Prediction after the bank run in the crypto market: Privacy, Credit, and Decentralized Identifier

Recently, the crypto market has experienced a series of liquidations, exposing some issues. I believe the following areas may see an increase in demand as a result:

1. On-chain privacy needs

The giant whale was targeted at a critical moment, highlighting the importance of privacy for institutions and users. Privacy requires a complete framework and ecosystem to provide customized services based on user needs.

Currently, blockchain accounts are a complex string of addresses, but through analysis, the underlying identification can still be recognized. We need to explore the latest developments in the privacy track.

Zero-knowledge proof technology is an important direction. Zcash offers two types of addresses, privacy and transparency, which can be converted into each other. However, Zcash has a trust issue with the master key.

Future privacy solutions need to ensure that dApp users and smart contracts are both private and secure. A larger privacy ecosystem needs to be established, including multiple application scenarios.

Aleo is a project worth paying attention to. It not only achieves asset transfer anonymity but also supports payments, provides liquidity, governance voting, identification, and other functions. Aleo offers a full-stack solution that supports composable and private application development.

Other noteworthy projects include Aztec and Secret Network. Projects that use zero-knowledge proofs are relatively more promising.

2. On-chain lending business

The credit of the giant whales is an important factor in this debt crisis. On-chain credit is still seeking product-market fit and needs to improve multiple middleware and infrastructure, with the core being the credit assessment system between on-chain and off-chain.

Currently, mainstream institutional lending projects such as Maple Finance, TrueFi, and Goldfinch adopt different credit assessment methods, but all rely on centralized individuals/teams for evaluation. This has limitations when assessing the debts of super whales.

On-chain reputation and risk scoring are major challenges. Credit requires endorsement from authoritative governments, laws, etc., and is not generated out of thin air. Currently, on-chain institutional credit is still seeking product-market fit.

The over-collateralization model has become mainstream, but there are also some issues:

• May drain the liquidity of non-native assets on the public chain.
• Bring the debt ceiling issue
• Easy to form panic bank run

However, relatively speaking, over-collateralization is still a better way to control risks at present. The GHO stablecoin launched by AAVE is worth paying attention to.

3. Decentralization Identifier and Reputation System

The defects of the credit assessment system highlight the importance of the native certification system in DeFi and the decentralized reputation scoring system.

ARCx has designed a DeFi Passport ( with a score ranging from 0 to 999, ), which generates a credit score based on the user's interactions with DeFi protocols. This provides a new perspective.

We need to reconstruct the concept of "identification" by splitting and dataifying it, allowing user identity and data to have uniqueness and combinability. A minimum "DID protocol" is required.

A reasonable decentralized identifier system should have the following characteristics:

• Trustless
• Flexible
• Strong accessibility
• Pseudonym priority
• Generative
• Composable
• separable and selective

NFT3 is a project worth paying attention to, as it allows users to easily establish their own identification system while ensuring privacy and sovereignty.

Summary

These areas may see significant demand growth in the future. However, the market still needs to validate whether this demand is real and how the adoption curve will change. DeFi still has a long way to go and requires continuous trial and error and improvement.