📊Risk Scoring
LendFriend provides transparent risk assessment to lenders, who decide what risk they're comfortable with. We follow Prosper and LendingClub's model: disclose risk clearly, let the market decide.
Risk Grades
Every loan receives a grade from A (minimal risk) to HR (very high risk):
A 🟢
Minimal
Excellent history + strong ties
B 🟢
Low
Good history OR strong ties
C 🟡
Moderate
Some history, moderate ties
D 🟡
Elevated
Limited history or weak ties
E 🔴
High
No history + large loan
HR 🔴
Very High
High risk situation or recovery
High risk grades (E-HR) may not fund successfully. Borrowers should start smaller or build their network first.
How Grades Are Calculated
Grades are based on four factors:
1. Repayment History
Past loan performance (on-time, late, defaults)
Number of completed loans
Most predictive factor for future behavior
2. Social Trust Score
Connection strength between lender and borrower
Based on Adamic-Adar algorithm (see Social Trust Scoring)
Weights selective mutual friends higher
3. Loan Size Risk
Amount requested relative to borrower's history
Larger loans for new borrowers = higher risk
4. Account Quality
Farcaster account age and activity
Filters spam/bot accounts
The exact weighting and scoring formulas will be refined as we collect repayment data. Phase 0 focuses on gathering behavioral data to build a robust risk model informed by actual performance, not assumptions.
Why This Works
Research shows:
Prosper proved transparent risk grades work at scale [36]
Friend bids (capital contributions) reduce defaults by 14% [12]
Market-based filtering reduces defaults (high-risk loans don't fund)
Key principles:
Lenders make informed decisions
Market naturally filters high-risk loans
Borrowers self-select appropriate amounts
Short terms (30-90 days) create fast feedback loops
Security & Gaming Resistance
Risk grades incorporate quality filtering and Sybil resistance mechanisms. See Anti-Gaming & Sybil Resistance for how we defend against fake accounts and coordinated manipulation.
Lender Warnings
Before contributing, lenders see clear warnings based on risk level. View warning system →
Next: Social Trust Scoring · Anti-Gaming · Lender Warnings
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