According to the latest reports, TransUnion, one of the largest credit agencies in the United States, has recently announced that it will start providing off-chain credit scores for decentralized finance (DeFi) lenders. The credit scores will be used to evaluate loan applications made on blockchain-based protocols, while still ensuring the privacy of the applicants.
To deliver this service, TransUnion has formed a collaboration with Quadrata, a DeFi identity and compliance software developer, as well as Spring Labs, a data security firm. The goal of the collaboration is to provide traditional credit scores for individuals applying for loans on blockchain-based protocols, without compromising their privacy.
The decision to provide credit scores for crypto borrowers comes after last year’s crypto bear market led to a wave of defaults on unsecured crypto loans. These defaults highlighted the fragility of unsecured lending in the digital asset market, and industry experts have suggested that credit scores for crypto borrowers could have mitigated some of these losses.
In a press release, a statement released by Jason Laky, the executive vice president of financial services at TransUnion, credit scoring is an essential tool for lenders to manage risks, regardless of the platform they use. He added that TransUnion’s credit scoring allows consumers to share their credit information in a secure manner with any blockchain-based lending protocol, while also enhancing lenders’ decision-making and risk management processes.
Loan applicants can request their credit scores from TransUnion, which will then be delivered to them via Spring Labs. The lender will subsequently receive excerpted information.
John Sun, CEO of Spring Labs, stressed the importance of striking a balance between the need for lenders to assess risk and the privacy and anonymity expected by users of blockchain technology, as more users and lenders move to blockchain to conduct their business.
This move by TransUnion is part of a larger trend in which traditional financial services and crypto markets have become more intertwined. As crypto markets continue to grow and mature, traditional finance companies are seeking ways to leverage their experience and expertise to better serve investors. Equifax, a major credit agency, has teamed up with Oasis Labs to create identity management and KYC compliance solutions for blockchain-based firms. This collaboration demonstrates the increasing overlap between traditional financial services and the emerging world of crypto, as companies strive to meet the evolving needs of their clients.
