TransUnion, one of the three major credit agencies in the U.S., has announced that it will provide credit scores for decentralized finance (DeFi) lenders. The firm has partnered with data security firm Spring Labs and DeFi identity and compliance software developer Quadrata to provide traditional (off-chain) credit scores for individuals when they apply for loans on blockchain-based protocols, without compromising applicants’ privacy. 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. Credit scores for crypto borrowers could have mitigated the losses, according to Walter Teng, vice president of digital assets of market research firm Fundstrat.
Jason Laky, executive vice president of financial services at TransUnion, said that “credit scoring is an important tool for lenders to help mitigate risk regardless of the platform being used. TransUnion’s credit scoring allows consumers to use their credit history and share their credit information in a secure way with any blockchain-based lending protocol while also helping lenders improve their decision-making and risk management”. Loan applicants can request their credit score from TransUnion, which will be delivered directly to consumers via Spring Labs with excerpted information subsequently shared with the lender.
“As more consumers and lenders move to blockchain to conduct business, it’s important to ensure that the balance is struck between the information that lenders need to assess risk and the privacy and anonymity expected by users of the technology,” said John Sun, chief executive officer of Spring Labs. TransUnion’s latest effort is part of a larger trend in which traditional financial (TradFi) services and crypto markets have become more intertwined as TradFi firms explore ways to use blockchain technology and their foothold in traditional markets to serve crypto investors.
Last year, rival credit agency giant Equifax joined with Oasis Labs to develop identity management and know-your-customer (KYC) compliance for blockchain firms. Another competitor, Equifax, has been collaborating with decentralized lending platform Credefi for green company scoring for firms in the European Union. The latest development comes after TransUnion and Spring Labs’ introduction in October of a privacy-focused, data-sharing service called TrueZero. The service allows financial institutions to send information, such as credit data, without revealing sensitive personal data. TransUnion is also an investor in Spring Labs.
TransUnion’s new service is significant because it will provide credit scores for DeFi lenders, thereby addressing the issue of unsecured lending in the digital asset market. By providing credit scores, lenders can assess the risk of borrowers and make informed decisions. The service will also help consumers use their credit history and share their credit information in a secure way with any blockchain-based lending protocol. The partnership between TransUnion, Spring Labs and Quadrata is a positive step towards ensuring that the balance is struck between the information that lenders need to assess risk and the privacy and anonymity expected by users of the technology.
The move by TransUnion is part of a larger trend in which traditional financial services and crypto markets have become more intertwined. Traditional financial firms are exploring ways to use blockchain technology and their foothold in traditional markets to serve crypto investors. This is a positive development for the crypto market, as it will help to bridge the gap between traditional finance and the crypto market. It will also help to increase the adoption of blockchain technology in traditional finance, which will ultimately benefit consumers.
In conclusion, TransUnion’s new service is a positive development for the DeFi market. By providing credit scores for DeFi lenders, the service will help to address the issue of unsecured lending in the digital asset market. The partnership between TransUnion, Spring Labs and Quadrata is a positive step towards ensuring that the balance is struck between the information that lenders need to assess risk and the privacy and anonymity expected by users of the technology. This is a positive development for the crypto market, as it will help to bridge the gap between traditional finance and the crypto market.
