TransUnion to Deliver Credit Scores for Crypto Lending
• TransUnion, one of the largest credit agencies in the U.S., will off-chain credit scores for blockchain-based loan applications in a way that maintains the privacy of consumers.
• TransUnion is teaming up with data security firm Spring Labs and DeFi identity and compliance software developer Quadrata to provide the service.
• The trend highlighted the fragility of unsecured lending in the digital asset market, Walter Teng of Fundstrat said in a report.
Background
Last year’s brutal crypto bear market led to a wave of defaults on unsecured crypto loans, highlighting the fragility of unsecured lending in the digital asset market. According to Walter Teng, vice president of digital assets at market research firm Fundstrat, credit scores for crypto borrowers could have mitigated these losses.
TransUnion’s Solution
In response to this problem, TransUnion will provide traditional (off-chain) credit scores for individuals when they apply for loans on blockchain-based protocols without compromising applicants’ privacy. This new service is scheduled to be accessible starting next week and is made possible through TransUnion’s partnership with data security firm Spring Labs and DeFi identity and compliance software developer Quadrata. According to Jason Laky, executive vice president of financial services at TransUnion: “credit scoring is an important tool for lenders to help mitigate risk regardless of the platform being used.”
Benefits
The benefit that this solution provides is twofold: it allows consumers to use their credit history and share their credit information securely with any blockchain-based lending protocol while also helping lenders improve their decision making by providing better quality risk assessment tools than those available from current decentralized solutions. This should enable more accurate pricing models and enable lenders to offer competitive interest rates while improving access to capital for underbanked or unbanked customers who may not qualify for traditional loan products.
Conclusion
Overall, TransUnion’s new service represents an exciting development in both traditional finance and decentralized finance as it provides secure access to credit scores which can help reduce risks associated with DeFi lending while potentially increasing access to capital for customers who may not otherwise qualify.