How Teller and Orange are Expanding the Total Addressable DeFi Market

Access to DeFi is about to become more accessible than ever. Until now, many DeFi borrowers have been required to use over-collateralized loans, limiting the mass adoption of cryptocurrency borrowing.

Teller, a leading algorithmic credit risk protocol for decentralized lending, is shifting that equation in favor of borrowers. By including financial reputational data as a key input, Teller’s unique algorithm presents an opportunity for DeFi to expand its use and total addressable market.

That’s precisely why Teller is partnering with Orange, to bring portable reputation to the DeFi space. Individuals can now access crypto loans based on their reputation, assets, and behaviors in the financial system to reduce the amount of collateral needed to borrow.

“We are thrilled to partner with Orange,” said Teller Founder & CEO Ryan Berkun. “Reputation is a key part of the Credit Risk Algorithm supporting our lending platform, and the Orange team has made great strides in creating this for its users.”

The Link Between Collateralization and Reputation

Current DeFi protocols rely on high collateralization ratios to mitigate risk. The average DeFi user is subject to collateralization ratios starting at 150% to upwards of 300%. This means that the average borrower needs to lock up assets worth significantly more than the amount they want to borrow. It’s an issue that limits DeFi accessibility, and that Teller algorithms and Orange portable reputation will aim to solve.

Rather than mitigating risk by requiring inordinate amounts of collateral, Teller can now use Orange to view a potential borrower’s financial reputation based on custom off and on-chain data sources. Borrowers can thus be evaluated more fairly, and if they’ve developed a trustworthy reputation in multiple financial spaces, offer more beneficial terms for accessing crypto assets and working capital.

“It is equally important to assess borrower reputation data from on-chain and off-chain sources. Using both of these sources, we can begin to paint a picture of the borrower that has a greater accuracy than in the past,” Berkun said.

Ultimately, over-collateralized loans increase the borrower’s risk to the underlying collateralized asset’s volatility. Additionally, over-collateralized 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. Teller and Orange are working to change that permanently.

Thoughtful Lending Algorithm Design

What makes this increased access to DeFi a reality is the elegant algorithm design underlying the Teller app. From the beginning, Teller’s Credit Risk Algorithm (CRA) interest rate has been based on the borrow rate of Compound Finance, considered to be the risk-free interest rate in the cryptocurrency sphere.

“When designing our CRA, we understood the importance of evaluating strong factors of borrower history,” Berkun said. “Lenders are able to incur less risk with the more data that is available to analyze.”

Teller accomplishes this utilizing decentralized identities (DIDs), NFTs, and on-chain analysis in the same way Orange creates reputation reports. This makes a collaboration between the two projects a natural fit. By merging Orange portable reputation with Teller’s CRA, DeFi can become more accessible to borrowers while controlling risk for lenders.

Redefining DeFi Creditworthiness

Traditional lending via centralized finance is complex and multifactorial, restricting consumer access at the end of the day. What’s more, banks and financial institutions have the final say on credit access based on somewhat arbitrary and opaque assessments of creditworthiness across countries, markets, and financial backgrounds.

Teller and Orange are working to reduce that unnecessary complexity and centralization, reducing DeFi borrowing collateral requirements while also providing lenders with the on-chain reputation data they need to securely lend. Teller is also introducing the unique concept of letting borrowers to secure loans using NFTs as collateral with their Fortune Teller program.

Teller’s innovative Fortune Teller program using NFTs as lending collateral.
Teller’s innovative Fortune Teller program using NFTs as lending collateral.

“Building the next generation of creditworthiness can be achieved when great teams align their efforts and bring in knowledge from both sides of the financial ecosystem,” Berkun said.

Closing Thoughts

The DeFi space is evolving at breakneck speed, yet accessibility remains a major issue. Teller and Orange’s innovative approach to under-collateralized lending will serve to open the door to a wide range of potential borrowers and new users.

“The offerings from Teller and Orange are strongly aligned in terms of their ethos, and we know integrating the two platforms will mean easier access to resources and greater financial freedom for our users,” Berkun said.

About Orange Protocol

The mission of Orange Protocol is building and enabling trustless, decentralized, and portable reputation for the Web3 world.

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About Teller Finance

Teller is an open lending protocol, connecting underwriters, and lenders, to an open borrowing network for increased DeFi accessibility.

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