Autonomous Lending Organization on Ethereum with Credit Scoring

Abstract

We propose the Autonomous Lending Organization on Ethereum (ALOE) system, which enables unsecured borrowing of funds on Ethereum. We incorporate a credit scoring approach that extends in the DeFi world the one that is used by traditional banks in order to quantify the risk of a borrower defaulting on a loan. As part of the loan process, first, we have a registration phase, where a notary verifies the real identity of a borrower and delegates to a set of auditors the task of storing a share of the real identity of a borrower to an Ethereum account while preserving anonymity. In the next phase, the Credit Bureau Smart Contract connects lenders to borrowers and updates credit scores. We automatically compute and update credit scores on-chain using the k-nearest neighbors algorithm.