There is a new DeFi lending platform in the market that wants to let users stake their "digital reputations" to access loans. Called Sublime Finance, the platform wants to help borrowers tap into their "social capital."
Sublime has received backing from investors such as Galaxy Digital and Electric Capital, both of which co-led its $2.5 million seed funding round. Other investors included FinTech Collective, Collab+Currency, and angel investors, including Jill Carlson Gunter and Ryan Selkis.
The funding was secured via a Simple Agreement for Future Tokens (SAFT) sale, Sublime founder Ritik Dutta told The Block. With the new capital, India-based Sublime plans to continue developing its platform and launch it in the coming weeks.
Replacing credit checks with on-chain histories
Sublime says today's DeFi market mainly focuses on projects that require lending agreements to be overcollateralized. This means that borrowers have to lock in a higher value of collateral than they are borrowing. This system has drawbacks, according to Dutta, compared to the traditional lending market that usually involves an element of trust.
But instead of a typical credit check, Sublime will let users leverage their digital identities to get undercollateralized loans.
Each loan request will act as an independent pool on Sublime, meaning borrowers will be able to create customizable loan requests that lenders can fulfill. Lenders can assess borrowers by looking up their digital identities, past loan performance, and other users they have interacted with online.
In addition to social media profiles, Sublime will also support crypto and NFTs as collateral. To begin with, the platform will accept ERC-20 tokens such as wrapped ether (WETH), wrapped bitcoin (WBTC), Uniswap (UNI), and Compound (COMP) as collateral. As for NFTs, Sublime is internally testing out CryptoPunks, said Dutta.
Initially, the Sublime Foundation will impose thresholds on some parameters, such as the loan size and minimum collateral ratios, said Dutta. Over time, the platform expects to reach maturity and remove these restrictions to allow for "organic discovery of optimal parameters" for loans.
Sublime's business model is to earn loan origination fees, said Dutta. As for its use cases, the platform hopes to serve decentralized autonomous organizations (DAOs) and institutions.
"DAOs looking to raise debt can borrow by creating pools. Pools are functionally similar to bonds and allow different levels of seniority," said Dutta. "Institutions can utilize them to create anonymous credit lines amongst themselves."
Sublime will launch its token, LIME, in December, said Dutta. He added that the token will be used to decentralize governance, i.e., onboarding new verifiers and supporting more assets, as well as incentivizing the participation of borrowers and lenders.
© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.