Teller, a blockchain project for decentralized lending has announced a US$1M seed round led by Framework Ventures, with participation from Parafi Capital and Maven11 Capital
Teller aims to be the first interoperable blockchain protocol to bring credit risk assessment on-chain and enable unsecured lending for the entirety of the blockchain industry.
The company was founded in February 2019 by Ryan Berkun and Christopher Lee. Berkun and Lee had worked together previously at Fabrx Blockchain, which was founded by Berkun. Fabrx is a Web3 automation and middleware platform designed to connect the layers of Web3 technology into a single, accessible interface.
Prior to founding Fabrx and Teller, Berkun was involved in the startup ecosystem as a Venture Partner for Contrary Capital. He previously founded an app development company.
Lee, on the other hand, has been in various marketing roles in a range of early-stage companies. Currently, Lee is the Head of Growth at Teller and Berkun is the CEO.
According to the team, the Teller protocol aims to 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.
2020 has seen DeFi protocols skyrocket in popularity among crypto enthusiasts. To date, these applications have more than US$2.9B in total value locked in cryptocurrency, with roughly US$1.2B attributed to over collateralised lending applications.
These are applications like Compound, Aave, and MakerDAO. A phenomenon has arisen from these platforms known as ‘yield farming,’ an interest rate growth hacking strategy, to increase yield for investors. According to Teller, these systems have limited appeal to mainstream audiences seeking real-world loans and lending solutions.
Berkun, Teller CEO said, “Yield farming is a way for DeFi protocols to temporarily bootstrap liquidity and generate a convection of interest among crypto traders. But true success for DeFi requires 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.”
The reason that most of these DeFi platforms operate with over collateralisation is to protect crypto lenders from asset volatility and loan default in an industry with no identity or credit checks.
The collateralisation ratios currently range from 150% to 300% to mitigate risk for the lending and borrowing of crypto assets.
According to a press release from the company, the Teller Protocol will reduce lending risks for crypto holders and allow anyone to launch decentralized lending markets that can offer unsecured cryptocurrency loans.
To reach this vision Teller has raised US$1M in a seed round led by Framework Ventures, with participation from Parafi Capital and Maven11 Capital.
Framework Ventures is a thesis-driven venture firm and its thesis is that blockchain technology enables permissionless innovation that fundamentally reshapes consumer and enterprise web business models.
Framework Ventures portfolio consists of well known DeFi and Crypto investments such as Chainlink, Synthetix, Edgeware, The Graph, Kava and more.
In a recent podcast for Brave New Coin, Framework co-founder Vance Spencer said that a new age of venture capital is upon us, known as ‘Network Capital.’ Rather than just holding onto the asset, this type of investing aims to be more holistic. “If you’re going to be investing in decentralized networks, this requires a new hybrid model where the stakeholders can participate in market-making, staking, and governance,” said Spencer.
“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.”
According to the company, Teller will act as a middleware protocol for the DeFi industry. This would enable the development of lending markets that interoperate with centralized financial data providers via a unique cloud-based infrastructure composed of a distributed node network.
Teller will aggregate an individual’s existing financial information and utilise the protocol’s open-sourced, credit risk algorithms to assess their creditworthiness and offer unique loan terms.
Two major aspects of Teller are the Teller Protocol and Teller Cloud. Tellar Protocol is a protocol that will let developers create unsecured lending markets on the Ethereum blockchain that can interoperate with centralized data providers and credit bureaus to calculate consumer credit risk for loans.
While Teller Cloud is a distributed cloud network of independent protocol nodes. Each node can connect with other major cloud providers like Amazon Web Services or Google Cloud Platform, and offer both database and lambda support.
Maker already operates as a decentralized organization and more recently Compound has made a transition towards that model as well. In the whitepaper, it states that at inception, Tellers protocol governance will be delegated to internal team members and the protocol’s stakeholders.
It is also clarified that future iterations of the Teller Protocol will introduce a decentralized governance module through which community members will be able to submit proposals for review and approval by the protocol’s stakeholders.