TransUnion Brings Credit Data Checks to Crypto Lending

Cryptocurrency lenders will be able to start checking credit reports.

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One of the three largest US consumer credit reporting companies will allow consumers to give blockchain companies access to their personal credit data through security company Spring Labs’ ky0x Digital Passport.

By providing this information, the companies said consumers will be able to get better interest rates when borrowing money from financial services firms that operate on public blockchains such as Ethereum.

Currently, cryptocurrency investors can borrow funds by placing digital assets such as bitcoin as collateral. The companies said that because lenders would be able to check the borrower’s creditworthiness, they might issue loans that required no collateral at all.

More and more large financial institutions are starting to participate in the crypto boom. Bank of New York Mellon corp.

Fidelity Investments has announced plans to offer crypto services to institutional clients such as asset managers and hedge funds. Banks outside the United States, including Banco Bilbao Vizcaya Argentaria to

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We started sampling ways to provide customers with the ability to invest and store bitcoin and other digital assets.

US consumer banks have been more cautious. An association representing large banks said that current regulations will prevent them from holding cryptocurrency. The Basel Committee on Banking Supervision, which sets global standards for banking regulation, put forward a proposal last year that would require lenders to allocate $1 in capital for every dollar of bitcoin and other cryptocurrencies they hold, considering them among the riskiest assets. Bank can own.

Analysts said the market for decentralized finance, or DeFi, has grown exponentially in recent years. The total value of DeFi applications on the Ethereum blockchain rose to nearly $200 billion in November from about $20 billion a year earlier, according to JPMorgan.

JPMorgan analysts wrote in a recent note that DeFi faces many regulatory hurdles to become mainstream.

“Imposing KYC and anti-money laundering checks is a necessary first step, but the public perception that regulations will naturally be less effective on DeFi may prove to be a major hurdle going forward with regard to regulators allowing DeFi to move to DeFi,” said bank analysts.

Although the SEC has not announced major actions against major cryptocurrency exchanges, the commission has threatened to sue companies that provide crypto lending. WSJ’s Dion Rabouin explains why this part of the cryptocurrency market has reacted so strongly. Photo: Mark Linehan/Associated Press

Spring Labs Digital Passport currently shows AML and KYC checks after users go through the registration process and attach the passport to their digital wallets. The companies said that no personal data is shared publicly, only testimonials of operations performed. They expect consumer credit data to be available on the passport by the end of this year.

By providing credit and identity data on the blockchain, more companies will be able to access and develop DeFi and crypto applications while remaining compliant with regulators, said Steve Shawky, Head of US Markets and Interactive Interactive at TransUnion.

“By providing this, you start to open the incoming capital faucet, and that increases competition,” he said.

Spring Labs announced last year that it had raised $30 million from investors led by TransUnion and that the two companies are working together to increase access to Spring Labs’ data-sharing products and network.

Venture capital firms invested more than $17 billion in digital assets and blockchain companies during the first half of 2021, according to a Bank of America report, compared to $5.5 billion in 2020 investments during the same period.

write to Sebastian Pellejero at sebastian.pellejero@wsj.com

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