Delegated Credit

Credit delegation is one method that allows a borrower to receive credit when they do not have sufficient collateral. However, the lender must trust the borrower; credit delegation does not support a trustless model.

In credit delegation, two parties can enter into a trusted agreement where the depositor’s capital can be borrowed by the counterparty. Once the trusted borrower is locked into a legally defined lending arrangement with the lender, the borrower can access the capital without providing collateral. Borrowers preserve liquidity by not tying other assets to the loan, and such a relationship may also provide additional flexibility to the borrower.