Hi Guys
Today Aave just launch something new. Something very simple on paper, but something that can be a game changer in the Defi ecosystem and the access to fund for everyone without discrimination and where no one holds your funds.
This new is called: Credit Delegation (CD). And it's very simple.
In this exemple, Kare nand Chad are probably friends and know each other:
They conclude an agreement between each other on the terms of the loan such as repayment, interest rate and covenants.
Then they sign the agreement
Then, Karen, the Aave depositors creates a CD(Credit Delegation) Vault smart contract, where she can writhe the term of the agreement.
Chad will then sign it and borrows this money.
Finally Karen and Chad are happy !!
Why ?
Because Karen will earn higher undercollateralized lending rates and Chad can borrow money without collateral
Of course this is a first step and here, you will basically borrow or lend from/to a friend or someone you really know. If you don't know Chad, he can run away i you won't see you money again...
The loan requires the delegator to know the borrower well or able to judge his credit risk, much like what a borrower needs to know for a traditional loan, but it's done in smart contract + earn additional stable rate
In the future:
Credit delegator could be a DeFi Fund depositing to Aave that is looking for additional credit exposure. Borrowers could be cryptocurrency exchanges, market makers, money lenders, institutions, businesses, NGOs and governments.
Imagine the future where all debt liquidity is parked in DeFi, auditable by anyone. Since CD data is on-chain, the credit exposure can be measured and mitigated. AAve starts the CD concept slowly by on-boarding delegators and borrowers that know each others businesses.
