Decentralised Lending Platform Sublime receives $2.5 million from Electric Capital & Others

Electric Capital, Galaxy Digital, FinTech Collective, Collab+Currency, Jill Carlson Gunter, and Ryan Selkis have invested $2,500,000 in Sublime, a decentralised lending platform that allows users to receive loans using their digital identities. Currently, the DeFi ecosystem is almost fully overcollateralized. Sublime tackles this problem by focusing the discussion on how capital access is determined.

Borrowers can use their social capital to get credit according to the protocol. Users can create entirely personalised borrow pools and credit lines that can be funded by lenders that are comfortable with the debt's terms.

Borrowers can stake their digital reputations by verifying their digital identities using one of the supported identity verification methods, such as Twitter, Github, Instagram, or other digital accounts.

Alternative approaches to undercollateralized financing rely on centralised due diligence, which is generally undertaken by the team or its close partners directly. Traditional credit scoring relies on a lot of data, which makes it prone to prejudice, especially for people with little financial history. As a result, the pool of potential borrowers is reduced.

Furthermore, on-chain data is either non-existent or exceedingly manipulable.
“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.

Bringing off-chain scores on-chain is a bad start as well. In the lack of legal ramifications or revisions to one's off-chain score based on on-chain activities, a number of defaults should be expected during the early bootstrapping period, which might take years. It's unclear whether DeFi lenders are currently prepared to accept the risks of such almost certain defaults.
The purpose of Sublime is to construct a DeFi-native social graph that will allow credit to be granted without the use of centralised scoring systems. The system scales to interaction between entities without direct personal relationships through mutual connections after being bootstrapped using existing trust networks.

The mechanism appears to be similar to payment channels in the bitcoin lightning network. In fact, Sublime's creators anticipate the network's ultimate creation of hubs analogous 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,” says Avichal Garg, partner at Electric Capital.