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DeFi
TransUnion, one of the three major credit agencies in the U.S., will deliver credit scores for decentralized finance (DeFi) lenders, the firm announced on Thursday.
TransUnion will provide traditional (off-chain) credit scores for individuals when they apply for loans on blockchain-based protocols without compromising applicants’ privacy, according to the press release.
The firm is teaming up with data security firm Spring Labs and DeFi identity and compliance software developer Quadrata to provide the service.
Last year’s brutal, crypto bear market led to a wave of defaults on unsecured crypto loans. The trend highlighted the fragility of unsecured lending in the digital asset market, Walter Teng, vice president of digital assets of market research firm Fundstrat, said in a report. Teng added that credit scores for crypto borrowers could have mitigated the losses.
In a press release, 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, Laky explained.
Loan applicants can request their credit score from TransUnion, 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,” John Sun, chief executive officer of Spring Labs, said.
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 has joined with 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.
