How Decentralized Identity and Reputation Systems can Unlock Financial Inclusion.
There are themes that hang around crypto through every cycle, through every trend. The promise of something, in some way, better than what we have. Financial inclusion is one of those narratives. DeFi has promised to bring financial access to emerging markets, finally solving the exclusion of billions of people in emerging economies. However, so far, we haven’t gotten there.
In the traditional systems, banks demand rigid identity verification, DeFi lenders insist on over-collateralization, and regulators struggle to balance oversight with accessibility. The result? A system that works for those who already have financial stability, but locks out the very people who need it most.
Perhaps this is another area where the combined power of Decentralized Identity (DID) and Decentralized Reputation systems can make a difference?
Why Decentralized Identity?
Identity is the first gatekeeper to financial services. No government-issued ID? No bank account. No credit history? No loan. In many parts of the world, people are shut out of financial opportunities because they lack formal identification.
DID systems, such as ONT ID, can help to change this. Instead of relying on governments or banks to issue and verify credentials, users control their own verifiable credentials. With ONT ID, individuals can selectively disclose information, using zero knowledge proofs to prove who they are without exposing everything about themselves.
This is a big deal in emerging markets, where rigid KYC processes often exclude people from financial services. With DID, individuals can access DeFi lending, savings platforms, and other digital financial tools without being at the mercy of outdated bureaucracy.
⭐ Unlock real financial inclusion with Decentralized Identity and Reputation - discover how ONT ID and Orange Protocol are changing the game. Learn more on Ontology’s news page! ⭐
Beyond Identity: The Role of Reputation in DeFi
Identity verification is one thing, but trust is another. Even with a DID, financial access often comes down to one flawed assumption: the more assets you have, the more trustworthy you are. We’ve seen how that plays out in real time over the last week, as people game the system to make the most of liquidation mechanisms. Still, DeFI lending continues to rely on over-collateralization, requiring users to put up more capital than they are borrowing. This certainly does not improve financial access for people.
And so we come to the role of Orange Protocol and the creation of decentralized reputation systems. Orange Protocol allows users to build trust based social proofs, built from their social interactions, transaction history, and community participation. Finally, we can move beyond metrics based on a user's wallet balance.
Imagine a DeFi lender assessing a borrower’s track record not by how much crypto they hold, but by how responsibly they’ve interacted with previous loans, DAOs, or even their engagement in decentralized communities. This reduces reliance on collateral and opens DeFi lending to a broader audience.
Breaking Down Barriers to DeFi Adoption
Beyond the problems of accessibility, we also have regulatory uncertainty. Governments have hesitated to embrace decentralized finance because of fraud risks, lack of identity verification, and concerns over compliance.
The answer to these concerns is provided by the same blockchain technology that DeFi is built upon, in the form of DID and reputation systems. These decentralized solutions actually help regulators more than traditional identity frameworks do. Regulators can verify identities and assess risk without requiring invasive data collection. These systems create a privacy-preserving yet transparent way to prevent fraud and money laundering.
The Road Ahead
DID and Decentralized Reputation can tackle DeFi’s biggest problems head-on. By reducing reliance on over-collateralization, enabling secure and self-sovereign identity verification, and providing a decentralized trust framework, they can make financial inclusion a reality instead of an ongoing narrative that doesn’t deliver.
The future of finance isn’t just decentralized, it’s accessible, trust-based, and built for everyone.
👉 Stay Ahead in Web3 & DeFi
Decentralized Identity and Reputation are shaping the future of financial inclusion. Stay informed on the latest breakthroughs in blockchain, DeFi, and self-sovereign identity on Ontology’s news page.
📚 Further Reading – Part of the POET Series
Dive deeper into Decentralized Identity and Reputation in Web3 and DeFi with the POET Series: