Undercollateralized Lending with Inverum DeFi Protocol

Abstract

Decentralized Finance (DeFi) enables financial services to operate without centralized intermediaries, using smart contracts and blockchain consensus to ensure transparency and trust minimization. While DeFi protocols like Aave and MakerDAO use overcollateralization to mitigate credit risk, this approach creates capital inefficiencies and limits access to borrowers lacking on-chain assets. This paper introduces Inverum, a novel DeFi lending protocol designed to support undercollateralized loans for Web3 businesses and Decentralized Autonomous Organizations (DAOs). Inverum integrates on-chain credit scoring via soulbound tokens, decentralized liquidity pools, and governance-driven incentives to enable trustless, reputation-based lending. The protocol offers a fully composable framework for exploring undercollateralized lending without relying on traditional identity or off-chain reputation systems, contributing a research-ready model for future experimentation and protocol design.