protocol knows that the only way to really make credit markets flow is to bridge the apparatus that has served TradFi systems so well for so long, improve on them with machine learning, and make them fit for the crypto-native generation’s purpose. The first beta product has just launched, so head over to the website to get your SoLo score and tap into a new type of retail finance.


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