Polytrade and Teller AMA Recap

Last month, we held an AMA with Teller to uncover the state of lending in the current market. The AMA took place on Twitter spaces with Udai Parvathaneni (Head of Credit, Teller), Maker Lee (Head of Marketing, Teller), Ashish Sood (Head of Product, Polytrade), and Milind Bansia (Head of Strategy, Polytrade). If you weren’t able to join, here is the full recap so you don’t have to listen to it over again.

About Teller

Teller is a non-custodial lending book that facilitates DeFi loans on Ethereum and Polygon. Teller connects to your bank account to offer risk-assessed loans, without the need for collateral.

Where are investors looking to lend in the current market?

We’re seeing a lot of excitement around lending and DeFi in general right now. The volatility that we’ve had in traditional markets as well as in the crypto space, people really just kind of want yield. I think that’s kind of where people are congregating and that’s, of course, the lending that’s going towards DeFi lending options in terms of like, Aave or Compound or you’re even staking or whatever that looks like on Lido, or Rocket Pool.

People are wanting like a safer option to be getting this yield and with that, definitely comes collateralized lending, being the number one way both on the safety for the lenders in terms of like that risk level and then also to open opportunities for borrowers as well.

We’re seeing NFTs as collateral with like, BendDao, kind of becoming more popular, as well as JPEG and it was another platform that does that where people are, are using their blueshift NFT’s to kind of get some liquidity that they want, didn’t have access to before and I think again, like, as we’re in this, kind of bear market balance, there’s definitely more time left in this bear market until things start going crazy again, but at the same time, it’s like people really want the assurance and I think people are a lot more risk-sensitive right now and so collateralized lending, in my opinion, is like number one.

At Teller, that’s definitely something that we’ve been working on: is kind of pushing what collateral can look like in terms of the collateralization rates, over collateralized under collateralized, even zero collateralized, making those loans possible with things that typically haven’t been used.

So, one instance would be on-chain credit scores partnering with Cred Protocol and seeing where, you know, originally where you would need an LTV of let’s say, like 150 to 100% to get a loan. You can leverage your on-chain wallet history, to you could say like qualify for better rates or better loan terms using that which is really cool because again, if I want to borrow, we’ll say 100 ETH or something on Aave or another protocol, you would need 100 ETH or even more to make that happen. Or at least you know the US dollar value of a token and with these kinds of options on Teller, we kind of open up way more possibilities.

Maker Lee, Teller

From a Teller point of view, uncollateralized lending was ground zero. What I mean by ground zero is that from a build standpoint, you first need to build like who’s the borrower who’s the lender? What’s the interest rate that they both are agreeing on? And the loan terms that they both are agreeing on? And was it paid back yes or no? So that is like the bare minimum in terms of build work that needs to be built on top of Teller and then on top of the uncollateralized lending, we started doing collateralized lending, which in hindsight for us worked very well, because even the investors or the other market trends right now are looking at or are asking for collateralized lending at this point in time, like seven months or eight months back, they were okay with uncollateralized lending. So our protocol was able to service the needs of the lenders and the borrowers at that point in time.
But right now, everybody that we talked to, they’re more interested in the collateral side of things or collateralized assets, be it a real-world asset or even a crypto native asset. And that kind of coincided very well with our, with our build work or our build plan as well. So we are lucky in a way I guess, and also happy that it worked out.

Udai Parva, Teller

Lending is one of the most crucial parts of the web3 space, not only the web3 space but financial institutions as well. What we have seen over a period of time is, collateral lending has actually really picked up in the overall space. I think seeing how uncollateralized lending will actually shape up will be very interesting.

One of the really important factors about uncollateralized lending will always be the recourse. We can underwrite, we can have 100 ways to underwrite a million users, but finding the best way to recourse is going to be the huddle that we as an overall industry will need to really overcome. Seeing in the future I think once people have truly built an identity, we will be able to underwrite and expect recourse but today it’s going to be a good problem statement to solve.

