Decentralized Credit Lending Exchange With DID-Based Identity Proof
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Solution Overview
Problem
Current lending solutions are centralized, require personal information sharing, lack support for cryptocurrency collateral, and lack decentralized identity management, leading to inefficiencies and privacy concerns.
Innovation Solution
A decentralized exchange system using Web 5 constructs like DIDs and VCs, enabling consumers to manage their identity and collateral securely, with multi-signature locking mechanisms for partial asset custody, and a trust score based on self-sovereign identity data.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If traditional centralized lending systems are used, then loan processing can be completed with established identity verification, but consumer data privacy is compromised and centralization risks increase
Solution Approach 1:
The system segments identity verification into two separate components: decentralized identifiers (DIDs) that prove identity without revealing personal information, and verifiable credentials (VCs) that provide proof of eligibility. This segmentation allows reliable verification while protecting consumer data privacy by preventing exposure of underlying personal information.
Solution Approach 2:
The patent introduces blockchain technology as an intermediary layer between lenders and borrowers. The blockchain network validates and verifies identities and credentials without requiring lenders to directly access or store consumers' personal data, thus maintaining verification reliability while preventing data privacy breaches.
2Productivity
If centralized lending aggregators are used, then loan quotes can be provided efficiently, but consumers must share personal information and engage with multiple separate institutions
Solution Approach 1:
The system enables consumers to self-verify their identities and credentials using their own DIDs and VCs stored in decentralized wallets. Consumers can present verified credentials directly to lenders without needing to share personal information with aggregators or complete separate account registrations, maintaining efficiency while eliminating unnecessary information sharing.
Solution Approach 2:
The patent creates a universal decentralized identification system that works across multiple lenders and loan types. A single DID and set of VCs can be used to verify identity and eligibility across different lending institutions, eliminating the need for consumers to create separate accounts and share information with each lender individually.
3Reliability
If traditional collateral requirements are imposed, then lender risk is reduced, but consumer flexibility and accessibility are limited
Solution Approach 1:
The system changes the parameter of collateral from traditional physical assets (real estate, vehicles) to digital assets represented by tokenized securities and cryptocurrencies. This parameter change enables new forms of collateral that are more flexible and accessible to consumers while maintaining lender risk mitigation through blockchain-based verification and smart contract enforcement.
Solution Approach 2:
The patent employs composite collateral structures combining multiple asset types (securities, cryptocurrencies, stablecoins) with varying risk profiles. These composite collateral packages allow consumers to leverage diverse asset portfolios while providing lenders with diversified security interests, thereby maintaining risk mitigation while increasing flexibility.
4Reliability
If conventional loan processing procedures are followed, then regulatory compliance is achieved, but processing time and complexity increase
Solution Approach 1:
The system performs preliminary identity verification and compliance checks before the actual loan transaction. Consumers pre-establish their DIDs and accumulate verifiable credentials that prove their identity, income, and eligibility. This preliminary action allows rapid loan processing while maintaining regulatory compliance, as the verification work is done once and reused across multiple lending interactions.
Solution Approach 2:
The patent replaces manual document verification and identity checking procedures with automated cryptographic verification of DIDs and VCs on the blockchain. This substitution eliminates time-consuming manual processes while maintaining compliance through programmable verification rules and immutable audit trails stored on the blockchain.
Data Source
AI summary
A system and method for performing a financial transaction are disclosed. An application running on a first server requests a financial transaction secured by collateral of a first party in the form of digital currency. The application generates a semantic ASK message encoded with parameters defining the requested financial transaction. The semantic ASK message is sent to one or more second parties via a decentralized web node thereof. A BID message is received from at least one of the one or more second parties defining proposed terms for the requested financial transaction. Credentials for the first party are forwarded from a decentralized web node of the first party, the credentials defined in the BID message. Access is provided to the collateral of the first party to the second party upon receipt of confirmation of the financial transaction from the second party.