Token Design Whitepaper Draft V 0.1

Decentralized credit scoring and microcredit

A decentralized credit score evaluation and microcredit platform that

combines new sources of data to match small lenders and borrowers.

Table of Contents1. Introduction 1

1.1 The Problem 3

1.2 Previous and Related Work 4

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2. Protocol Mechanism

2.1 Protocol Layer Contributors

2.2 Non-protocol Layer Contributors

3. How will Colendi protocol work?

3.1 Identity and Scoring

3.2 Contirubtion-based reward mechanism

3.3 Rewarding of early adopters

3.4 Staking

3.5 Slashing Conditions

3.6 Future Work

4. Use Cases

4.1 Installment Shopping with Colendi Score

4.2 Microfinance

4.3 P2P Financing

4.4 Colendi Score as Financial Reputation

4.5 Colendi ID - Self Sovereign Identity

5. Conclusion

6. References 24

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1. IntroductionColendi is a credit scoring and microcredit platform that can leverage new sources of information

about borrowers to assess creditworthiness in addition to traditional measures. This technology creates

financing opportunities for new markets of underserved individuals (unbanked and underbanked) and

businesses. This is accomplished by evaluating complementary and distributed data segments of a

user with the help of machine learning based credit scoring technologies. Early in the project, it was

already apparent that there existed common data paradigms for storage and evaluation of data

sources, which could be implemented across seemingly disparate data streams sharing specific

underlying properties.

For example, transaction histories are very valuable tools in assessing creditworthiness, as steady

purchase habits over time may reveal stability and regularity that imply higher probabilities of on-time

payments and therefore lower probabilities of default. Transactions can be leveraged to score

creditworthiness across sectors and industries, from simple hardware stores to global shipping

companies. They share certain common attributes such as date of purchase, amount, descriptions

of items, and involved parties.

However, the same exact model for scoring credit based on hardware store transactions cannot be

directly applied to global shipping companies, as the industries and transaction characteristics are

very different. The financial sector is fraught with the overextension of models that do not assume an

inclusive purpose, thus eventually falling to faulty assumptions. Therefore, it is important to allow the

parameterization of any transaction history module to accommodate the major modes of its related

credit evaluation across several industries and sectors. The fine-tuning of these base models and

integrating the essential supplementary data integrations require substantial efforts, expertise, and

resources.

Considering data, the richest collection belongs to the users. By allowing Colendi to access certain user-owned smartphone and social media data, underserved individuals will be able to obtain an initial credit score even without a financial record. The scoring algorithm is designed for machine learning to become ever more sophisticated. Users will also be entitled to decide for which data to give access for Colendi’s evaluation, and even exercise sovereignty over their corresponding data provided by tertiary data partners.

The data-integration process is arguably the hardest part of building a trustworthy credit scoring platform.

The process can easily have intricacies such as incorrect or missing data, usage of the wrong format,

and so on. Businesses should always begin with on-boarding the profile data to assess its quality as a

data resource while running a compatibility check with the environment in which the data will be

integrated. This requires a complex and cumbersome development process, which is even hard to

undertake by bigger businesses that have the necessary data and fiscal resources in abundance.

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The inevitable result is an anachronistic, and underdeveloped credit scoring mechanism that fails to be

inclusive for a pronounced proportion of the society. Therefore, adding to its comprehensive credit scoring

technology, Colendi creates an incentive system that is designed and tested for the purposes of

rewarding integrators that bring new data to the network.

Colendi proposes a specialized low-level protocol solution on Ethereum blockchain to radically transform

the conventional approach to credit scoring. The main goals to achieve for Colendi are generating

a viable reputation metric to allow underserved populations gain access to microcredit at ease while

delivering a highly essential risk analysis tool for lenders and merchants who are in grim need to expand

their customer base during an era of stagnating global demand. Microcredit markets present an

unmatched opportunity for these purposes.

FINANCIAL

PASSPORT

842SCORE

3

1.1 The Problem

Traditional scoring methods blatantly ignore the unsecured consumer credit analysis. Today, 2.93

billion people are unbanked, meaning that 38.5% of global population is fully deprived of banking

services, and only 42% of the banked population is labeled as eligible for lending [1]. Even in the US, one

of the most developed countries in the world, there are 51 million underbanked adults.

