Why On-Chain Reputation is the New Credit Score

Lending protocols like Aave and Compound require over-collateralization, locking up $50B+ in capital inefficiency. This excludes uncollateralized underwriting and stifles capital velocity.

• No Trustless Identity: Pseudonymous wallets have no history.
• Capital Inefficiency: LTV ratios are artificially low.
• Zero Underwriting: No ability to price risk based on behavior.

Protocols like ARCx, Spectral, and Getaverse mint non-transferable reputation NFTs (SBTs) based on wallet history. This creates a portable, programmable credit score.

• Composable Data: Reputation score feeds directly into lending pools.
• Dynamic Risk Pricing: Interest rates adjust based on on-chain behavior.
• Sybil-Resistant: Based on provable, costly-to-fake activity.

On-chain reputation enables permissionless credit lines and under-collateralized loans. This is the gateway for real-world assets (RWA) and small business lending on-chain.

• Capital Efficiency: Move from 150% collateral to 50% or less.
• New Markets: Tap into $1T+ of currently excluded credit demand.
• Automated Compliance: KYC/AML can be programmed into the reputation logic.

Privacy and data integrity are solved by zk-proofs (e.g., zkPass) and decentralized oracles (Chainlink). Users can prove creditworthiness without revealing sensitive transaction history.

• Selective Disclosure: Prove score > X without exposing full history.
• Cross-Chain Portability: Reputation bridges from Ethereum to Solana or Arbitrum.
• Tamper-Proof: Oracle networks attest to off-chain data (e.g., tradeline history).

Reputation systems like EigenLayer's cryptoeconomic security create a staking layer for behavior. Good actors earn yield; bad actors get slashed, aligning incentives without centralized adjudication.

• Skin in the Game: Users stake assets to back their reputation.
• Automated Enforcement: Smart contracts slash stakes for defaults.
• Yield Generation: Staked collateral earns protocol fees.

A unified reputation graph becomes the base layer for all financial activity—from Uniswap trading discounts to Nexus Mutual insurance premiums and MakerDAO vault rates. Your wallet is your resume.

• Cross-Protocol Discounts: Lower fees based on lifetime volume.
• Universal Underwriting: One score for loans, insurance, and margin.
• Network Effects: More usage improves score accuracy and utility.

Current lending protocols demand 150%+ collateral ratios, locking up billions in idle capital. This inefficiency stems from a lack of trust and identity, mirroring pre-FICO score lending.

• $50B+ in locked collateral for undercollateralized loans
• Excludes high-intent users with proven on-chain history
• Limits capital velocity and protocol growth

Protocols like EigenLayer and Karpatkey demonstrate that staked ETH and DAO treasury management history create a verifiable reputation layer. This data becomes a composable primitive for undercollateralized services.

• Reputation scores derived from wallet history (tx volume, governance participation, liquidity provision)
• Enables 0%-50% collateral for "whale" loans or protocol roles
• Creates a native, Sybil-resistant identity layer

Frameworks like Ethereum Attestation Service (EAS) and Verax allow any entity (protocols, DAOs, KYC providers) to issue on-chain attestations. These become the atomic units of reputation, portable across chains via LayerZero or Hyperlane.

• Attestations are the immutable, verifiable records of behavior
• Composability allows dApps to build on a unified reputation graph
• Enables cross-chain underwriting (e.g., a loan on Base using reputation from Arbitrum)

Reputation enables credit default swaps for smart contracts and delegated staking with slashing insurance. A user with a high score can underwrite a loan for a fee or delegate voting power with a bonded reputation stake.

• DeFi Credit Scores enable risk-based interest rates
• Reputation-based delegation reduces governance attack surfaces (e.g., Ocean Protocol)
• Creates new yield sources for reputable actors

Public reputation graphs create privacy and front-running risks. ZK-proofs (via zkSNARKs or RISC Zero) allow users to prove traits (e.g., "wallet age > 2 years") without revealing their entire history.

• Selective disclosure protects user privacy while enabling verification
• Sismo, zkEmail pioneer ZK proofs for off-chain data
• Essential for compliant, institutional adoption

Reputation must have economic skin-in-the-game. Systems will emerge where reputation is staked and slashable for malicious acts (e.g., providing bad underwriting). This creates a self-policing ecosystem.

• Staked reputation aligns incentives and deters bad actors
• Slashing events act as a decentralized truth oracle
• EigenLayer's restaking model is a foundational primitive for this

Traditional DeFi lending requires 150%+ collateral, locking capital and excluding most users. The solution is a reputation-based credit line using on-chain history as collateral.

• Key Benefit: Enables 0-to-low collateral loans for proven wallets.
• Key Benefit: Creates a sustainable yield source for lenders via risk-based pricing.
• Key Benefit: Protocols like Goldfinch and Maple are early pioneers in this space.

Protocols waste millions on airdrops to farmers, diluting real users. On-chain reputation graphs like Gitcoin Passport and Ethereum Attestation Service (EAS) filter for genuine contributors.

• Key Benefit: Targets real users using proof-of-personhood and contribution history.
• Key Benefit: Prevents governance attacks by weighting votes based on reputation score.
• Key Benefit: Creates a portable identity layer across dApps like Optimism and Arbitrum.

Bots spam networks with failed transactions, while MEV searchers exploit users. Reputation systems like EigenLayer's EigenDA and Flashbots SUAVE can prioritize or penalize based on historical behavior.

• Key Benefit: Reduces network spam by deprioritizing low-reputation senders.
• Key Benefit: Enables fair ordering by identifying and isolating malicious sequencers.
• Key Benefit: Lowers gas costs for legitimate users by clearing the mempool.

Bringing trillions in off-chain assets on-chain requires trust. On-chain reputation acts as a decentralized FICO score for underwriting entities like Centrifuge and MakerDAO.

• Key Benefit: Auditable risk assessment using immutable payment history and legal attestations.
• Key Benefit: Enables pool-based financing where reputation determines borrowing capacity.
• Key Benefit: Creates a global, composable credit market beyond geographic borders.

Trading, lending, or bridging with anonymous addresses is inherently risky. Reputation protocols like ARCx and Spectral generate a DeFi Passport Score based on wallet history.

• Key Benefit: Allows peer-to-peer deals with known-risk counterparts on platforms like Aave Arc.
• Key Benefit: Dynamic risk parameters where loan-to-value ratios adjust based on score.
• Key Benefit: Reduces protocol insolvency risk by proactively identifying high-risk wallets.

Businesses cannot transact on-chain without established credit terms. Systems using tradeable reputation tokens and on-chain invoice financing automate B2B workflows.

• Key Benefit: Enables net-30 terms between verified entities using reputation as collateral.
• Key Benefit: Automates reconciliation via smart contracts, reducing operational overhead.
• Key Benefit: Projects like Request Network and Baseline Protocol are building this infrastructure.