JellyFi, a decentralized finance (DeFi) platform specializing in under-collateralized crypto loans, has raised $4.4 million in a seed funding round led by Lemniscap.

Also included in the round were ParaFi Capital, Tioga Capital, White Star Capital, DeFiance Capital, True Ventures, Divergence Ventures, AngelDAO, Digital Currency Group and Genesis Trading (both in the same ownership stable as CoinDesk), plus some angel investors.

The funds will be used to support JellyFi’s growth through R&D and key hires, according to a press release, as well as performing multiple audits ahead of the platform going live around February of next year.

Capital-inefficient over-collateralized lending, where a borrower, for example, has to post $15 million in crypto assets to borrow $10 million is how most of the DeFi universe operates today.

“Right now, DeFi is really focused on over-collateralized lending with the biggest protocols like Aave and Compound,” said JellyFi CEO and founder Alexis Masseron, a former ConsenSys engineer. “So it’s a very narrow field and we see the next evolution is under-collateralized lending, part of what we call DeFi 2.0.”

JellyFi is a kind of a marketplace for credit lines, said Masseron in an interview, where borrowers and lenders are matched based on the most competitive rates discovered by the market. Borrowers pay a small maintenance fee, and lenders whose rates are too high to be matched have their liquidity transferred to DeFi giant Aave, where they earn yield plus the small maintenance fee.

Separate from its seed funding, JellyFi received a grant from its main partner, Aave, to the tune of $70,000 paid in three batches.

“Look at what’s going on in traditional finance; everything is made around under-collateralized loans and there are way too many use cases that can’t happen if you don’t have them,” Masseron said. “So it’s not about whether it’s risky, or whether we should do it or not. We need to do it. There are no other options, and we all know it.”

The financial system requires a credit system, said Roderik van der Graaf, founder at Lemniscap, echoing Masseron’s point.

“The first iteration of DeFi 1.0 was over-collateralization, which works, and it’s kind of cute,” van der Graaf said in an interview. “But you can’t replace finance with over-collateralization. So this is about opening that up and creating wholesale markets of credit.”