Surging interest rates and a challenging economic climate are making it difficult for individuals and businesses to access credit. In emerging markets with a high proportion of unbanked people, such issues are nothing new.

Consumers who lack accounts with a financial institution often struggle to apply for loans at competitive rates — primarily because they lack a credit rating. As a result, wary lenders increase the cost of borrowing to applicants perceived as risky.

It’s a vicious cycle — a chicken-and-egg situation. You need a reputation to access credit, but how can you build an application without a lender taking a chance on you? 

Other pain points exist as well. Even self-employed entrepreneurs with access to a bank account can struggle to borrow funds — all because their income may fluctuate from month to month. In some countries, the application process can be arduous, with complicated forms, slow decisions and funds that take days to clear.

Blockchain technology has long been touted as the silver bullet that could change the status quo. It can connect borrowers with lenders, matching both parties based on the terms offered. Transaction details can also be stored and encrypted on an immutable ledger. Now, anyone with a crypto wallet has the opportunity to cultivate a reputation as a responsible consumer, with unprecedented levels of transparency making auditing a breeze.

However, there are hurdles to overcome if blockchain-based lending is to achieve mainstream status. For one, DeFi protocols often require loans to be overcollateralized. This means that borrowing 500 DAI could require putting up $750 of collateral in a different cryptocurrency. While this is an understandable side effect when it comes to volatile digital assets, it’s highly impractical for most borrowers and completely at odds with existing models.

Changing the narrative

Creditcoin is one project that’s vying to change the status quo. It’s a foundational layer-1 blockchain that matches and records credit transactions, creating a public ledger of credit history and loan performance. The ultimate goal is to facilitate trust for millions of underserved financial customers and businesses. Given how many small- and medium-sized enterprises in Africa cite limited access to credit as the biggest constraint on their growth, this is something worth aiming for.

Recently, the launch of the Creditcoin 2.0 Public Incentivized Testnet was announced, marking a switch from proof-of-work to nominated proof-of-stake to deliver enhanced security, decentralization and real-world business performance. Users are now being invited to put this infrastructure through their paces in exchange for bug bounties.

The project has already recorded over 3 million loan transactions, with a collective value of $70 million — all thanks to integrations with a selection of fintech lenders. While some Web2 brands operate in a monopolistic, walled city — Google and Meta among them — Creditcoin says it invites the world to use its data and transform the way users worldwide borrow and lend.

Creditcoin’s founder Tae Oh said: 

“Leonardo da Vinci famously said, ‘Art is never finished, only abandoned.’ We’re adapting the saying to: ‘A protocol is never finished, only evolved.’ As long as we have a community that shares our vision for the protocol, who wants to help change the world with us and who has keyboards to help us on our journey, then the heart of our protocol is beating strong.”

The project has lofty ambitions for the future — and in Creditcoin 3.0, universal smart contracts are set to be a predominant feature. It’s hoped this will bring a slew of layer-1 blockchains together, paving the way for multichain access to real-world assets and much more.

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