California is one of the richest states in the United States with an underserved population that

constitutes up to 25% of the society. The situation exacerbates for the black and Hispanic

communities with 53% and 42% respectively, as they are unable to fully participate in the economy due

to lack of access to certain financial services. In aggregate, up to 40 million Americans are

estimated to depend on expensive payday loans to meet some or all their financing needs [2].

Concurrently, credit scoring services are in true need of a data revolution per se. Banks build

their financial scores based on track records of their customers, which hinders the process of

discovering the real characteristics of a potential borrower. [3] Since they cannot freely access the

necessary private data of the potential customers, their degree of freedom is limited to their own

databases. Even if these databases can be congregated into greater data pools under certain

institutional efforts to forge a more pertinent creditworthiness metric, it cannot match the level

of inclusiveness and dynamism proposed by Colendi’s technical architecture. Colendi aims to attend

to this chronic problem that goes across the borders of developed countries with high-income

disparities, emerging markets, and lesser developed economies.

Colendi is an attempt to nurture the most relevant and comprehensive credit scoring platform in history

by utilizing its indigenous machine learning algorithms and the disruptive attribute of blockchain

technology that allows us to sustain highest standards of evaluation transparency, security and user data

privacy.

FinTech is adopting Blockchain technologyto provide solutions to chronic problems of the finance industry.

And the next problem to solve is “Access to Credit”

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1.2 Previous and Related Work

The need for blockchain-based credit scoring methodologies and decentralized ID systems has

already been partially addressed by several entrepreneurs in the field. However, no project has yet to

offer a holistic solution for creditworthiness evaluation that includes a well-performing risk assessment

tool and can serve as a global financial passport to enable microcredit markets for demand and supply

sides in parallel.

In general, Colendi interacts with three areas: credit scoring, decentralized ID, and blockchain-

based lending. The latter two are not the fundamental scopes for Colendi, hence companies such as

uPort, Civic, Ripio Credit Network, and Dharma Credit are seen as potential partnerships rather than

competitors.

Related work on credit scoring has multiple predecessors, including Tala and Bloom. Tala is a

highly respected, non-blockchain organization that has been in microcredit markets for a while,

whereas Bloom, on the other hand, has the greatest similarities to Colendi and is mostly perceived

as a competitor. However, Colendi does not concentrate on lending as a whole but rather

specifically focuses on microcredit markets tailored for consumer needs. Colendi has been in the

planning since 2015 as the idea, and the core team has begun development efforts prior to

the mainstream attention received by blockchain technology since last year.

There are surely other noticeable projects and solutions to serve the addressed market, and

Colendi envisions to federate key partners in matching cases that will create a more inclusive

environment for leveraging financial services.

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2.1 Protocol Layer Contributors

Borrower Lender Merchant Integrator

Colendi Network is designed for an easy user experience. Although achieving high quality in scoring

requires a complex product development process, we aim to build a simple end product for our

community that will work within the conventional logic of demand/supply behavior.

There are two categories of contributors, namely the protocol and non-protocol layer. Former is

represented by four vectors for achieving a complete microcredit cycle through Colendi Protocol. They

simply represent demand, supply, network bootstrapping and data vending in order to solicit our

machine learning algorithms and business execution. The subsequent non-protocol layer contributors

are divided into two vectors, who, for the least, play an equally crucial role as the protocol layer

participants.

Protocol layer contributors are the native participants of Colendi Network that constitute the basis for

the credit scoring and microcredit platform as a group. Defined below, are the four vectors of this

protocol layer.

2. Protocol Mechanism

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2.1.1 Borrowers

Borrowers constitute the demand side of Colendi ecosystem, thus being an indispensable component

of the protocol.

Persona

Individuals or small businesses that need short-term financing. Active participants in the local economy

who need capital to expand their businesses. Involvement in “formal” credit markets such as bank loans

are little to none.

Incentives

• Demand for quick capital with reasonable rates.

• Staking rewards (see below).

Token Usage

Although Borrowers are not obligated to stake tokens, staking will help maintain an active user

profile and increase Borrower eligibility and Colendi score when the provided user data would not

satisfy minimum requirements of the Lender. Colendi tokens will not be used as collateral for

compensation of the lender in case of a fraudulent behavior by the borrower. Borrowers may rather be

asked to present alternative tokens as collateral that will act as a positive variable in the scoring

function. The required number of tokens to be staked will be subject to variation depending on the

credit score of the borrower.

