What is an Underwriter?
In the context of tokenized RWA and DeFi credit, an underwriter is an entity that evaluates the creditworthiness of borrowers, assesses asset quality, and often provides a guarantee or first-loss position. They serve as the risk assessment layer between on-chain capital and real-world borrowers.
Underwriting Functions
- Credit Assessment: Evaluating borrower financials and history
- Asset Valuation: Determining collateral or asset worth
- Term Structuring: Setting interest rates and conditions
- Documentation: Ensuring legal compliance
- Monitoring: Ongoing surveillance of loan performance
Types of Underwriters in DeFi
Protocol-Based
- Protocols like Maple use Pool Delegates who underwrite and manage pools
- Goldfinch uses Backers who underwrite through capital commitment
External Underwriters
- Traditional credit assessment firms
- Local lending partners with market expertise
- Rating agencies providing assessments
Community Underwriting
- Some protocols use staking/voting to distribute underwriting
- Token holders signal confidence through capital commitment
Underwriter Compensation
- Performance fees (percentage of interest earned)
- Origination fees (upfront payment for underwriting)
- Carried interest on returns above threshold
Risk Alignment
Effective underwriting models require skin in the game:
- First-loss junior tranches
- Locked capital during loan terms
- Clawback provisions for poor performance
Due Diligence on Underwriters
- Historical default rates on underwritten loans
- Experience in the specific asset class
- Geographic and industry expertise
- Reputation and references
Post-2022 Evolution
After credit losses in 2022, protocols strengthened underwriting standards with more rigorous due diligence and conservative loan-to-value ratios.