“We see tremendous growth potential for institutional DeFi powered by on-chain identity creation rooted in the existing off-chain reputation,” said Fabrice Cheng, co-founder and CEO of Quadrata. “Just as you are able to leverage ‘good behavior’ and a strong reputation in traditional finance to receive access to capital on favorable terms, you should be able to use that same approach on-chain through the Quadrata passport that lends a layer of trust through identity verification.”
For most DeFi loans, the user deposits cryptocurrency such as Bitcoin and Ethereum and borrows dollars in the form of a stablecoin. The amount borrowed is usually up to a maximum of 70% to 85% of the deposit.
These over-collaterilzed loans are viewed as an inefficient use of capital. In the last few months, several crypto lending offerings have emerged that don’t require the same level of collateral. Some crypto institutions such as trading firm Alameda Research have borrowed hundreds of millions with almost no collateral through Maple Finance and TrueFi. However, they are not anonymous and they have a reputation.
In contrast, the average user is an unknown quantity. The two things needed to get an under-collateralized loan are identity information and a credit rating. Quadrata’s Web3 passport can provide both.
Quadrata partnered with another blockchain startup Spring Labs, which developed its ky0x Passport, including this information. Users agree to add verified identity, compliance and credit information which can be used in transactions without revealing personally identifiable information. The identity and compliance data is already part of the passport, and the credit scoring data is in progress.
TransUnion is an investor in Spring Labs, and the three organizations are working together to incorporate TransUnion credit scoring data.
“By working with Quadrata to utilize the passport, our customers can now benefit from their strong off-chain credit reputation in an on-chain environment,” said Liz Pagel, SVP and consumer lending business leader at TransUnion.
DeFi lending isn’t the only driver behind decentralized identity tools for public blockchain. Some crypto lenders such as Aave are launching permissioned lending pools, which by definition need to identify whether a participant has permission. And for security tokens to be traded on public blockchains, there’s the need for KYC. Hence several groups have created or are working on identity solutions. Centre, the consortium founded by Coinbase and USDC issuer Circle, has launched Verite, an open source identity protocol for crypto in which Block (formerly Square) is participating.