How will the Reputation DAO manage to provide unsecured DeFi loans?

DeFi loans

A decentralized autonomous organization working towards building open source and programmable reputed system for DeFi claim to provide loans with minimum collateral

A decentralized autonomous organization with high ambitions to build such data services for lending programs so that they could record the financial reputation of users to reduce the collateral amount needed for loan. This claim is made by Reputation DAO for which is partnered with oracle network Chainlink and has founder of protocol Sergey Nazarov as an advisor. 

As per the plan of Reputation DAO, its users will have data of transitional finance like Know Your Customer (KYC) and Anti Money Laundering (AML), credit scores and banking data that would be tied to their account. Then the data is designed to work towards ease the friction that a user faces while obtaining a loan from any decentralized platform. However all this seems quite an impressive and frictionless process but it also possesses concerns regarding security and zero knowledge lending principles of lending protocols. 

The team of Reputation Dao talked about its connection with several traditional financial authorities which is critically important to remove trust barriers that are related to lending under collateral. DeFi or decentralized finance protocols like AAVE (AAVE) made Make (MKR) DAO require their users to put down a minimum 150% of the value as collateral for the amount they want to take out as loan. 

This process of over collateralization provides safeguard to the protocols from insolvency situations in case of liquidations because of volatility since these loans are made through smart contracts enabled through zero knowledge. 

While the team of Reputation DAO said that retail consumers are at least getting more comfortable than before with algorithmic loans, it also pointed out that institutional interest is also growing at a rapid rate. 

Such institutional interest is demonstrated clearly by the funds invested worth $222 million of seed and strategic investments in DeFi protocols since 15th march. Reputation DAO is among those protocols and later closed a seed round with $4.7 million on 13th April that was led by AirTree Ventures and DACM. 

But tying sensitive financial data for many DeFi users to a lending platform based on blockchain raises concerns regarding security and privacy. Some users might get more comfortable by putting down their high collateral on a loan on decentralized finance if there is no access from the protocols to their information by keeping their identity confidential. 

Source: https://www.thecoinrepublic.com/2022/04/18/how-will-the-reputation-dao-manage-to-provide-unsecured-defi-loans/