For all the advantages that DeFi provides to fill the void left by conventional banking, it also poses considerable risks. First, there's the threat of regulation. Legislators will eventually join the party. Unregulated industries with millions of dollars in daily transactions are ripe for fraud. High-profile cases with nameless founders don't imply effective self-regulation.

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How digital identities will help realise
the true potential of DeFi
For all the advantages that DeFi provides to fill the void left by conventional banking,
it also poses considerable risks.
First, there's the threat of regulation. Legislators will eventually join the party.
Unregulated industries with millions of dollars in daily transactions are ripe for fraud.
High-profile cases with nameless founders don't imply effective self-regulation.
2

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Lack of KYC (regulated banking's "know your customer"
requirements, which can only be enforced in person) limits the
applicability of DeFi loans to unbanked individuals and SMEs. Thus,
these markets' potential as DeFi facilitators is limited. Due to the
absence of identity and anonymity of blockchain, no one can create
credit history.
The issue is a lack of identification and access control. A digital
identification solution may let individuals and small companies benefit
from open finance's full economic potential. Citizens would own their
data due to decentralised, privacy-protecting DIDs, eliminating the need
for outdated, bank-like KYC checks that often go beyond the call of duty.

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● First movers
Thought leaders in the blockchain ecosystem discussed self-sovereign
digital identities extensively in 2017 and 2018. Unlike many other fictional
use cases, DIDs are still a realistic use case for blockchain technology.
Identifying on the blockchain works best when it's integrated into the
infrastructure rather than a "opt-in" application.
To address problems like scalability, conventional blockchain platform
like Ethereum haven't prioritised identity. Sadly, many newer efforts
emphasise "Ethereum-killing" above solving real-world problems.

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Concordium, on the other hand, is a newbie to the
blockchain platform world, putting identification first.
The project's aim is to get enterprise acceptance. As a consequence, it
acknowledges that no modern business can demonstrate compliance
without verifying the other party's identity.
● A decentralized credit score
Another decentralised identity platform is Ontology. The project has lofty
objectives that cover a number of application cases, including DID for
DeFi. Ontology's newly launched DID solution offers clients a 360-
degree view of all their digital assets across all wallets. It comes with a
decentralised credit scoring system that works with many blockchains.

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Finally, lenders will be able to check users' creditworthiness
and assets without having to physically examine the
assets or significantly overcollateralize loans.
Wrapping up
Given the potential adoption of digital identities by unbanked people and
small businesses, it's obvious that digital identities may become a
significant enabler for the DeFi sector.
It will all rely on whether the sector is ready to self-regulate using digital
IDs. Learn DeFi to understand the intricacy of this field.

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