Decentralized lending company Teller raised $1 million in an initial round of funding led by Framework Ventures to build the first algorithmic credit risk protocol for decentralized finance (DeFi).
The solution will work with legacy credit scoring systems, such as Equifax, to provide aggregate data to DeFi’s loan markets. Parafi Capital and Maven11 Capital also participated in the investment round.
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„We need solutions that provide seamless transitions between traditional finance and DeFi,“ said Framework Ventures co-founder Michael Anderson. „Credit scores are the backbone of the lending world, and interoperability with existing systems will allow us to phase out centralized credit scores rather than make a sudden and risky transition to unreliable loans.
Lowering the entry barrier by reducing risk
The Teller Protocol aims to reduce the risks of lending to crypto-currency holders and ultimately reduce the barrier to entry for regular consumers. Interacting with existing financial databases, the solution works with the Ethereum Chain of Blocks (ETH) and will allow developers to use a credit risk algorithm Iq Option to reduce the amount of collateral required for a loan.
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Teller founder and CEO Ryan Berkun said:
„True success for DeFi requires entering the mainstream; we have to stop building in a vacuum. In an environment without trust, unsecured loans are difficult to design but necessary for DeFi’s evolution. Today’s ’shared credit line‘ solutions only dilute risk, rather than create real responsibility for the user.
DeFi’s current products rely on over-saturation ratios of up to 300% to mitigate the associated risks.
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DeFi is and will continue to grow
With the rise of popular DeFi products such as Compound, MakerDAO and Aave, the sector has experienced exponential growth with over $2.5 billion in blocked assets. Earlier this week, Framework Ventures invested in another DeFi startup, Aave, for $3 million along with Three Arrows Capital. The company has also supported other Defi projects, including Synthetix, Chainlink and Kava.