Credit Reputation

The Lucia Protocol introduces a multi-faceted Credit Reputation System, designed to assess and ascertain a borrower's eligibility for future loans through a dynamically computed credit rating. This credit rating is calculated using a variety of parameters, each contributing to the overall creditworthiness of the borrower. Below is a mathematical representation of some of these factors:

Number of Repaid Loans: The credit score positively correlates with the number of successfully repaid loans. The parameter emphasizes the importance of a strong, consistent repayment history.

Credit Score of Adjacent Guarantors: As per the Ethereum Improvement Proposal EIP-6551, the credit rating is also influenced by the credit scores of adjacent guarantors in a tree-like structure, where the borrower serves as the root node.

Transaction History: Upon linking their wallet(s), borrowers share their transaction history. While not a direct measure of creditworthiness, a substantial volume of healthy transactions can enhance the credit score.

Average Timeframe for Past Loan Repayment: Borrowers agree to repay loans within preset periods (e.g., 1 day, 3 months, 6 months, 9 months, or 12 months) upon initial agreement. This repayment adherence impacts the credit score.

Number of Past Collateral Liquidations: Recurrent liquidation events can erode the credit score, signaling potential challenges in loan repayments.

Fraud Attempts: Instances of fraudulent behavior will lead to credit score reduction, and in severe cases, account suspension. Users must substantiate if their accounts were compromised to rectify this impact.

This Credit Reputation System strives to create a robust, transparent, and accountable framework for borrowers within the Lucia Protocol. By considering a wide spectrum of both positive and negative behaviors, the system ensures a balanced and fair assessment of creditworthiness.