🧮 Important Formulas

On-Chain Credit Score (OCS) Calculation

• Credit Score: a * BH + b * (TH + CD) + c

• where:

  • BH: Borrower History Score (0-100) : This score can be calculated by analyzing a borrower's past borrowing and repayment behavior on the platform. (Higher repayment rates might indicate lower risk)

  • TH + CD (0-200)

    • Transaction History Score (0-100): This score can be derived from the borrower's overall on-chain activity like on-Chain Transaction frequency and volume.(Frequent token swaps might indicate higher risk)

    • Collateral Diversity Score (0-100): This score can assess the risk profile of the collateral the borrower intends to use for the loan like liquidity of the collateral asset. (Higher liquidity assets might indicate lower risk)

  • a, b, c = Coefficients

    • a = 0.55 (Moderate weight on BH)

    • b = 0.35 (Moderate weight on combined TH + CD)

    • c = 30 (Constant value to adjust score range)

Note: A borrower can achieve the highest possible credit score of 155 by having a perfect borrower history and a perfect combined transaction & collateral score. The lowest possible score would be 30, indicating a very high risk borrower based on the scoring system.

Interest Rate Calculation

• Interest Rate: Cost * (Base Rate + Risk Premium + Duration Adjustment)

• where:

  • Cost: The loan amount requested by the borrower.

  • Base Rate = 5% or 0.05 (Minimum interest rate)

  • Risk Premium = This factor adjusts the interest rate based on the borrower's credit score (OCS) derived from your on-chain credit score system.

    • Risk Premium = (155 - OCS) * (Risk_Factor / (155 - 30))

    • Risk_Factor = 2 (Constant value to adjust risk premium)

  • Duration Adjustment = This factor adjusts the interest rate based on the loan duration.

    • Duration Adjustment = Duration(in months) * Duration_Factor

    • Duration_Factor = 0.5 (Constant value to adjust duration adjustment)

Note: The interest rate is calculated based on the borrower's credit score, with higher credit scores resulting in lower interest rates. The minimum interest rate is set at 5%, ensuring that all borrowers receive fair and competitive rates based on their risk profile.