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@AaveAave is starting native Credit Delegation (CD). Aave depositors can delegate their credit lines. For example, Karen deposits an asset such as USDT to @AaveAave and delegates her credit line to Chad, who draws funds such as ETH from Aave Protocol.
Karen and Chad conclude an agreement between each other on the terms of the loan such as repayment, interest rate and covenants. @OpenLawOfficial is used to sign the agreement, which secures the enforceability of the loan similarly as one would use DocuSign for an agreement.
After the agreement is in place, Karen creates the CD Vault smart contract, which allows Karen to set the credit line and currency according to the agreement. Chad can draw the credit via borrow() function and repay via repay(). Open credit line brings flexibility to Chad.
By delegating credit, Karen is able to earn higher undercollateralized lending rates while depositing to @AaveAave. Chad, on the other hand, is able to source liquidity from @AaveAave without a collateral.
Credit Delegation allows @AaveAave to scale DeFi TVL into financial debt markets world wide, making DeFi the liquidity backbone for finance. The overall DeFi narrative expands from deposit capital to DeFi to source capital from DeFi.
Credit delegator could be a DeFi Fund depositing to @AaveAave that is looking for additional credit exposure. Borrowers could be cryptocurrency exchanges, market makers, money lenders, institutions, businesses, NGOs and governments.
Credit delegation is successful concept when we reach the point where the @AaveAave liquidity is sourced all the way to the traditional consumers or businesses via money lenders providing diverse globally available liquidity source.
As a lawyer, my passion in the space has been always to bring Smart Contracts and Law together to help end-user consumers. First, we brought earnings back to consumers, now we are bringing the alternative liquidity for consumers by injecting DeFi liquidity in to the debt markets.
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. @AaveAave starts the CD concept slowly by on-boarding delegators and borrowers that know each others businesses.
Expect CD to bring new composability into DeFi. Besides building legal agreement functionality with @OpenLawOfficial, various credit scoring systems and additional features for credit delegators can be build by the community. The future of DeFi is interoperable with all finance.
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Keep Current with stani.eth Credit Delegation is so hot right now 👻

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