Nevertheless, for individuals that are unable to afford any tokens due to lack of access to any

banking services, Colendi will seek partnerships with data-rich non-profit organizations, providing

rewards in exchange for leveraging their data about the local inhabitants to facilitate efficient

distribution.

BORROWER

ACCESS TO FINANCE

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Access to Finance

Borrower initiates the purchase by scanning the QR code. Borrower’s eligibility for microcredit

is instantly calculated. If the Colendi Score of the Borrower meets the requirements of the Lender, he/

she is prompted to proceed with the application for finance and the purchase is completed. The

money flows from lenders wallet to merchant’s wallet, and ultimately to borrower’s wallet. The

Borrower can pay back to the lender through Colendi app, who will return the principal along with

the rest of the profits to the lender.

Lenders constitute the supply side of Colendi ecosystem. Although Colendi does not solely serve as a

microcredit platform, lenders will be an integral component of the ecosystem if there is demand for

credit.

Persona

• Merchants that want to capitalize on the demand of short-term loans by reliable customers.

• Microfinance and P2P lenders who wish to extend their customer base.

Incentives

Thanks to Colendi’s scoring algorithms that operate on a comprehensive database, NPL risks are

minimized for the unbanked population and the potential number of borrowers is increased.

Token Usage

Score queries for lending purposes let the lenders interact with the data service of Colendi. The Lender

pays for query fee to view the score of the borrower and sets certain standards for issuing microcredit.

Lenders are not required to stake Colendi tokens if they lock in the entire microcredit sum in

Colendi’s account through the course of lending.

Queries will be initiated via user permissions. A lender may be any third-party financier, while

the merchant itself can act as a lender and vice verse.

2.1.2 Lenders

COLENDINETWORKBORROWER LENDER

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Merchants are the principal contributors for bootstrapping Colendi Network. Colendi has long focused

on building a wide merchant network to increase the momentum of user growth.

They also happen to be the most flexible group of contributors. All merchants are encouraged to act

as a lender, data partner, and/or integrator to maximize their mutual benefit from Colendi services.

Persona

E-commerce networks, retail shops, and service providers of all sizes that look to improve their consumer

network both in terms of size and quality.

Incentives

• Opportunity to generate extra revenue by contributing as a lender, data partner and/or integrator.

• Staking rewards (see 3.4 Staking).

• Increase sales by unlocking a whole new group of potential customers that are highly capable of

utilizing microcredits but are excluded from financial services due to inadequate and obsolete

creditworthiness evaluation methods of the industry.

• Establishing a more loyal customer base by deploying Colendi as a trust mechanism.

Token Usage

Parties who only assume the role of merchants are not required to stake, whereas merchants who

want to contribute by assuming other protocol and/or non-protocol layer roles in Colendi Network

will be required to stake the corresponding number of tokens designated by Colendi. Early adopters

have the potential to earn disproportionate rewards based on the performance standards pre-defined

by Colendi team, which monitors the beneficial contributions to the network.

2.1.3 Merchants

E-Commerce Networks Retail Shops Service Providers

Colendi Network

2.1.4 Data Partners

Data partners consist of prominent companies that are looking to obtain more reliable credit

scoring services. The Colendi platform will launch with multiple data partners such as major telecom

companies and retail chains. These agreements will enable Colendi to expedite the development of

Colendi scoring system by providing access to a diversified set of databases.

The main objective is on-loading major data partners as contributors to our project. Contributing

data partners are regarded as early adopters, and will be rewarded accordingly. A

certain number of Colendi Tokens will be distributed to our data partners to bolster this relationship.

Persona

Companies with mass user data -telco and retail chain stores- that aim to create new revenue

streams by securely deploying their data for establishing a user base with that is subject to risk analysis.

Incentives

• Generating revenue from the redistribution of the tokens charged on transactional queries.

• Staking rewards (see 3.4 Staking).

• Accessing a new financial scoring technology that will provide a reliable benchmark for financing

more commercial activities as well as other business scopes.

Token Usage

A staking range will be determined for each data partner to ensure data quality. Successful scoring

queries are rewarded based on the contributed data from related transactions. Early data partners

have the potential to earn disproportionate rewards respective to their beneficial contribution to

Colendi Network.

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DATA COLENDI PROTOCOL

DATA PARTNER

STAKETOKENS

10

Non-protocol layer contributors are defined to serve as parties who do not necessarily directly

get involved in Colendi’s protocol layer credit scoring and microcredit ecosystem, but rather act as

complimentary contributors to help Colendi Network build a fully self-sufficient business model.

