Traditional credit markets form some of the most robust components of the modernfinancial system. These markets are structurally reinforced by sophisticated derivative and insurance mechanisms built on top of massive tech infrastructure. Even at the individual level, widespread data collection fed into reputation systems help mitigate credit risk by disincentivizing borrowers from default through potential impact on their future borrowing capacity. Together, these factors have allowed for the expansive growth of undercollateralized lending in TradFi over the past decades.
DeFi has largely benefited from disintermediation since it reduces friction while being conducive to innovation. Notwithstanding, this has introduced widespread counterparty risk throughout the ecosystem which makes it difficult to build robust permissionless undercollateralized onchain credit primitives. The capital inefficiency introduced due to lack of undercollateralised credit in DeFi inhibits many participants in the space such as sophisticated money managers, structured products that depend (or could benefit from) leverage and degen traders' looking to optimize long-tail opportunities.
Sentiment aims to solve these capital inefficiencies by providing a primitive-based solution to enable permissionless undercollaterised onchain credit. Sentiment mitigates the challenge of widespread counterparty risk by implementing onchain hypothecation. This helps increases capital efficiency for borrowers and creates unique ways for other DeFi products to access leverage by integrating with Sentiment. A Sentiment "Account", the protocol's key primitive, allows users to gain access to greater leverage than incumbent money-markets while allowing the borrowed assets to be deployed across the DeFi ecosystem.