Smart DeFi Lending: Intelligent NFT-Backed Loans Framework for Risk Management in DeFi Platforms

Abstract

There has been a major change in the financial environment with the recent transition of traditional banking systems towards Decentralized Finance (DeFi). A decentralized alternative that includes DeFi, lessens conventional financial institutions’ drawbacks and improves privacy, transparency, transaction speed, and worldwide accessibility. The work presented here shows an Intelligent NFT-Backed Loans Framework for valuing and managing risk in the DeFi ecosystem. The architecture uses blockchain technology, smart contracts, and artificial intelligence to assure transaction security and integrity. In DeFi, we use Google Colaboratory to build a framework and evaluate its performance across five crossvalidation folds. With a maximum accuracy of 87.35 %, the framework demonstrates its efficacy and consistency over a wide range of data subsets. Using performance evaluation over 5 cross folds for training and validation data, this model enhances loan transaction security by identifying benign nodes for efficient valuation and compliance. Performance evaluation for DeFi extends to training and validation accuracy and loss over 5 folds, and also testing accuracy for 5 folds. This methodology maintains the integrity and security of NFT-backed loans by detecting unauthorized nodes on Proof of Stake permissionless blockchains.