Conflicts of interest

The delegate model creates alignment and, with it, potential conflicts, and the honest approach is to name them rather than claim they don't exist.

A delegate underwrites the loans, sets the terms and fees, manages exceptions, and provides first-loss capital for the same pool. The first-loss commitment aligns the delegate with lenders on losses, but the delegate still sets its own compensation, decides which borrowers to admit, and exercises discretion in restructurings. Where a delegate has a relationship with a borrower, or where the protocol's interests and a pool's lenders' interests diverge, the potential for conflict is real.

The controls are structural and disclosure-based. First-loss capital ensures the delegate shares the downside it creates. Fees are disclosed per pool, so compensation is visible rather than embedded. Related-party lending — a delegate lending to an affiliated borrower — is the sharpest conflict on this list, and it is permitted only with disclosure and defined limits: an affiliated borrower is flagged as such to lenders reviewing that pool, and exposure to affiliated borrowers is capped rather than left open-ended, so a delegate cannot direct an unbounded share of a pool's capital to its own related interests.

The general principle is that a conflict which is disclosed and bounded is manageable, while one that is undisclosed is not — and this page exists specifically so the sharpest of those conflicts is addressed here rather than left implicit.