DeFi Credit Scoring

Definition ∞ DeFi credit scoring involves assessing the creditworthiness of participants within decentralized finance protocols without relying on traditional centralized financial institutions. This system uses on-chain transaction history, collateralization ratios, and protocol interactions to generate a reputation score. The score influences access to uncollateralized loans or better lending terms.
Context ∞ The development of DeFi credit scoring is a key area of innovation, aiming to expand the utility of decentralized lending beyond overcollateralized models. Challenges include privacy concerns, the potential for sybil attacks, and the complexity of accurately assessing risk solely from on-chain data. News often highlights new scoring models and their potential to bridge traditional finance with decentralized applications.