There are two contributors at this level. First and foremost are the integrators, who enable a wider

audience to participate in Colendi ecosystem for bootstrapping the utility attribute of Colendi

Token. Integrators are also encouraged to assume a protocol layer contributor role if they are

willing to contribute more actively and earn higher rewards. The second is the validators, who

validate the quality of protocol layer contributors.

2.2 Non-protocol Layer Contributors

2.2.1 Integrators

DATA PARTNER

MERCHANT

LENDER BORROWER

INTEGRATOR

Contributors at this layer are also required to stake in order to earn rewards. Integrators are the

bridge between Colendi’s protocol and non-protocol layers. The reward and punishment

mechanism will be fine-tuned to keep an active and loyal integrator network that will extensively

shred the efforts required by the Colendi team to realize the aimed expansion.

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Persona

• Anyone who on-loads new Lenders, Merchants, Data Partners and/or Borrowers to Colendi Network.

• All protocol layer contributors

Incentives

• Source of income through rewards based on the number of successful issues of microcredit via integrated

lender, merchants, and/or data partners.

• Integrators are required to stake until their integrations are validated.

Token Usage

A staking range will be determined for each integrator to ensure the validity of their integrations.

Successful scoring queries followed by an issued credit are rewarded based on related transactions

through lenders, merchants, and/or data partners. For borrower referrals, the rewards will be based on the

activity and the pay-back performance of the referred member. Purchasers who will participate in Colendi

Token Sale and assume one or multiple roles of protocol-layer contributors will also need to achieve Proof of

Use as going through validation as an integrator. If a purchaser wants to assume multiple roles as a

protocol layer contributor, they will need to be validated for each role they want to assume.

2.2.2 Validators

Validators Token Owners Except Protocol Layer Users

Protocol layer users are required to stake Colendi Tokens to be listed on Colendi’s Token Curated

Registry (TCR) system for decentralized validation. TCR is a concept offered by Mike Goldin of

ConsenSys, which allows a greater audience to interact with a utility token network as “validators”.

Validators are objective voters who validate high-quality candidates (protocol layer contributors

except Borrowers) and reject the ones they deem insufficient to join the a network. This will

help to build a fully decentralized ecosystem.

Protocol Layer Contribution Candidates

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Persona

• Anyone who completed their registration on the Colendi App.

Incentives

• Earn rewards by validating the protocol layer contributor candidates (except Borrowers).

Token Usage

For all events of validation and challenges, validators are required to stake Colendi Tokens in order to

access Colendi’s TCR system.

Important Note:

Token Curated Registries are still under development. For this reason, Colendi TCR will only

be used as a demonstration for the initial Colendi Token purchasers as a POU use case.

Following the completion of Proof of Use, which is a standard that focuses on selling the tokens to

actual users of the network, and stem speculators from taking part in the token sale [4]

Colendi TCR will be taken offline and be constantly updated by Colendi team in

parallel with the developments in the Ethereum ecosystem.

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3. How will Colendi protocol work?

Network Growth Maintain HighQuality Data

Privacy Protection

3.1 Identity and Scoring

Colendi Protocol aims to disrupt financial scoring and become the new normal for microcredit markets.

It covers several layers such as ID creation, data integration, score evaluation, queries, and active

token distribution.

ID creation is the first layer of Colendi Protocol. Through Colendi App and other integrated

platforms, users create their Colendi ID by providing identity parameters and complementary

information. Access to identity parameters is only possible by the data-owner, making Colendi ID a

secured layer within its network.

User-owned data (smartphone and social media data) and tertiary data sourced from data partners

are positioned anonymously on end-to-end encrypted decentralized data storage systems. It is

not possible to relate a data segment with the user’s ID parameters. Each data segment is only

accessible by the respective data owner. Colendi is not authorized to edit the data. The hashed

signature of the data is kept on Ethereum blockchain.

Borrower Lender Merchant Integrator

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All contributions are automatically rewarded with Colendi Tokens based on congruity. All network

related events are recorded step by step on the blockchain to carry out instant updates on the Colendi

Score of respective users.

