Introduction to Teller
Teller is a non-custodial lending book that enables users to lend at above-market rates, borrow against any ERC20 (token) or ERC721 / ERC1155 (NFT), and build a history of onchain credit through loan repayments (and defaults). Teller is live on Ethereum and Polygon.
- Supply capital to collateralized loans. Earn yields above market rate.
- Borrow against any crypto asset, without the liquidation risk.
- Build onchain credit with each repayment.
Digital assets are the primary driver of blockchain adoption. From BTC and ETH, to DAO shares, LP deposits, derivatives, NFTs, real-world assets, and more, digital assets are core to crypto. To date, however, DeFi money markets support only a limited number of digital assets as collateral. These protocols minimize the risk of price manipulation, and the subsequent potential loss of liquidity provider capital, at the constraint of capital efficiency for digital asset holders.
More recently, the DeFi credit ecosystem has emerged, with on-chain credit scores accounting for wallet behaviour. Most relevant data around over-collateralized repayments and liquidations filters into these scores. By analyzing onchain credit, liquidity providers have greater insight into the historical probability of repayment on a per-wallet basis.
The Teller protocol brings forth the first use case of onchain credit in DeFi by replacing price-based liquidation pools with fixed collateral, fixed duration loans in concentrated liquidity order-books. This, in turn, enables borrowers to leverage any digital asset as collateral, without price-based liquidation risk. Furthermore, liquidity providers can earn yield above money market rates, with insights into wallet repayment probability and onchain credit recourse on default.
- Value: any crypto asset can be used as collateral (vs limited collateral selection)
- Risk: collateral price volatility risk for LP (vs oracle manipulation risk for LP)
- Underwriting: collateral price volatility + onchain credit / identity (vs liquidation certainty)
- Default recourse: collateral seizure + negative marks on onchain credit (vs price liquidation)
Liquidity providers can earn passive income by directly lending to individual loan requests or supplying liquidity through an open “offer” with deterministic requirements on collateral, credit, and identity verification of the borrower.
Borrowers are able to leverage any crypto asset as collateral, both ERC20’s (tokens) and ERC721’s / ERC1155’s (NFTs), by requesting a custom loan or by borrowing from open liquidity “offers” based on deterministic requirements of collateral, credit, and identity.
Loans on Teller can be constructed in an over-collateralized, under-collateralized, or no-collateral fashion, with a fixed duration, fixed APR, and no risk of collateral liquidation for the duration of a loan. Loans can be “offered” by liquidity providers, based on pre-set conditions, and “taken” by the borrower deterministically if the wallet meets the onchain criteria. In addition, loans can be “offered” by a borrower, who submits a custom loan request, and “taken” by a liquidity provider, who funds the loan.
The protocol defines default as failing to pay a scheduled repayment after a pre-determined due date plus a grace period. The repayment schedule per loan is based on the loan type, either standard (principal + interest) or ballon (interest only), with the remaining amount due by the end of the loan duration. The grace period is set by the specific lending pool.
In the case of default, a liquidator can repay the loan on the borrower’s behalf and seize any collateral associated with the loan. In addition, the lender can close the loan without repayment by seizing the remaining collateral. In both scenarios, the borrower’s on-chain credit score will be negatively impacted by third-party on-chain credit score protocol providers.
Teller loan data is integrated into several onchain credit protocols:
No protocol is without risks. The primary liquidity risk associated with lending on Teller is loan repayment. Liquidity providers must account for the probability of loan repayment (and/or collateral price stability) based on the loan collateral (both type and amount), as well as the borrower’s onchain credit and identity.
The primary borrowing risk is default recourse. On default, collateral assets can be seized by a liquidator, regardless of asset type and amount. In addition, the wallet’s onchain credit score can be negatively impacted, which is public throughout the DeFi ecosystem.