ARCx Introduces “DeFi Passport” for On-Chain Credit Scores
In a move that could bring DeFi into the mammoth industry of consumer credit scoring, ARCx has introduced an offering that will measure the financial health of customers based on their Ethereum addresses.
As the key feature of its Sapphire (v3) release, ARCx will enable “identities issued quantitatively ‘good’ credit scores [to] gain access to low-collateral loans and high-yield farms.” The offering will provide users with a “DeFi Passport” and mark yet another step toward DeFi’s goal of improving capital efficiency. By accepting the passports, DeFi protocols could customize their offerings to benefit addresses which have good credit.
Sapphire will offer a higher credit score to borrowers who have never been liquidated, maintained a large collateral position and a high collateral ratio at the same time, and repaid loans during days of high market volatility.
Maintaining large collateral positions with high collateral ratios suggest an aversion to liquidation, as does repaying loans during volatile market stretches. As liquidation is perhaps the biggest indicator of recklessness in DeFi, its avoidance indicates a responsible user.
Such an offering would be most welcome. While DeFi participants generally value pseudonymity, the lack of trackable reputations has allowed the space to continue as a “Wild West,” as Tom Schmidt of Dragonfly Capital, an investor in the project, called it. This Wild West makes it so “people can walk up to any random protocol, front-run users, rack up a bunch of bad system debt, and bounce over to the next town,” Schmidt said in the release.
In the future ARCx plans to add more scores and pages to its DeFi Passport, including yield farming, airdrop, governance, and trader scores. All these metrics would allow protocols to modify the functionality open to users on an even more granular level.
For example, a user who holds airdrops instead of dumping them, could receive further airdrops from other protocols, as the user appears to exhibit loyalty.
The rollout of the ARCx DeFi Passport will take place in batches, the first of which will consist of only 100 addresses, as the team monitors the project. Details on the date of the first batch will be released in the coming weeks.