Talking about collateralized lending I think RWA, where we stand, is a very good spot and invoices, as we do at Polytrade, is a very good collateral to be because the payer of that particular invoice is us like we get the collections so it’s a good collateral to have. In a way, we are doing collateralized lending for the supplier in the real world. Soon we are trying to find some better ways to do the same for the web3 companies. So we’re building we’re creating underwriting engines. It’s going to be a fun space to build.

Ashish Sood, Polytrade

What do you feel are investors’ thoughts toward DeFi vs RWA yields?

Is it sustainability, and diversification that investors want?

From an APR perspective, I see around a 5% to 7% delta in APRs. So real-world assets, at least for USPC homes if you look at the two loans that have been lent on-chain, they were lent at around 6% and 7% APRs, but that is what you call some sort of a promotional campaign that was done by USDC homes I believe, but the actual APRs are somewhere between 8% to 12%.

But if you look at some sort of DeFi APYs, Polytrade today is giving somewhere around 15% to 16%. So there is a 5% to 6% delta in terms of APRs between real-world assets versus a DeFi protocol. I think that is what the market is stating at the moment they see real-world assets, the houses are more stable in terms of risk premiums. So they’re somewhere around 8 to 12% and DeFi is somewhere around probably 14 to 18%.

Udai Parva, Teller

The industry needs to overhaul, the industry needs to mature a little bit on the retail side. So what I have seen is that we’re not seeing a lot of RWA players in our normal retail peers on the RWA side, people are still doing hunting and they’re still ready to risk the fight. Obviously, we have smart investors but they’re a percentage of the overall volume.
I’m not only saying that people will diversify towards sustainable yields, seeing what we have learned from past but they will also this will also in turn, have some stability in the market. I think overall in the like a yield farming was was like a play in the dark. Right? It worked really well for a lot of people. We a lot of people made a lot of money. But in essence where was the yield coming from? The big question is that and I think it would have been a time the retail investors to start asking that question. And when you see that happening, you will see smart investments into RWA.

Ashish Sood, Polytrade

Additional Read: What are Real-world Assets in Decentralized Finance?

How does Teller underwrite borrowers on the marketplace?

This is like what we call our three-flow process. So there is a KYC process, and there is a credit score check. When I say credit score check it is currently web3 only, but we are also adding web3, like the traditional tradfi credit score into it as well. And finally, the borrowing aspect that happens on the Teller platform. We have a partnership with Cred Protocol and Quadrata. So Cred is the one who gives you a credit score for every wallet that is there on-chain. Quadrata does KYC checks for the same wallet address. For every loan request on Teller, you will see whether they use it as KYC by Quadrata.

Let’s say I have an on-chain credit score of 920 out of 1000. So I am a very good borrower because I’ve made my payments at a good time and I’ve not been late I’ve never been late. So anything that is like 900 and above is basically a good credit score. So when a lender looks at a loan request that is coming from a specific borrower, they check for these ratings.

What is the collateral, is it 100% collateral? Is it 150% collateral? What is the KYC status? Is it KYC by Quadrata yes or no? And what is the Cred score of this particular borrower? Is that 900 and above okay, then I think I can go easy on the collateral that they’re asking for probably 100% collateral might be okay. Versus if someone who has like very low Cred score like 650 or 700 out of 1000. I would ideally want a higher collateral ratio on a loan. So probably like one 50% or 200% on a loan. So these are the tools that we have given to all the lenders on our platform. If you go to the Teller app today, any loan request will show all these details. It will tell you whether the other user has been KYCd, what is the Cred score? What is the collateral ratio? And yeah and base that should ideally give the lender enough amount of, you know, comfort to lend to a particular loan in general. And that’s how we are looking at underwriting at least on our platform. And if there’s ever a default on, either on our platform or in any other DeFi platform, Cred actually captures. So the moment you let’s say you get liquidated or you don’t make your payments on time on some other DeFi protocol, Cred is going to bring down my score from 920 to 600.

So the moment I see a 600 the lender knows that oh, this person is not good with their payments. I’m not going to lend out to them no matter what the collateral ratio is. I’m not going to trust this wallet address. So there’s this what do you call trust building like a partial amount of trust building that is happening on the specific wallet addresses and also KYC checks that are happening.

