Teller secures $1 million financing to build credit risk protocol  

Teller secures $1 million financing to build credit risk protocol  

Published: 13-08-2020 13:02:00 | By: Bob Koigi | hits: 1630 | Tags:

Teller, a blockchain project for decentralized lending incubated by A16Z’s crypto startup school, has announced a $1 million seed raise led by Framework Ventures, followed by Parafi Capital and Maven11 Capital, to build the first-ever algorithmic credit risk protocol for decentralized finance (DeFi).

The protocol will be the first to bridge the traditional finance and DeFi worlds by aggregating data from legacy credit scoring systems, like Equifax, into decentralized lending markets.

DeFi protocols have recently skyrocketed in popularity among crypto enthusiasts. To date, these applications have banked more than $2 billion worth of cryptocurrency, with roughly $1.2 billion attributed to overcollateralized lending applications. Applications like Aave, Compound, and MakerDAO, have used ‘yield farming,’ an interest rate growth hacking strategy, to popularize their overcollateralized systems. However, these systems have limited appeal to mainstream audiences seeking real-world loans and lending solutions.

Ryan Berkun, founder and CEO, Teller: “Yield farming is a way for many DeFi protocols to temporarily bootstrap liquidity and generate a convection of interest among crypto traders. But true success for DeFi requires entering mainstream appeal; we need to stop building in a vacuum. In a trustless environment, unsecured loans are tough to architect but necessary for the evolution of DeFi. Current proposed solutions of ‘shared credit lines’ only dilute risk, rather than create true user accountability.”

Michael Anderson, co-founder, Framework Ventures: “We need solutions that offer seamless transitions between traditional finance and DeFi,” said. Credit scores are the mainstay of the lending world, and interoperability with existing systems will allow us to iteratively phase out centralized credit scoring rather than make a sudden and risky transition to trustless lending.”

The majority of DeFi applications and protocols today rely on collateralization ratios ranging from 150 to 300 per cent to mitigate risk for the lending and borrowing of crypto assets. Developers use over-collateralized systems to protect crypto lenders from asset volatility and loan default in a space with no identity or credit checks.

The Teller Protocol will reduce lending risks for crypto holders and allow anyone to launch decentralized lending markets that can offer unsecured cryptocurrency loans. Ultimately, this will lower the barrier to entry for mainstream consumers, who in 2019 accounted for over $140 billion worth of personal loans in the U.S. alone.

Teller will act as a middleware protocol for the DeFi industry, enabling the development of lending markets that interoperate with centralized financial data providers via a unique cloud-based infrastructure composed of a distributed node network. By leveraging this network, where selected nodes perform cloud operations, Teller will seamlessly aggregate an individual’s existing financial information and utilize the protocol’s open-sourced, credit risk algorithms to assess their creditworthiness and offer unique loan terms.

www.teller.finance