Introducing Teller

Teller is an open-source protocol that interacts with consumer data to calculate default risk and offer unsecured crypto-asset loans. Users can supply liquidity to the protocol’s lending pools and earn interest from repaid loans. Teller leverages borrowers’ credit history to calculate an annual interest rate based on market conditions vs. consumer credit risk, reducing or eliminating the need for collateral.

Since its inception, blockchain technology, the technology underpinning the Bitcoin network, has given rise to opportunities to create unbiased, transparent, and efficient financial products. By using infrastructure that distributes data and value across a network of computers, individuals can subvert flawed, central-entity-controlled business models and create self-custodial solutions that operate without the shortcomings of centralized financial systems. The Decentralized Finance (DeFi) industry expanded this premise by promising an open, trustless alternative to existing financial instruments like peer to peer loans, high yield savings accounts, and derivatives contracts, among other financial products.

Current DeFi protocols rely on high collateralization ratios to mitigate risk for the lending and borrowing of crypto assets. The average DeFi user is subject to collateralization ratios starting at 150%. At present, a borrower might need to deposit anywhere from 1.5 to over three (3) units of collateral to mint one (1) stablecoin. Overcollateralized loan products increase the borrower’s risk exposure to the underlying collateralized asset’s volatility.

Additionally, overcollateralized loans present a barrier to entry for individuals who do not currently own crypto, or have limited financial means, further narrowing the gap between DeFi and the addressable global loans market. Other lending solutions in DeFi have sought to reduce or eliminate collateral ratios as well. However, current solutions still require a way to integrate consumer credit scores and thoroughly assess credit risk for unsecured loans.

Teller offers developers and consumers an interoperability solution that can leverage existing legacy credit scoring systems. The protocol’s ability to algorithmically calculate a user’s creditworthiness can enable the creation of decentralized lending markets that can offer unsecured loans. Eliminating the need for collateral while simultaneously lowering users’ financial exposure will accelerate the adoption of DeFi apps and facilitate the development of a new class of cryptocurrency loan products.

Teller calculates consumer credit risk as a measure of personal financial data, e.g., debt to income ratio. The latter translates into an interest rate based not only on money market interest rate but also on consumer credit risk. Variable loan interest rates in turn, result in variable APYs for the protocol’s liquidity providers. This means an affordable user experience that leverages positive credit history to lower DeFi’s exorbitant collateral ratios for the consumer. The DeFi industry means increased capital efficiency and expanded yield generation opportunities with minimal downside risk.

The protocol’s unique cloud-based infrastructure can connect and privately compute credit and banking data to generate individual loan terms based on a users’ creditworthiness. Teller is designed to develop decentralized loan products without collateralized debt, reducing consumer risk and costs. Teller can interoperate with centralized finance data, offering everyone the freedom to create a new wealth of trustless financial instruments.

We have a bit of a way to go before realizing our vision of merging traditional finance with decentralized finance. In the meantime, we’ll be rolling out our testnet, and following on with our upcoming mainnet as we work to expand our integrations with other protocols across the industry. On top of that, we’ll be expanding our network of consumer data providers in traditional finance, it might seem like a slow band-aid rip, but these are the first steps in opening up the DeFi industry to the rest of the world.

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