Taking collateral out of DeFi

Teller, an unsecured lending protocol incubated by venture capital firm Andreessen Horowitz, announced on Sept. 2 that it plans to integrate oracle provider Chainlink’s price reference data networks.

The latest entrant in the blazing hot decentralized finance arena, Teller’s goal is to provide a bridge between traditional finance and DeFi adoption “by lowering the industry’s barrier to entry.”

It plans to do this by eliminating the need to put up crypto collateral often worth 150% or more of the amount borrowed. Teller also will incorporate data from legacy credit scoring systems including Equifax.

The company plans to launch within the next month, with the lofty goal of disrupting the $215 trillion debt market, according to a spokesperson.

“We need solutions that offer seamless transitions between traditional finance and DeFi,” said Michael Anderson, co-founder of Framework Ventures, which led a $1 million seed round for Teller in July. “Credit scores are the mainstay of the lending world, and interoperability with existing systems will allow us to … phase out centralized credit scoring rather than make a sudden and risky transition to trustless lending.”

There is now $9.4 billion locked in various DeFi platforms, up more than 900% since June, according to DeFi Pulse.

“Lending accounts for more than 60% of DeFi’s [total locked value], and that’s just from overcollateralized lending options,” said Daniel Kochis, head of business development for Chainlink. “Unsecured lending via consumer credit risk is the next major milestone towards truly capturing new users, and we’re excited to provide key oracle functionality to make that a reality.” 

Calculating risk

Users can put up cryptocurrency assets in Teller’s lending pools and earn interest as loans are repaid, the company said in a release. Borrowers’ credit histories are used to calculate an annual interest rate based on both market conditions and that consumer’s credit risk—reducing or eliminating the need for collateral. 

“Teller calculates consumer credit risk as a measure of personal financial data, e.g. debt to income ratio,” said Ivan Perez, co-founder of Teller. “The latter translates into an APR that is not only based on money market interest rate, but also takes into account consumer credit risk. For the consumer, this means an affordable user experience that leverages positive credit history to lower DeFi’s exorbitant collateral ratios.”

For those locking collateral into the Teller lending pools, those APRs turn into variable rates of return, he added.

By integrating Chainlink’s oracle data—drawn from many off-chain aggregators to provide accurate, manipulation-resistant market data—Teller will be able to capture real-time price information on the assets under management, ensuring that the interest rates reflect real market conditions. 

Teller will initially draw data on three pairs: DAI/ETH, USDC/ETH, and LINK/USD.