Udai Parva, Teller

Speaking of underwriting, how does Polytrade go about underwriting?

We abide by the data on-chain. So we do collateralized lending, we have a supplier, and our major risk is on the buyer. So we have to underwrite these buyers, which have all the datasets majorly in web2, so we do the KYC through Fractal. We can see an on-chain verification via Fractal. But at the end of the day, we need to tap the market to really underwrite this particular entity. Once we do that we do throughout these data sets and these data points on-chain for the next lenders to see. But in essence, we are we’re a little 2.5 where we have an underwriting engine, which is majorly taking datasets from the web2 space. We cannot directly put these datasets on chain as the vendors and the suppliers who are giving us this data is confidential.

But then having said that, we are actually hashing this data and putting it. Over a period of time, we are also looking into something called the Polytrade ID which will actually signify the presence of that company on blockchain. So once we have funded these invoices for a couple of times, you will see a score on these Polytrade IDs where you will be able to not only lend to them, you can underwrite these people on the Polytrade score, which will be a cumulative result of what we have seen that history plus transaction history is with us. And not only that but seeing their reports in the web2 space.

So what we have started as of now is that we’re creating a Polytrade ID whenever we get a supplier onboarded or a buyer onboarded. So this is a unique ID that will be given to every supplier and buyer and this will be the first structure that we create. Once there is a unique entity for this particular supplier all invoices that we fund, will be linked to this particular ID. So if there is a default or there is a delay in payment, this will directly reflect within the ecosystem of that particular ID.

We are also underwriting this user in the web2 space, as we said through multiple credit agencies. We are summing these agencies up, we have our own underwriting engine, which actually sums these scores and gives out a Polytrade score, which we put on-chain because we cannot put these scores directly on-chain because it’s all confidential data. We have our own engine which actually considers all these scores and these parameters and gives a Polytrade score to it.

Ashish Sood, Polytrade

What do you think about the institutional features of DeFi lending?

There’s a kind of almost like nervous excitement in terms of like, as we see more institutions get into DeFi for instance, will reference the USDC homes. Again, that sale, taking what’s traditionally a very complex process like an investment property, like title and LLC formation all of that, and fully moving that on-chain does a lot of things in terms of minimizing fees and shortening transaction times, and those two things, in my opinion, will be a huge draw for institutions.

If you’re a lending company or institution, mortgage, whatever, and you’re used to closing costs, or closing times taking, you know, we’ll say 30 days, 45 days, 60 days for these traditional loans, or you’re used to when a default happens or foreclosure happens, that the property’s then held, essentially just waiting for all of that paperwork and processes to finish. As soon as these institutions learn that oh, wait, it doesn’t have to take 30 days. In fact, it can take 60 seconds. The first question, of course, is wait, how is it possible? The second question is, oh, how can I learn more?

And so I think that’s exactly what’s going to happen as we’ll see. Institutions kind of dip their toes in the water, or we’re going to see them have these and I’ll use Roofstock. Just because that’s an example of working with USDC homes is that they have a web3 division. You know, Roofstock is a multibillion-dollar company in terms of volume that they do and this is just kind of a small division honestly in the grand scheme of business, but what you’re gonna see is that these small divisions, these small tests of the water are going to start working way more efficiently and way more effectively than the web2 traditional, slow and sluggish signs of these companies that they’re used to dealing with.

There are way more opportunities and we talk about mass adoption I truly believe that real-world assets and institutions coming into web3, and DeFi is where that mass adoption comes from. Because for instance, with California, you know, they’re testing your car titles with the California DMV, and so now car titling theoretically could be on-chain I think they’re going to use it on their testing on Tezos.

So that like it’s already happening, we have deeds moving on-chain, we have titles moving o- chain, and you know, once we see success in these little small tests, then it goes fully international global across the board of every major system in terms of bookkeeping, payment processing, any transactions of commerce will be moved on-chain and then DeFi is such an easy segway and lending on with DeFi is just such an easy segway because you’re looking at more customizable rates, flexible loan terms, yields that you typically didn’t have access to because of again, the amount of red tape that you have to go through therefore that cuts into the bottom line. But having all of these processes automated and verified through smart contracts, we’re gonna see increased yield and increased opportunities and increased adoption from institutions, no question.

