Why are Xerberus Risk Ratings Perfect for the Blockchain?

Blockchain transactions are native.

Utilizing blockchains often confronts builders with the same challenge in various settings. The problem we are discussing is also known as the oracle problem. We have a perfect world of truth in an ocean of subjectivity. However, when we choose random subjective input into the blockchain, it stops being useful as a single source of truth. Therefore, Crypto invented the oracle in which several parties must agree before inputting information from an external data source as truth onto the blockchain.

With Risk Ratings, we face a similar issue. One could make discretionary risk ratings and put them on the blockchain. However, this would not be better than traditional risk ratings, which are hugely problematic in their own right (misaligned incentives). However, worst of all, it would not use the blockchain as a single source of truth because whoever puts the risk rating on-chain must be trusted, and this is what we need to replace.

Therefore, Xerberus chooses a radical approach that uses only on-chain data as the basis for risk ratings.

The Xerberus Approach: You can fake an expensive watch but you can't fake your actual bank account balance.

Ultimately, crypto wallets are like bank accounts that provide insight into someone's past choices, giving us a hint about his potential future decisions. Additionally, it's easy to say that one will buy or sell asset X because of excitement or rage, but ultimately, what you do matters, not what you say. Therefore, just taking wallet balances and transactions as the basis of a risk rating provides us with a solid foundation.

Additionally, markets are efficient. That means the price of an asset is the consensus of all market participants. Market participants often have insights into the actual state of a project. This information is effectively encoded in their transactions. A good example might be the board member who learned of a catastrophic new development. After learning this, the person jumps out of the room and starts selling their stock from their phone. This action contains the information the board members just learned. All that one needs to decode the information is to know that the seller is a board member, and this is an unusual sell. This is precisely the information that Xerberus provides you in aggregation with their Risk Ratings.

Perfect for the blockchain

Xerberus Risk Ratings are perfect for the blockchain because our Risk Rating Approach uses only Blockchain Native Information, extracting insight from that information using an advanced mathematical model. The model's output, the risk ratings, can be put back on the blockchain. We achieve the computation of our risk ratings in a transparent and decentralized way. Making every part of the Xerberus Risk Rating Protocol genuinely native to the blockchain while also aligning our incentives with the users we serve.