> For the complete documentation index, see [llms.txt](https://satin-finance.gitbook.io/satin-finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://satin-finance.gitbook.io/satin-finance/tokenomics/challenges-of-undercollateralized-lending.md).

# Challenges of Undercollateralized Lending

Undercollateralized lending in DeFi is challenging due to two main factors:

1. Credit Risk Assessment: DeFi protocols often lack the tools to properly assess the credit risk of businesses using only on-chain data.
2. Capital Protection: Without sufficient collateral, it can be difficult to protect loan principals in the event of default.

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Improving upon the best practices of both web2 and web3 experts, Satin Finance addresses these issues by introducing traditional finance mechanisms into the DeFi space. 

Satin employs a team of seasoned underwriters and risk managers to assess borrowers’ creditworthiness, focusing on real-world businesses with positive cash flow. 

Additionally, Satin mitigates risk by integrating a third-party insurance layer that acts as a capital buffer to protect both lenders and the protocol.

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