DeFi Lender Aave Issues Its First ‘Credit Delegation’ Loan

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Aave loan (Courtesy: Decrypt)

It looks like the future of DeFi loans have arrived and you can be sorted if your struggle includes – bad credit or even no credit. The lending protocol for DeFi, Aave, announced its first-ever issue of ‘credit delegation’ loan to decentralized exchange DerversiFi.

It has been understood that the creditline uses collateral provided by other Aave users seeking to earn additional returns. The agreement has been facilitated by decentralized contract service OpenLaw setting out terms and recording digital signatures.

It is a new step taken to opening up DeFi loans to millions of users without collateral of their own. The credit delegation will further allow users to deposit collateral crypto assets into Aave, then authorize loans to be drawn against that collateral by users trusted by the depositor.

It will only be possible after the two entities sign an agreement provided by OpenLaw to confirm the details of the loan, such as credit limits, use of funds, and repayment terms.

Their will be interest on loans taken against their assets using credit delegation. “Credit delegation will allow unlocking liquidity from within Aave Protocol across DeFi without the need for collateral. Similarly, credit delegation could be the way to source DeFi liquidity into traditional finance,” Aave founder and CEO Stani Kulechov told Decrypt.

“Unlocking that locked value can increase adoption and usage, which by itself would increase the DeFi space in general.”