Unsecured Lending via Delegated Underwriting

Diego Estevez, in the May 2026 arXiv paper 'Unsecured Lending via Delegated Underwriting,' presents a novel mechanism for extending credit to pseudonymous users without relying on collateral, legal identity, or a centralized underwriter. The core innovation is delegation: new borrowers enter the system only through existing, trusted sponsors who allocate a portion of their own credit capacity. This means onboarding a new account redistributes existing borrowing power rather than minting new capacity, ensuring aggregate credit supply remains conserved. The system handles defaults by flowing losses back along the sponsor path, so risk stays localized to a unique chain of sponsors. Conversely, successful repayment grants the borrower earned credit, which gradually expands their future borrowing capacity.

The paper proves several key properties: (1) delegation conserves total credit in the network, (2) revocation and default events remain local to a single sponsor path, preventing systemic contagion, and (3) a simple cap on how much earned credit can grow makes a repay-then-default strategy weakly unprofitable—meaning borrowers cannot game the system by repaying small amounts to build credit then defaulting on a large loan. At 7 pages with one figure, the work sits at the intersection of computer science (game theory) and theoretical economics, with potential applications in decentralized finance (DeFi) and pseudonymous credit networks. It offers a mathematical foundation for trust-based lending without traditional identity or collateral requirements.