Maker Lee, Teller

I think institutes are the way forward. We need these institutes, we need them to be on-chain. They are already starting to accept everything that we are already doing. I think a good example is JP Morgan. Like they accept that blockchain is a great technology they have their own ecosystem. They have a private blockchain for now, but at least it is the first step towards accepting and once these big banks come in on the system, I think they can just roll down to everybody else, everybody else will just follow.

Ashish Sood, Polytrade

Is KYC important for borrowing and lending?

I would say there is always ZKID for keeping a step away from centralization. But KYC is really, really important. At least for the current scenarios till the time you’re tapping into the real world. There’s always interaction with banks and there is always money laundering and whatnot happening. To really identify your source of funds is not only a necessity but a responsibility for people who are leading the stream.

Ashish Sood, Polytrade

It depends on the asset class. So if it is a crypto native asset, let’s say an NFT we have a partner called ape now pay later who doesn’t do KYC but when it comes to like a real-world asset, which is Roofstock, they KYC themselves. Again, this is a way to kind of a KYC if you come on to Teller, we have a web3 sort of a KYC from Quadrata. So it sort of revolves around like, what is the asset class that you’re entering into and what are the typical APY’s that you’re expecting from that.

So you cannot think of not doing KYC for a product that has like, at least in these times 8% to 10% APY’s are considered pretty aggressive, and pretty safe. So that sort of an asset class demands the KYC from you and also demands some sort of a web2 KYC from you.

The loan terms dictate the asset and the asset dictates the KYC.

Udai Parva, Teller

Teller and Polytrade have had a strong partnership, what newer avenues can the community look forward to?

What you can do on Teller is you could put any of your tokens, it’s not just ETH or Matic or, some sort of a tier one ERC 20 tokes, you can actually put any ERC 20 token as collateral. So, let’s say someone has a $TRADE token. So for tier one ERC 20 tokens, you can actually put in any ERC 20 token as collateral. So let’s say someone has a trade token 50,000 trade tokens available with them. They could put that as collateral, and they could request a loan on the Teller app. So my question is, why not have like a Polytrade Teller-specific relationship where we say that hey, all the $TRADE holders can come here you can put your $TRADE as collateral and you know, you can take it could take a loan out of it.

That is number one, and two is I’m not sure if $TRADE does any staking at this point in time, but let’s say there is some sort of a stake $TRADE took, so these users have taken the $TRADE and put that in staking somewhere, you can come on to the Teller app, put that staked $TRADE tokens as collateral and take a loan on top of it.

So we will be happy to look at some sort of a partnership like that. Mainly like having a separate pool for your community holders, which will be a benefit for your community holders.

The other piece is like I think I just found out from Ashish that they’re doing something with a Polytrade ID and a Polytrade score. I would want to use this for all the businesses that are coming on Teller is like if you have a legit ID that is coming out from businesses. Why should we just restrict it to Polytrade customers, why not just open it up to everybody and just let them know, to get that Polytrade ID and a Polytrade score.

Udai Parva, Teller

Getting $TRADE as collateral for lending for the community would be a great, great opportunity for us. It will be something that our community is not only looking for, but our gold stake baggers will actually really love to have. I’ll take you up on that opportunity right away.

Having said on the Polytrade ID, we can bring you in on the brainstorming sessions. We have built the first identity layer, let us spend some more time I think both of us together could truly build something that will really benefit all the businesses that are coming on-chain.

Ashish Sood, Polytrade

Disclaimer: It is important to note that any information presented in this piece should not be construed as financial advice. This material is intended for educational or informational purposes only, and it is not intended to provide specific financial, investment, legal, or tax advice, nor is it a recommendation or solicitation to purchase or sell any financial instrument or product. Any decisions or actions based on this information are solely the responsibility of the individual reader. It is recommended that readers seek professional advice from a licensed financial advisor before making any investment decisions.

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