What is a Credit Score?

The first page of an identity's DeFi Passport will consist of their Credit Score. This Credit Score will be issued based on an on-chain analysis of an Ethereum address’ activity. Once a score is assigned, ARCx can then enable dynamic terms for borrowing depending on the borrower themselves.

The Credit Score will be judged on a scale from 0 to 999, with the 999 score being the most lucrative.

What factors go into assigning a Credit Score?

Phase 1, the initial implementation of the DeFi Passport will issue identities with a binary measurement ('0' or '1') that simply measures whether the address is a ‘bot’ or ‘real’ (human) identity. Addresses that are deemed to be ‘bots’ will not be issued with a DeFi Passport, whereas genuine addresses will be issued with theirs.

Phase 2 of the launch of the Credit Score will assign a DeFi Passport with a score on a scale from 0 to 999.

Some factors that give weight to what a good borrower would look like include, but are not limited to the following:

  1. Had a loan on Compound/Maker/Aave for 6+ months

  2. Has never been liquidated

  3. Maintained a large collateral position while maintaining a high (time-averaged) collateral ratio

  4. Actively repaid loans during days of high market volatility

Additionally, ARCx has built and continues to explore machine learning models to backtest classification of ‘liquidated’ or ‘not liquidated’ positions. These models provide interpretable correlations between on-chain activity and credit risk that make ARCx’s DeFi Passport Credit Score model more sophisticated than traditional, actuarial credit score models.