Private data based on end-to-end encrypted decentralized data storage systems is scored by

Colendi’s algorithms. The weight of each data segment changes dynamically regarding the way it

affects the credit score of individuals, as Colendi consolidates more credit history data. Transaction

logs, smartphone and social media data, user inputs and Colendi credit history is evaluated to print a

financial score for each user. Gathering credit history data includes all details regarding transactions

and repayment performance.

3.2 Contirubtion-based reward mechanism

Rewarding the good actors based on the value of their contribution constitutes the very basis of bootstrapping

Colendi’s sharing economy. Colendi provides a complete system for shopping-based microfinance

lending as an initial use case. Through Colendi App users will be able to complete their repayments for their

loans from Colendi’s lending partners. The only requirement to check eligibility for microcredit at

designated merchants is registering to Colendi and receiving your financial passport on the blockchain.

Merchants and lenders will access Colendi Score through queries in Colendi Protocol. The process will

instantly take place over smart contracts. The merchants/lenders will pay for score query fees. The fees

will not be charged with Colendi Tokens, but any other ERC-20 token that is supported by Colendi

wallet.

Redistribution of tokens will be carried out instantly on smart contracts at every point in time where

a score related event takes place. Participants will be rewarded relative to their respective

contribution after the deduction of network costs. The number of tokens that will be redistributed

as incentives will decrease at a diminishing rate according to Colendi’s network growth slope.

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3.3 Rewarding of early adopters

DATA

REWARD

DATA PARTNER

Colendi has reserved a portion of its tokens for community development. Early adopters are one of the

fundamental components of building a successful user base. The rewards will be distributed on a basis of

diminishing returns that resembles an increasing mining difficulty structure [5] to promote early adoption

for acquiring pioneer data partners and integrators

Although marginal returns decrease as a function of network growth, cumulative earnings do not

necessarily need to follow a parallel track considering the expanding user base that may secure a

greater share of the remaining rewards for the contributing party.

The reward mechanism for data partners works as a function of the relevant user data they share to

improve Colendi's scoring algorithms. The number of users covered, data history, dimensional

coverage, and data quality are the key parameters affecting the related token amounts they will

receive from queries. This mechanism is designed to promote a qualified data contribution. In other

words, the higher the data quality, the greater the rewards. Each lending activity corresponds to a

query, allowing data partners to secure more rewards.

Each integrator will be rewarded based on the congruity of the party they on-board to the Colendi

Network as well as the respective size of their contribution. All integration cases will be evaluated

separately, in detail, to maintain a highly functional rewarding system.

• Borrowers

• Lenders

• Merchants

• Data Partners

• Integrators

• Validators

The economic implications of the staking mechanism will affect the velocity of the token. We also

believe that network growth will increase the demand for tokens as lenders join the network. This will

result in a growing number of queries that naturally leads to higher token demand. Staked tokens will be

locked in the smart contract and released back to the participators after the end of the staking period that

is predefined on the smart contract. Any misleading action during the period of staking will be

compensated through these tokens.

Since these actors will be bootstrapping the quality of the data, staking constitutes the basis of Colendi

Network's reward and punishment mechanism that operates either by allocating a certain amount of

the service fees as a reward for the beneficial actors or penalizing the bad actors via compensating the

affected parties with the staked tokens.

The Role of Borrowers in Staking

Borrowers may stake tokens in order to vouch for other users and to earn rewards by the end of the

staking period. Staking by borrowers may be demanded to achieve credit eligibility in case of failure to

satisfy the minimum score and data requirement of a lender and/or merchant.

The Role of Lenders in Staking

Lenders will be required to stake to gain access to Colendi Protocol. They are not allowed to deploy

staked Colendi Tokens as collateral.

The Role of Merchants in Staking

Merchants are only required to stake if they will assume other roles in the Colendi Network. These roles

could either be the lender, data partner, and/or integrator. In order to be able to claim rewards, they will

be required to stake until they fulfill the necessary duties of their corresponding roles.

3.4 Staking

A staking mechanism is used to assure data quality in concert with Colendi’s quick growth by securing

data standards and encouraging long-term partnerships. Data providers and integrators are expected to

be chief beneficiaries of staking. Their main objective is complying with our quality standards about data

integration. The Borrowers will also participate in the staking mechanism, especially at the initial phase of

the network in different countries. In the Colendi token design, the actors that are going to be staking the

tokens are:

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The Role of Data Partners in Staking

Data Partners will be the party to stake the highest amount of CODs in the network. The integrity of

the data is of uttermost importance to the system and data partners will be the sources of mass data.

