ZoraCredit

Zoracles Non-Custodial Unsecured (Zero Collateral) Lending Platform

Introduction

ZoraCredit is the world's first non-custodial, unsecured (zero collateral) lending platform built on blockchain technology.

Zoracles is building on the progress made in decentralized finance (DeFi) lending. Zoracles integrates its ZORA Score into the lending platform ZoraCredit to provide a new financial product that eliminates the need for collateral.

To understand ZoraCredit, it's important to understand exactly what the terms mean.

Non-custodial vs. custodial

Non-custodial lending is a type of lending built on Decentralized Finance (DeFi). In non-custodial lending, the mechanics of getting a loan (borrowing) and providing a loan (lending) are without intermediaries. This is usually accomplished using smart contracts. There are many ways of describing these systems: permissionless, trustless, algorithmic, decentralized, P2P, etc. Ultimately, they are all systems and techniques used to cut out "middlemen" by connecting borrowers and lenders directly. These platforms tend to have lower counterparty risks (trusting a company) but higher technical risks (trusting a code). Examples of non-custodial lending platforms are AAVE, Compound, and now Zoracles.

Custodial lending is a type of lending built on centralized or traditional finance. In custodial lending, the mechanics of getting a loan (borrowing) and providing a loan (lending) use intermediaries. This is usually accomplished by using a trusted third party (TTP). This TTP controls the borrower and lender's funds at all times and acts as the bridge between every transaction. These platforms tend to have higher counterparty risks (trusting a company) but lower technical risks (trusting a code). Examples of custodial lending platforms are BlockFi, Celsius, Nexo, and Crypto.com.

ZoraCredit is a non-custodial platform.

How risk changes in different types of lending - Credit: Roy Learner

Unsecured (zero collateral) vs. secured (collateral)

Unsecured loans/credit have no collateral backing them. The borrower does not have to provide assets to mitigate counterparty risk. These loans are generally riskier and have higher interest rates. Examples include personal loans, most credit cards, and student loans.

Secured loans/credit have collateral backing them. The borrower has to provide assets to mitigate counterparty risk. These loans are generally less risky and have lower interest rates. Examples include mortgages, HELOCs, and secured credit cards.

Zoracredit is an unsecured (zero collateral) platform.

All current DeFi lending platforms require collateral for loans - Credit: Compound

How ZoraCredit Works

Lending Mechanics

Under Construction

Borrowing Mechanics

Under Construction

Development Plan

The crux of ZoraCredit is utilizing the ZORA Score. Without a sophisticated algorithm, there is no way to mitigate counterparty risk from anonymous wallets. This is why all non-custodial lending platforms currently use secured (collateral) lending platforms. At best, they can use rating metrics to offer "undercollateralized" loans. These loans give more favorable rates for preferred borrowers, but they still require some collateral from the borrower. ZoraCredit will be the first platform to offer unsecured (zero collateral) lending to borrowers.

ZoraCredit will offer very high returns for lenders due to the risk associated with unsecured loans. We feel ZoraCredit will have no problem attracting lenders looking to maximize their returns on DeFi.

A usable ZoraCredit platform will be complete by the end of Q3 2021. This will require the Zoracles team to have a working ZORA Score, infrastructure for lending (pools, code, smart contracts), and web portals for lenders and borrowers. The product will include a website revision for the platform, ZoraCredit marketing, and a product audit by a reputable auditing firm. Zoracles will then continue to update the ZoraCredit platform in 2022 and beyond.