Why Blockchain-Based Scoring Eliminates Discrimination

2.5B adults lack a formal credit history, creating a $5T+ global credit gap. Traditional FICO-style models can't score them, forcing reliance on predatory lenders.

• Solution: On-chain transaction graphs, even for small-value DeFi or NFT activity, create an instant, portable financial identity.
• Impact: Protocols like Goldfinch and Centrifuge can underwrite real-world assets using on-chain repayment history, bypassing legacy gatekeepers.

Legacy scores are opaque black boxes. Blockchain scoring is a verifiable smart contract, making discrimination algorithmically impossible.

• Mechanism: Risk parameters are public. A user's score is a deterministic function of their on-chain actions, auditable by anyone.
• Entities: Projects like ARCx and Spectral issue soulbound NFT scores based on wallet history, enabling permissionless access to credit markets without prejudice.

A user's score in Nigeria should be valid in Argentina. On-chain identity is global and composable, eliminating re-screening costs and geographic arbitrage.

• Flow: A strong repayment history on Aave or Compound becomes a portable credential for a micro-loan on a local EVM chain.
• Result: ~80% reduction in customer acquisition and underwriting costs for lenders, unlocking capital flows to emerging markets at scale.

Collateral requirements exclude the asset-poor. Blockchain scoring enables reputation-based leverage, where a high trust score reduces collateral ratios.

• Protocols: MakerDAO's upcoming Spark Protocol and Aave's GHO explore credit scoring for 0% LTV loans.
• Metric: A user with 12+ months of flawless repayment history could borrow against a smaller collateral base, democratizing access to leverage.

A wallet's history of DEX swaps, governance participation, and NFT holdings reveals more about financial sophistication than a credit report.

• Superior Signal: Real-time, granular data (e.g., profitability of trades, gas spending patterns) creates a richer risk profile than stale bureau data.
• Use Case: Undercollateralized lending protocols use this to offer lower rates to proven, active DeFi users.

The final frontier is linking off-chain identity without centralization. ZK-proofs of unique humanity (e.g., Worldcoin) combined with on-chain activity create Sybil-resistant social graphs for hyper-accurate scoring.

• Integration: A Gitcoin Passport score, proving unique humanity and community contributions, becomes a weight in a lending algorithm.
• Outcome: Eliminates the last vector for fraud while preserving privacy, creating the most robust credit model ever devised.

On-chain scores rely on off-chain data feeds (oracles). A compromised oracle like Chainlink or Pyth becomes a single point of failure, allowing attackers to fabricate credit histories or transaction records.

• Consequence: A 51% attack on the oracle network can corrupt the entire scoring system.
• Mitigation: Requires robust, decentralized oracle designs with staked slashing and multi-source aggregation.

Pseudonymous wallets are free to create. Without a cost to identity creation, attackers can spawn thousands of wallets (Sybils) to artificially inflate scores through circular transactions or fake attestations.

• Consequence: Renders reputation and social graph scores meaningless.
• Mitigation: Requires integration with persistent identity layers like ENS, Proof of Humanity, or zk-proofs of uniqueness, adding friction.

To eliminate discrimination, you need granular, personal data. To preserve privacy, you need zero-knowledge proofs (ZKPs). The computational overhead and complexity of zk-SNARKs (e.g., zkSync, Aztec) create a trade-off.

• Consequence: High-fidelity scoring requires data visibility, reintroducing bias risk. Fully private scoring may be too simplistic or expensive (~$0.50+ per proof).

Decentralized scoring protocols are governed by token holders. A malicious coalition (e.g., a DAO with concentrated voting power) can vote to freeze or downgrade scores of specific addresses, enacting censorship.

• Consequence: Replaces institutional bias with on-chain plutocracy. Protocols like Compound and Uniswap have faced similar governance attacks.
• Mitigation: Requires time-locked governance, veto powers, and score immutability guarantees.

Blockchain-native history is short (~15 years). Most creditworthy individuals have decades of off-chain financial data. Bridging this gap requires trusting centralized custodians (e.g., banks, credit bureaus) to attest, creating a walled garden and reintroducing the very gatekeepers the system aims to bypass.

• Consequence: DeFi scores become a niche product for the crypto-wealthy, not a global replacement.

If a scoring protocol's native token is used for staking or fees, its value underpins security. A sharp price drop (-50%+) can trigger unstaking, reducing security and causing a loss of faith in the scores, further depressing token price—a reflexive death spiral seen in Terra/LUNA.

• Consequence: Score integrity becomes correlated with volatile crypto market cycles.