The tokens staked by the data partners to guarantee the quality of data will constitute most of the

staked tokens.

Once the data quality is assured for all parties (borrowers, data partners, and integrators) to secure

full penetration of merchants and users into the system without malicious actions, staked tokens will

be released.

The Role of Validators in Staking

Validators will be required to stake in order to validate or challenge an existing lender, merchant,

data partner, and/or integrator.

3.5 Slashing Conditions

Slashing conditions, rather known as Minimal Slashing Conditions, is a cryptoeconomic concept

introduced by Ethereum cofounder Vitalik Buterin. It is derived as a function of security to achieve

“economic finality”, which is briefly defined as follows:

“A block B1 is economically finalized, with cryptoeconomic security margin $X, if a client has

proof that either (i) B1 is going to be part of the canonical chain forever, or (ii) those actors

that caused B1 to get reverted are guaranteed to be economically penalized by an amount

equal to at least $X.” [6]

This penalty mechanism for bad actors serves as an extra safety measure, is named "slashing

conditions". Colendi introduces slashing conditions to protect each party as well as the protocol from

any imposture and privacy-violating act. Following are the categories that will activate slashing

conditions for Colendi Protocol:

Integrator fraud

Integrator rewards will be staked until validation of referred borrowers, lenders, merchants, and/or

data partners are completed. The staking will be 6 months, which is the minimum time

period according to the Proof of Use standards. Integrators are responsible for the congruity of

their network. Discordant performance of merchants will result in slashing of staked tokens.

of the respective integrator.

The Role of Integrators in Staking

A certain number of tokens will be staked by integrators to enable them to earn rewards. Staking will

last for a predetermined time span to assure high-quality contribution and integration. In case of

malicious actions by integrators, their staked tokens will be subject to penalties (See Section 3.5

Slashing Conditions).

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Data provider errors and frauds

Data partners are responsible for providing relevant data. In case of data errors that may lead to unintended

user scores, earned rewards will be slashed according to terms to be defined by Colendi. In the case of

data fabrication to increase/decrease user scores intentionally or other misleading data procurement,

data partners will be slashed once again. Since staking is necessary for data partners of Colendi

Network, the violation will result in slashing of a certain number of tokens in accordance with the

ratio of misalignment. In case the Colendi Fraud Engine is suspicious of data fabrication, auditing

will be required to investigate the situation.

Borrower fails to repay the finance

In case the borrower is required to have collateral, Colendi will provide the necessary mechanism for

the borrower to provide other tokens or funds as collateral. Since Colendi Token serves a pure utility

purpose, it cannot be used as collateral. Staked tokens will be frozen in the corresponding node, which

will cause the tokens to be slashed if the borrowing party is to fail to pay back in time. The number of

slashed tokens will increase parallel to the duration of the delay in repayment, while the lender may

define terms for a put option on the issued debt. All tokens will be slashed only if the borrower

should fail to pay the minimum requirement, which also will be determined by the lender.

Additionally, if a third-party is the guarantor for any borrower debt, they will be slashed to

compensate for the losses incurred by the lender.

Lender fails to deliver the credit

If the lender does not provide the agreed microcredit liquidity on time or at all, it will be forced to stake

an increasing number of Colendi Tokens that will be continue to be subject to slashing conditions. In case

the misuse continues, the staked tokens will be slashed to be added to the reward pool for the

contribution-based reward mechanism that lies in the basis of Colendi’s sharing economy.

Merchant misuse of credit issuance

Merchants are not required to stake unless they also participate as a lender, data partner and/or

integrator. Yet this creates a dilemma for the lender as the merchant might try to issue more

microcredit to leverage the lack of enforcement. Colendi offers a solution of two segments for the case

merchant misuse of the Network.

Merchant performance will be transparent in the TCR and Colendi Fraud Engine will immediately

enforce staking once the non-perform loan ratio of the merchant shows an abnormal increase.

Staked tokens will be slashed if the merchant fails to ameliorate its performance. This mechanism

is expected to be upgraded to the auditing of validators in Colendi's TCR in the future, where

validators will be allowed to challenge the flagged merchant and acquire the slashed tokens if they

are to win the challenge. If the merchant still demands to stay in Colendi Network, it will have to go

through re-validation, which will require further staking. It will be up to the validators to give the

merchant a second chance.

