The FICO® score was first introduced in 1989 by FICO, or Fair, Isaac, and Company. The FICO model quickly established itself as the standard credit scoring system used by the vast majority of lenders in the United States. The score allows lenders to assess the basic creditworthiness of an individual. The score is based on consumer credit files of the three national credit reporting agencies: Experian, Equifax, and TransUnion.
There are some problems to this model that have emerged in recent decades
No international standard of credit
Your credit evaluation requires a tremendous amount of sensitive personal information.
Scores are only evaluated for traditional forms of credit
Scores are only used to offer traditional forms of credit
Credit bureaus are routinely hacked, creating security risks
Credit bureaus are organized in an unhealthy oligopoly
The system is highly centralized
There is little competition in how scores are evaluated
Credit scores are only updated after monthly data dumps by credit bureaus
The system is completely unprepared for Decentralized Finance (DeFi) and does not integrate into crypto wallets or lending
One further problem exists. Any successful loan models in DeFi have required collateral to do a loan. This problem continues to hamper the growth of lending in DeFi, by requiring all borrows to set aside collateral for any lending platforms they wish to use.
Zoracles is attempting to solve the limitation of traditional credit scores and current DeFI lending systems by creating a completely new type of scoring system. The ZORA Score, or the Zoracles On-chain Reputation Assessment Score.
The ZORA Score is straightforward. It's a score calculated from dozens of "signals" derived from a cryptocurrency wallet. Things such as the wallet's age, how much crypto it holds, and its transaction history are just some of the obvious signals that are similar to the traditional FICO score. However, there are many more signals embedded in the Zoracles algorithm.
Zoracles has been able to accomplish this goal for several reasons.
The Ethereum (and other) blockchains function as a publically viewable ledger, which allows transaction histories to be evaluated without the need for personal information. This basically eliminates the need for credit bureaus. Transaction history can now serve as a record for evaluating credit. A wallet is only connected to an individual through access to private keys, with no personal information stored. The data available is standardized and not bound by geographical location.
We believe each account can serve as a decentralized ID by having a credit rating. Zoracles will be building a useful product for millions of users and easily integrated into other lending protocols. Having the ZORA Score as the standard crypto credit score will make it more powerful for every DeFi lender that adopts it.
Lending platforms can better assess credit risks, borrowers will get more competitive loans/credit, and lenders will get a better return on investments by eliminating defaults.
Furthermore, in an unprecedented step, this platform will allow borrowers to access credit without having to use any collateral, much like an unsecured credit card.
Our algorithm was designed for simplicity but will need maximum efficacy to allow a credit market without the need to stake your cryptocurrency as collateral. It's pretty obvious what would happen if we designed it poorly! The dreaded Sybil Attack.
In the future, the ZORA token will become critical to the ZORA Score's success.
Zora.cc is our current demonstration site for the ZORA Score. The site was created to give us quick and accurate feedback from users. Over time, the ZORA Score evaluation algorithm will be improved. Eventually, the ZORA will be integrated into the main Zoracles site.
The site offers a simple and familiar template to crypto users. Functional buttons allow you to connect your crypto wallet to the ZORA score.
Here is a prompt to connect your crypto wallet. Zoracles currently supports Metamask and WalletConnect.
After a successful connection and approval, Zoracles will calculate your score based on the current algorithm. Your score is subject to change based on changes to your wallet and changed to the algorithm. You can evaluate multiple wallets by disconnecting your current wallet and reconnecting it.
DeFi projects can access the ZORA Score system through Application Programming Interfaces (APIs) and working partnerships with Zoracles. Platforms can integrate the score into their DeFi systems and use them to enhance their own DeFi products.
The ZORA Score will continue to evolve with the DeFi industry to meet our lending platform's needs and the industry's needs.
There are some excellent advantages to the ZORA Score, especially compared to the list we started the credit section with
Credit evaluations are standardized and available anywhere in the world
You can check multiple wallets/identities, and there is no personal information
Scores take into account your crypto wallet history
Scores can be used to offer products from Decentralized Finance (DeFi)
Your credit bureau is now the ethereum blockchain, an immutable ledger
Anyone can build on this credit evaluation system and use it for their lending platforms
The system is highly decentralized
Score evaluation metrics will evolve with the blockchain, becoming more sophisticated.
Credit scores are updated instantly based on the algorithm.
The system is designed from the ground up to be integrated into DeFi products.
Lastly, Zoracles will be providing a model for no-collateral loans using its credit evaluation system. An industry first.
Compare that to the list we started with:
Zoracles will continue to update the Zoracles On-chain Reputation Assessment based on experience, user feedback, partner feedback, and market response.
Zoracles will seek to establish partnerships with organizations that want to use our credit evaluation software (both DeFi and CeFi).
Finally, Zoracles will begin developing a no-collateral credit system once the ZORA Score is ready to deal with such a difficult task.