Solving DeFi’s ‘Black Eye’

DeFi’s ‘Black Eye’

A well-known issue in DeFi is the proliferation of fraudulent actors, i.e. hackers, phishers, scammers, and many more. These exploits cost users and protocols millions of dollars every year and continue to grow in size and scope.

One driver is that DeFi runs on over-collateralized loans, which presents zero default risk. Accordingly, no incentive exists to identify and firewall bad actors.

RociFi is a permissionless under-collateralized lending protocol, which makes it a likely target for fraud. In order to mitigate this, we have developed analytics to proactively identify and block fraudulent addresses from the RociFi ecosystem.

The above has a practical application in minimizing loan defaults. It also has a strategic application in bootstrapping a DeFi-wide initiative of self-policing, i.e. removing fraudulent actors.

This initiative is similar to the real-world where if a borrower defaults on a loan, their history isn’t contained to the defaulted lender. The defaulters’ information is disseminated system-wide, creating a firewall that removes them from accessing services in the future.

Creating the future of DeFi

In order for DeFi to reach its full potential, the industry must make a concerted effort to mitigate fraud.

RociFi is contributing in two ways:

Multi-chain Credit and Reputation Score

RociFi will integrate its nonfungible credit scores (NFCS) into decentralized identity (DID) providers and social graph protocols so web3.0 users can prove credit and reputation across multiple chains. This accomplishes two things:

1. Establishes multi-chain proof of credit and reputation
2. Lays the foundation for social recourse

For example, an NFCS with a default shown on a user profile and linked to a DID, e.g. ENS or NFT, creates a web3.0 firewall, i.e. social recourse. Social recourse incentivizes good behavior.

User with RociFi’s positive score visible in the leading Web3 social graph protocol (to be announced soon)

RociFi Fraud Classifier

RociFi will provide its fraud analytics to the public via a free dashboard. DeFi users can now check the fraud risk of addresses and contracts before interacting with them. This shortcut is especially helpful to non-technical users who cannot read code.

RociFi Fraud Classifier Dashboard: Scale is 1 to 10 with 1 as the lowest fraud risk and 10 as the highest.

The thomasg.eth story is a perfect example of how RociFi Fraud Classifier could have been a quick “smell test” on the nefarious addresses and contracts without needing to read the code.

Another example, in our CEO’s most recent Forbes article, he used RociFi Fraud Classifier to tag three anonymous addresses as high fraud risk (fraud scores of 10), originating from a known phishing address that made a 1.96 ETH donation to Ukraine’s ERC20 account.

ETH address linked to phishing scams donates to the Ukrainian cause: HTTPS://ETHERSCAN.IO/ADDRESS/0X16E3FBAB7BDA66BD37611D9048903C3719A743BF

According to the analysis done with the RociFi Fraud Classifier tool these three addresses affiliated with a known phishing scam are classified as high fraud risk.

Conclusion

RociFi’s efforts will galvanize the DeFi space into squeezing fraudulent actors out of crypto, laying the foundation for higher level objectives like a permissionless, credit economy designed to support web3.0.

RociFi intends to spearhead this initiative by being the first protocol to issue permissionless under-collateralized loans and provide a free dashboard for DeFi users to check the fraud risk of addresses or contracts before interacting with them.

RociFi is building the Layer 1 for a permissionless, multi-chain web3.0 credit economy.