Do you remember the heady days of DeFi Summer 2020? Ethereum was clogged, Bitcoin transaction fees went through the roof, even Polygon and Avalanche couldn’t keep up with the amount of traffic happening onchain. While we now have a variety of high throughput, low-cost layer 2 blockchains built on top of Ethereum, faster finality, and more protocols than ever to choose from, in many ways history may be about to repeat itself.

Back then, we witnessed a massive influx of users and capital into DeFi platforms, leading to the popularization of yield farming and liquidity mining, as well as skyrocketing total value locked (TVL) in just a handful of protocols.

During DeFi summer, lending markets became the backbone of the onchain economy. However, over-collateralized loans were the norm and this led to significant under-utilization of lent assets of up to 69%.

This massive inefficiency made borrowing less attractive, pushing users to deploy complex strategies like looping or jumping between protocols. This all resulted in a poor user experience, wasted fees, and missed opportunities.

Worldwide, 1.4 billion adults remain unbanked.

Unfortunately, not much has improved in the lending space since DeFi Summer. Today, over $18 billion sits idle on lending platforms like Aave & Morpho, earning minimal yields, and holding back DeFi’s potential and adoption.

Offchain, 1.4 billion adults worldwide remain unbanked, representing about 24% of the global adult population. The reasons for this include insufficient or irregular income, lack of documentation needed to open a bank account, regulatory barriers, or limited physical and digital financial infrastructure—issues particularly prevalent in developing countries where the need for these services is, arguably, higher than in most other nations.

Not only do these individuals lack access to financial services, they lack access to a manner to verify what little financial history they have. Many solutions have popped up over the past 20 years, including the trailblazing concept of microloans. However, these have typically involved hours of time needed to assess an individual’s creditworthiness, interviews with their friends and family to ensure they are of well-repute locally, and then there has to be a clear business case for the loan. It’s often not been enough that you need the money and can demonstrate your ability to pay, a problem many renters still experience today in developed countries like the USA, Canada, the UK, France and Australia.

And there are many countries still stuck in a backwards credit system where only negative data, missed payments and the like, are reported. Your positive credit history is ignored, not reported to the credit bureaus, and therefore unusable to help build your credit score or demonstrate creditworthiness.

These are, on the face of it, easy issues to solve. Credit scoring systems of all kinds should accept both positive and negative data. The data should come from a variety of sources where credit, small or big, has been extended. And in this digital era of distributed ledgers and mostly public transactions, it should reflect your history onchain as well, but without exposing your personal information to everyone with access to the system. Anyone who has had their credit data breached knows this pain all too well.

Historically, being unbanked has led many individuals to turn to highly predatory sources of credit from loan sharks, to gang bosses, to financial services companies who charge double or triple the interest rate of more traditional credit products. These days, being unbanked leads people to turn to DeFi and the onchain economy, but the aforementioned issues persist.

The traditional credit economy, including educational loans, credit cards, personal loans, etc., is a $4.5 trillion category annually. The onchain credit economy does not even exist yet, but DeFi currently accounts for approximately $200 billion as of this writing.

A universal credit layer for the onchain economy makes growing this category possible. Unlocking access to just 1% of traditional markets could add another $60 to $90 billion of activity onchain by 2030, significantly increasing the size of the market without injecting additional capital.

zScore is Zeru’s answer to this pervasive dilemma, calculated by a behavior-centric neural network AI model, based on onchain history and offchain verification through zkTLS. It can be the necessary public good foundational layer for this massive category, allowing users to update their zScore on-demand, and for DeFi protocols to offer under-collateralized loans to those with high zScores. In this way, the amount of liquidity available increases thanks to lower loan-to-value (LTV) ratios, and good DeFi users cease to be punished for using DeFi instead of traditional markets they may have access to.

Finally, people who have been good DeFi users for upwards of five years will be able to tap into that positive onchain behavior, and gain access to under-collateralized or, through Zeru, even zero-collateral loans. This puts more money into markets, and higher yields.

Through the use of Zeru’s DeFi super app, users can build their zScore to achieve zero-collateral loans and earn through DeFi strategies by earning Credit Tokens. Credit Tokens represent the value of zero-collateral loans someone can access, backed by Zeru’s upcoming insurance fund.

For protocols, zScore offers transformative benefits. It allows them to increase their LTV ratios, enabling users to access more capital while maintaining a safe level of risk. Moreover, lending protocols currently experimenting with reputation-based scoring models can adopt zScore as a service—a more reliable, AI-driven alternative that is already onchain and ready for integration, and can be customized too.

Zeru is here to make DeFi great again. Whether you're a user or a builder, take full advantage of what it has to offer and become part of the change.

Check your zScore today. Join the Zeru community to get involved with zScore, the Zeru app, and helping us build the DeFi super app.

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