Now seems like a good time to diversify decentralized finance (DeFi).
Teller Finance, a cryptocurrency infrastructure player seeking to create collateral-free lending in DeFi, is offering holders of the dollar-backed stablecoin USDC the ability to lend capital to a travel insurance company.
CreditFi, announced Wednesday, uses crypto rails built by Teller and Ensuro, a platform that raises decentralized capital for insurtech companies, to connect liquidity providers with travel insurance company Koala.
"When we first started thinking about how to get credit requests from companies on the chain, Koala was one of the first companies to come forward," Ryan Berkun, CEO of Teller Finance, said in an interview. "So you have a travel insurance company that makes money on the premiums, and a good portion of those premiums go back to lenders who provide the capital for the travel insurance. That diversifies the type of lending that DeFi offers today tremendously."
DeFi's diversification is an intuitive direction, not least because total locked value (TVL) is falling in line with token prices. Traditional lending uses data such as a company's balance sheet and income statement to assess the likelihood of that company being able to repay a loan. (Crypto loans are typically over-collateralized, meaning it takes $150 of Ether to get $100 of "cash.")
Today, at the initial stage, loans will be up to 90 days. The interest rates that lenders might see range from 8% to 15%, according to Berkun.
Insurtech Koala, which is not backed by a major insurance broker or carrier, has so far raised a pool of capital of about $450,000 for its Koala Flex product, which allows travelers to cancel their trip and get their money back with one click. To do that, you have to be able to make a lot of refunds when needed, explained Ugo Weyl, CEO of Koala Insurance, adding that risk-averse insurance and reinsurance companies would shy away from that kind of innovation.
"We ran into a lot of headwinds and couldn't find support for it," Weyl said in an interview. "In the beginning, we sold Flex off our own balance sheet and took the risk directly ourselves, within reason. Then we started working with Teller and other companies to see how DeFi could bring us the capacity and capital that the regular market wasn't willing to give us."