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3.6 Future Work

Colendi is a founder of Collateral Insurance Program Consortium with nine other leading blockchain

companies in crypto lending space. [7] The initiative has the objective of forming an emergency fund for

crypto lending businesses. Although the business model is still under development by Etherisc, the

envisioned implementation will be a simple staking function in Colendi Wallet for the users. This way,

anyone can purchase COD to contribute to the Collateral Insurance Program and earn rewards. This is

expected to be a pivotal non-protocol layer contribution mechanism for bootstrapping the Colendi Network.

Currently, Colendi Foundation makes the judgment call on bad actors, releases reports with full

transparency with respected user privacy. But it will be a further improvement for the network to have a

decentralized inspection mechanism. Colendi aims to work with private regulators and most prominent

auditors in the world to achieve the highest possible precision, consistency, and data security, yet Colendi’s

own network will be the primary drive for mass adoption. Ideally, Colendi aims to deploy such a mechanism

by means of a token curated registry.

Colendi is also open to the idea of collaborating with the most prominent digital ID platforms on the

blockchain to build a more holistic profile for the people. Many visa issuance processes require presenting

proof of funds, and Colendi’s vision is to eliminate this inefficient procedure that fully converges with the

rationale of eliminating passports through building digital ID platforms on the blockchain.

Non-profit organizations that seek to bring microfinance to underdeveloped countries pose great

potential for partnerships for data integration and expansion of user reach. Colendi sees immense value

in partnerships with non-profit organizations to increase their capabilities regarding realizing a more

inclusive micro-credit issuance for citizens of underdeveloped economies.

Finally, we also believe in a decentralized world where banks will need to adapt to the new normal by

decentralizing their databases. Colendi is open to the idea of collaborating with banks to include them in

our alternative approach to credit scoring. We do not necessarily believe that decentralization will

eradicate conventional banking, but rather lead them to open up to new developments in financial

services, and that is where we see the opportunity to cooperate.

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InstallmentShopping

Micro Finance

Peer to PeerFinance

Financial Reputaion

4. Use Cases

4.1 Installment Shopping with Colendi Score

Colendi users will be able to pay for their shopping with installments in Colendi contracted

merchants. Users begin by signing up to Colendi after downloading Colendi APP and create their ID

and Score by giving permission for data access. Borrowers then may use the application at check-out

to receive microcredit if their scores are sufficient. They will repay in installments either through the

same merchant or paired payment service providers. All transaction details and repayments will

be added as a data dimension, and all will affect the Colendi Score of the user.

Merchants may be the financier of the installment shopping itself, therefore no 3rd-party lender is

required as a requisite. This is basically the digital alternative for the conventional use case, where

merchants provide shopping with installments opportunity to the customers they know and trust.

Hence, this option stays exclusive to this particular customer group. Colendi proposes an objective

alternative to transform this approach, which will not only build a greater customer base for the

merchant/lender but also provide the customer with the necessary means to access microcredit for

shopping.

4.2 Microfinance

Like installment shopping, users will utilize their Colendi Score to finance their shopping at the

integrated merchants. The merchant receives the payment from the lender (assuming they are

separate entities), while Colendi Score and ID are accessed by a 3rd party lender via Colendi Protocol.

This way, even the centralized institutes such as the banks will be able to participate in our

decentralized network as lenders to penetrate the microfinance market. It is also in Colendi’s plans to

team up with reputable organizations that currently work on enhancing and expanding microcredit.

Whether they are non-profit or for-profit, Colendi prioritizes signing partnerships to provide finance to

the unbanked in a legitimate and efficient way.

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4.3 P2P Financing

As our user base expands, in addition to institutional lending, P2P lending will also be introduced as a

complementary method. Users will be able to finance their shopping list through Colendi mobile

application, but this time from individual lenders. Token compensation for queries will be provided by the

lending part. By contributing to this process, both sides will get certain benefits for building a more

decentralized community and putting the underutilized savings into use.

Colendi also aims to improve the P2P financing platform to such a point, where users can lend their excess

credit they are entitled to deploy via third parties or directly via Colendi Network, as the ecosystem matures to

a viable instrument for microcredit markets.

