Social finance startup Sublime raises $2.5m to democratize

  • The protocol enables borrowers to tap into their social capital to gain access to credit. Users can set up fully customisable borrow pools and credit lines which can be fulfilled by lenders comfortable with the terms of the debt.
DeFi lending platform proposes collateralizing social capital
DeFi lending platform proposes collateralizing social capital
Published on Oct 25, 2021 09:31 PM IST
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ByHT Brand Studio

Sublime, a decentralized lending platform that enables users to leverage their digital identities to access loans, announced today that it raised $2,500,000 from Electric Capital, Galaxy Digital, FinTech Collective, Collab+Currency, Jill Carlson Gunter and Ryan Selkis. The DeFi ecosystem is currently almost entirely overcollateralized. Sublime solves this by focusing the conversation on how access to capital is determined.

The protocol enables borrowers to tap into their social capital to gain access to credit. Users can set up fully customisable borrow pools and credit lines which can be fulfilled by lenders comfortable with the terms of the debt. Borrowers can verify their digital identity with one of the supported identity verification methods - whether that’s Twitter, Github, Instagram, or other digital profiles - and stake their digital reputations.

Alternative approaches to under collateralized lending rely on centralised due diligence, often performed directly by the team or its close partners. Traditional credit scoring is extremely data-intensive, making it susceptible to bias, especially for those with limited financial records. This restricts the pool of potential borrowers.

Moreover, such data is either non-existent or extremely manipulatable on-chain.

“A trader’s onchain history of yield farming or over-collateralized borrowing are poor indicators of their likelihood to return under-collateralized loans, making running any machine learning models over such data largely irrelevant,” said Ritik Dutta, founder of Sublime.

Porting off-chain scores on-chain is an equally poor starting point. In the absence of legal repercussions or updates to one’s off-chain score based on on-chain activity, a number of defaults are to be expected in the initial bootstrapping phase, a process which may take years to mature. It is not clear if DeFi lenders are ready to absorb the risks of such almost certain defaults right now.

Sublime’s goal is to create a DeFi-native social graph to enable credit without the need for centralized scoring systems. Bootstrapped using existing trust networks, the system scales to interaction between entities without direct personal relationships through mutual connections. Intuitively, the system resembles payment channels in the bitcoin lightning network. In fact, the developers of Sublime expect the eventual formation of hubs in this network akin to banks.

“We’re excited about how the open architecture allows myriad use cases - for instance, DAOs can raise debt by issuing pool-based bonds with different levels of seniority, or institutions can set up private credit lines amongst each other. Positions in pools which are tokenized into ERC-20 assets, allow users to build structured debt products on top of Sublime,” said Avichal Garg, partner at Electric Capital.

Sublime is set to launch its alpha in two weeks, starting off with a select group of users with access to their network.

Disclaimer: This is a company press release. No HT journalist is involved in creation of this content.

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Thursday, December 02, 2021