Teller, a blockchain project for decentralized lending incubated by A16Z’s crypto startup school, 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.
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“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.”
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.
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“Yield farming is a way for many DeFi protocols to temporarily bootstrap liquidity and generate a convection of interest among crypto traders,” said Ryan Berkun, Teller founder and CEO. “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.”
“We need solutions that offer seamless transitions between traditional finance and DeFi,” said Michael Anderson, co-founder of Framework Ventures. “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.”
