October 2, 2022

The firm’s CreditFi platform lets USDC holders earn yield by lending capital to Koala Insurance.

Source: Coindesk.com
Source: Coindesk.com

Now would seem to be as good a time as any to diversify decentralized finance (DeFi).

Teller Finance, a cryptocurrency infrastructure provider that’s looking to create no-collateral lending in DeFi, is offering holders of dollar-backed stablecoin USDC the chance to lend capital to a travel insurance company.

According to an announcement on Thursday, Teller’s CreditFi platform uses crypto rails built by Teller and Ensuro, a platform that gathers decentralized capital for insurance technology companies, to connect liquidity providers with travel insurance firm Koala.

“When we started thinking about how to bring loan requests from businesses on-chain, Koala was one of the first companies that reached out,” Teller Finance CEO Ryan Berkun 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 are supplying the capital for the travel insurance. This adds huge diversification to the type of lending opportunities that are offered and DeFi today.”

DeFi diversification is an intuitive direction to follow, not least because total locked value (TVL) is dropping in line with token prices. The traditional lending world uses data like a company’s balance sheet and income statements to assess the probability of that business being able to repay a loan. Meanwhile, crypto lending tends to be overcollateralized, and so you need $150 of ether to get $100 of cash, for example.

Today, at initiation, the loans will be up to 90 days. The interest rates that lenders could see are anywhere between 8% to 15%, according to Berkun.

Koala, which isn’t backed by a large insurance broker or carrier, has so far gathered a capital pool of about $450,000 for its Koala Flex product, which allows travelers to cancel their trip at the click of a button and get their money back. Doing so requires the capacity to provide a lot of refunds if necessary, explained Koala Insurance CEO Ugo Weyl, adding that risk-averse insurance and reinsurance firms tend to shy away from this type of innovation.

“We had a lot of pushback, and we didn’t manage to find support for that,” Weyl said in an interview. “So at the beginning we started selling Flex out of our own balance sheet, taking the risk directly ourselves within a scale we were comfortable with. Then we started working with Teller and other companies as well, to see how DeFi could bring us that capacity and that capital that the regular market was not willing to give us.”