“We see huge growth potential for institutional DeFi fueled by on-chain identity creation rooted in existing off-chain reputation,” said Fabrice Cheng, co-founder and CEO of Quadrata. “Just as you are able to leverage ‘good behavior’ and a solid reputation in traditional finance to access capital on favorable terms, you should be able to use this same on-chain approach through the Quadrata Passport. which provides a layer of trust through identity verification.
For most DeFi loans, the user deposits cryptocurrencies 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 down payment.
These over-collateralized loans are considered an inefficient use of capital. Over the past few months, several crypto loan offers have emerged that do not 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 undersecured loan are identity information and a credit score. Quadrata’s Web3 Passport can provide both.
Quadrata has partnered with fellow blockchain startup Spring Labs, which has developed its ky0x passport, including this information. Users agree to add verified identity, compliance, and credit information that may be used in transactions without revealing personally identifiable information. Identity and compliance data are already part of the passport and credit scoring data is in progress.
TransUnion is an investor in Spring Labs, and the three organizations are working together to integrate TransUnion’s credit rating data.
“By working with Quadrata to utilize Passport, our customers can now benefit from their strong off-chain credit reputation in an on-chain environment,” said Liz Pagel, senior vice president and head of consumer lending at TransUnion.
DeFi lending isn’t the only driver behind decentralized identity tools for the public blockchain. Some crypto lenders such as Aave are launching authorized lending pools, which by definition must identify whether a participant has authorization. And for security tokens to be traded on public blockchains, KYC is required. Thus several groups have created or are working on identity solutions. Center, the consortium founded by Coinbase and USDC issuer Circle, has launched Verite, an open-source identity protocol for crypto in which Block (formerly Square) participates.