4.4 Colendi Score as Financial Reputation

Any business can use Colendi Score as a reputation metric, while integration into 3rd party

applications can be done at ease. Global platforms such as Uber can make queries for potential

drivers, while Airbnb house owners may want to see the financial stability of their guests. Carpooling

services may establish an improved trust mechanism between their drivers and customers, particularly

in places where such services suffer from the difficulties in carrying out a viable KYC process to develop

the user trust. We believe that Colendi will contribute extensively for building a trustless society, and

such services that require a high level of trust will present a great chance to deploy Colendi as a

trustless and decentralized reputation metric for a wider audience.

4.5 Colendi ID - Self Sovereign Identity

Considering the covering base of the Colendi ID, it is Colendi’s strength to have Colendi ID positioned as an

independent layer as many services including Colendi Score cannot be provided without the verification of

user ID. The application scopes may vary through 3rd party system login processes to other self-sovereign

identity requiring applications, expanding the use and reach of Colendi Protocol. Positioning Colendi ID as

an independent layer to be integrated into other platforms will clearly avail the network value of Colendi.

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5. ConclusionFinance as an industry has reached a stage of saturation, while the threat of stagnation

looms over the sector. Banks cannot collect the necessary data to implement a financial risk

assessment that enables a more comprehensive outreach to greater parts of the global population.

The exclusion of billions of people from financial services hampers the global economy from

fulfilling its potential. The issue becomes even more crucial at a time when the global economy is

suffering from a lack of growth, and most of the growth is generated through unproductive

investments, leading to a substantial increase in bad debt. The gap in income disparity,

nevertheless, widens further every day for a great majority of nations, leading to massive amounts

of idle savings for the financially strong. All these problems create intrinsic risks for the

global finance industry that is desperate to unleash the potential of the underbanked by

introducing disruptive solutions, one of which is a reliable creditworthiness platform that can

expand the inclusiveness of microcredit industry.

Colendi takes on this mission by forming a valid financial score for individuals all around the world.

We are due building a zero-knowledge decentralized database through not only the data provided

by users but also major enterprises from the tertiary industry that are in grim need for creating

more room for growth of their businesses. We aim to become the industry standard in our

decentralized future.

Colendi Network uses end-to-end encrypted decentralized data storage systems built on the

Ethereum protocol to construct a ‘trustless’ service that will radically transform financial scoring for

the world. Colendi’s technology relies on machine learning to constitute an unmatched dynamism

of keeping an instantly updating credit score database. Hence, users will be able to access a fully

decentralized microcredit ecosystem at Colendi Network.

We are due process of building an incentive system that will enable a sharing economy within our

ecosystem. We plan to introduce gradual upgrades into wider scopes of the finance industry,

primarily P2P finance as well as establishing a reputation mechanism. A truly global, decentralized

and democratized financial passport for everyone.

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Data Partners

Data Integrators

NetworkCosts

ColendiFoundation

Lender pays for score with Colendi token in lending process

Colendi Token Rewards

Score Contribution

Community

Colendi Score

Borrower LenderMerchant

Figure: An infographic summary of Colendi Network

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6. References

[1] The World Bank Group. Global Financial Inclusion Index, 2014. databank.worldbank.org/

data/ reports.aspx?source=1228

[2] Haeslip, Matthew. “ Enterprise Case Study: Solving Underbanked Credit Scoring.” www.

ovum.com, 30 Sept. 2016.

[3] Baer, Tobias, et al. “New credit-Risk models for the unbanked.” McKinsey & Company,

Apr. 2013, www.mckinsey.com/business-functions/risk/our-insights/new-credit-risk-mod-

els-for-the-unbanked.

[4] Hines, Harrison. “Introducing Token Foundry’s Standards for Consumer Tokens.” Token

Foundry Blog, 24 June 2018, blog.tokenfoundry.com/introducing-token-foundrys-stand-

ards-for-consumer-tokens/

[5] M. Ali, R. Shea, J. Nelson, and M. J. Freedman, “Blockstack: A New Internet for Decentral-

ized Applica- tions”, Technical Whitepaper Version 1.1, October 2017

[6] Buterin, Vitalik. “Minimal Slashing Conditions – Vitalik Buterin –” Medium, 2 Mar. 2017,

medium.com/@VitalikButerin/minimal-slashing-conditions-20f0b500fc6c.

[7] Etherisc. “Collateral Protection Insurance Can Drive Mass Adoption of Token Econo-

mies.” Medium, Etherisc Blog, 13 July 2018, blog.etherisc.com/collateral-protection-insur-

ance-can-drive-mass- adoption-of-token-economies-51cc0ead62ba.