2. Industry Challenge

2.1 Limitations of Current DeFi

Despite DeFi’s impressive growth, current platforms are limited in several ways:

• Capital Inefficiency: Users often need to over-collateralize loans, reducing effective capital utilization.

• Barrier to Entry: Complex strategies and high gas fees prevent mainstream users from participating.

• Fragmented Ecosystem: Yield opportunities are distributed across multiple platforms, requiring manual monitoring and execution.

Data shows that over 90% of DeFi lending platforms require collateral above 150%, and only ~20% of users actively engage in multi-protocol strategies, highlighting the high entry barrier for average participants.

2.2 The Credit Gap

In traditional finance, borrowers have credit ratings that determine lending eligibility and terms. In DeFi:

• Users are treated as homogeneous high-risk entities.

• Collateralization is the only way to mitigate risk, ignoring behavioral data and historical performance.

• There is no standardized, portable, on-chain reputation system that can be leveraged across multiple protocols.

This gap prevents users with proven reliability from accessing greater leverage or preferential terms, reducing overall liquidity efficiency in DeFi markets.

2.3 Complexity of Yield Strategies

DeFi strategies such as yield farming, staking, and arbitrage are constantly changing, and protocols have varying interfaces and rules. Challenges include:

• Real-time monitoring across multiple chains

• Understanding impermanent loss, liquidation risks, and smart contract vulnerabilities

• Manual execution and timing inefficiencies

Without automation, many users miss profitable opportunities or are exposed to unnecessary risk.

2.4 Inclusivity and Accessibility Challenges

High gas costs and lack of trust mechanisms disproportionately affect smaller users. Many participants are priced out of active engagement, while institutional actors dominate capital efficiency.

CredDeFAI Protocol addresses this by:

• Lowering operational barriers via AI-driven automation

• Reducing gas costs through gasless swap mechanisms

• Establishing credit-based borrowing using NFT reputation, making DeFi more inclusive