DeFi App Aave Creates First Credit Delegation Loan to DeversiFi Decentralized Exchange
- DeFi lending platform, Aave completes its first-ever ‘credit delegation’ as DeversiFi borrows over $230,000 without posting collateral.
- The service agreement was signed on the decentralized law contract service, OpenLaw.
Aave has announced the launch of the Credit Delegation (CD) facility last month, which aims to increase liquidity on the platform and ease capital movements across the DeFi ecosystem. This aims to open up the DeFi ecosystem to traditional markets allowing direct lending and saving to millions of people across the globe.
The CD system allows borrowers to draw loans from the platform using another person’s collateral. It's a simple process whereby Aave depositors (delegator) can give their line of credit to someone (borrower) they trust, or to a smart contract with predefined conditions. If you hold aTokens, the deposit interest-earning tokens on Aave, you can earn extra interest as a liquidity provider by delegating the credit you do not need.
The credit delegation funds are locked in a CD Vault where borrowers can draw loans. OpenLaw enforceable decentralized contracts are then signed stating different terms of the loan, including the interest, repayment schedule, and credit limits.
DeversiFi the first to draw delegated credit on Aave
In a Medium post, Aave confirmed the first successful CD has been completed with DeversiFi, a decentralized exchange, drew a loan from a CD Vault. The DEX experimented with the CD actions by borrowing 20 wBTC (~$237,000 at current rates) from Aave pool core credit delegation vault to boost its credit.
— Aave (@AaveAave) August 6, 2020
In a statement on the latest innovation in the DeFi world, Aave Founder and CEO, Stani Kulechov, said CD offers an opportunity to unlock the total locked value (TVL) in DeFi products allowing a deeper and more liquid market. He added:
“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 is fastening its belt in its journey to challenge the top DeFi protocols, i.e. Compound and Maker with the firm recently raising $3 million in a LEND token sale to Three Arrows Capital and Framework Venture.
The investment shows an interest by institutional investors in the DeFi field, aiming to increase the liquidity in the space. Notwithstanding, Aave announced an upgrade of its Aavenomics, its core tokenomics, in preparation for its upcoming governance token.