Teller partners with Chainlink to build undercollateralized DeFi lending. Chainlink is the world’s leading decentralized oracle network, and DECO is Chainlink’s privacy-preserved oracle protocol. Build a Proof of Concept for issuing undercollateralized crypto loans.
Furthermore, Teller’s PoC with Chainlink is a future-proof coalescence of traditional finance and Decentralized Finance (DeFi) to enable the lending of digital assets. In a manner that hasn’t been possible before and has been touted as the future of DeFi – the undercollateralized loans.
Teller is bringing the best of both worlds together to develop a POC that has made undercollateralized loans plausible. Without jeopardizing users’ privacy, security, and easiness of getting crypto loans.
“This proof of concept between Teller and Chainlink Labs showcased the true power of the DECO protocol and how privacy-preserving oracle technology can enable trillions of dollars in untapped value to be brought on-chain via undercollateralized lending. We’re excited to continue working with Chainlink on the development and refinement of the DECO protocol.” – Teller Finance CEO Ryan Berkun.
“DECO is an innovative new technology that enables smart contracts to serve even more powerful use cases in a truly privacy-preserving manner. This proof of concept with Teller successfully demonstrated how the application of academic research can be applied to real-world use cases. We are excited to continue our collaboration with Teller on their use of DECO and look forward to making DECO available to the broader community.” – Chainlink Labs Chief Research Officer, Dahlia Malkhi.
What are undercollateralized loans?
Undercollateralized loans are loans in which the amount deposited or put as collateral is less than the principal amount of the loan. This means if the borrower defaults on the loan, the collateral will not be enough to cover the loan’s principal. Furthermore, undercollateralized loans are common in banks and the traditional finance industry. It is conceived to protect the interest of both borrowers and lenders.
Moreover, all DeFi loans are overcollateralized because of two reasons – Trust and Volatility. It is understandable to keep crypto loans overcollateralized because of cryptocurrency’s high volatility as the collateral value can fluctuate massively. However, DeFi is the land of trustlessness.
In addition, DeFi leverages public blockchain with pseudo-anonymity and smart contracts. It is to automate lending and borrowing, calculate interest rates, and establish collateralization rules. Additionally, DeFi ensures this trust by implementing algorithms that ensure that all the crypto loans are over-collateralization.
The Teller Protocol operates as decentralized software, enabling unsecured DeFi digital asset lending and borrowing through an open order-book model. Through the protocol, borrowers can bridge off-chain data onto on-chain loan requests. Those requesting assets propose a loan request, and those supplying assets commit those assets to loan requests of their choosing. Lenders who agree to loan terms requested by borrowers, based on the data provided or required, transact directly.