An ambitious new Decentralized Autonomous Organization (DAO) has built a data service for a lending platform that records a user’s financial reputation to reduce the amount of collateral required for lending.
It is affiliated with Chainlink and the founder of the protocol, Sergey Nazarov, was an early backer.
Reputation DAO users associate traditional financial data such as money laundering prevention and customer verification (AML / KYC), credit scores, and bank data with their accounts. This data is designed to ease the friction of getting a loan from a decentralized platform, but raises questions about the principles of security and zero-knowledge lending.
The reputation DAO team told Cointelegraph that these traditional relationships with financial authorities are “very important to remove some of the trust barriers associated with undersecure lending.”
Decentralized Finance (DeFi) protocols such as AAVE (AAVE) and Maker (MKR) require users to pay at least 150% of the value of the loan they want to borrow. This over-collateral protects the protocol from bankruptcy in the event of volatility clearing, as the loan is made through zero-knowledge smart contracts.
“Retail consumers are becoming accustomed to algorithmic lending,” said the reputation DAO team, while “institutional investors are rapidly gaining interest.”
That institutional interest is clearly demonstrated by the $ 222 million seed and strategic fund invested in the DeFi protocol since March 15, according to crypto funding tracker Airtable. Reputation DAO is one of those protocols and ended a $ 4.7 million seed round on April 13th, led by Chainlink co-founders Sergey Nazarov and AirTree Ventures.
However, for many DeFi users, linking sensitive financial data to a blockchain-based lending platform poses security and privacy issues. For some users, if the protocol doesn’t have access to their information, it’s more comfortable to put a large amount of collateral on the DeFi loan, which helps keep the identity confidential.
Reputation DAO has assured Cointelegraph that its partnership with industry-leading information Oracle Chainlink, which uses the privacy protection protocol DECO, will help keep your data safe.
Cointelegraph contacted an active and successful DeFi investor and called his ideas under the name “Unseo”. He said he would be wary of taking out a loan with a reputation DAO. He argues that such a service would “make the DeFi system more vulnerable,” and “I would trust the credit judges of other participants, rather than quit math.” Insisted.
“I have good credit, but I don’t want to use a more fragile system for the convenience of better utilization.”
Related: First Steps: Basic Tips to Start Investing in DeFi
Time tells us how DeFi users react to reputation DAO value propositions.