Proposal: Collateralizing VAI with $20 Million in Real World Assets with Credix Finance
Authors: Credix Finance: @August (DeFi Partnerships & Strategy); @Chaim (Co-Founder & CGO)
- The material herein is proprietary, for informational purposes only, and subject to change.
- All content in this document and all associated discussions are non-binding on any involved party.
- Please review all information carefully.
The information provided herein is for the sole purpose of establishing a potential business relationship between the parties and specifically for providing a preliminary non-binding proposal to Venus, and is subject to adjustment, change, and discussion. This overview may include or be based in part on projections, valuations, estimates and other financial data supplied by third parties, which has not been verified by Credix. This information should not be relied upon for the purpose of investing. Any information regarding projected or estimated returns are estimates only and should not be considered indicative of the actual results that may be realized or predictive of the performance of any investment. Past performance is not indicative of future results. The structure of the deal is in its developmental stage and - as such - is merely contemplated and subject to adjustment. Credix may at any moment withdraw all or part of the Proposal. All financial modeling is subject to assumption and error, and Credix reserves the right to modify, alter, and correct. Use or application of any model implies acceptance of the risk(s) of error, and waives liability for the model’s creator. The creator of the model is not responsible for the correctness or accuracy of the model. Rates are subject to change. Further, conflicts of interest may exist by and among the Parties, including that members of each entity may hold or acquire beneficial interests in each of the other Parties, their affiliates, and/or related entities. All investments carry risk, including the risk of loss of entire investment. Under no circumstances does Credix provide investment advice, tax advice, legal advice, or financial advice. This is not an offer to sell or a solicitation of an offer to buy securities.
This proposal (the “Proposal”) will establish a partnership whereby Venus will deploy $20 million in the Credix Liquidity Pool, a basket of senior-secured structured debt facilities issued to FinTech lenders in key Latin American markets with a targeted 12.0% APY.
1: Executive Summary
2: Strategic Benefits
3: About Credix Finance
4: Transaction Structure
5: Transaction Terms and FinTech Eligibility Criteria
6: Potential Risk Factors
Specification / Proposal Details
1: Executive Summary
Credix Finance (“Credix” or “we”) proposes collateralizing VAI with a $20 million investment in Real World Assets (“RWA”) via its Liquidity Pool (“LP”), which is comprised of a diversified set of senior-secured structured debt facilities issued to emerging market FinTech lenders. The LP invests across the senior tranche of a basket of deals (currently 20) live on a Credix Marketplace with a targeted 12.0% APY. Principal and interest payments are made solely in USDC.
To date, Credix has deployed nearly $33 million of capital to non-bank lenders in Latin America with ~$2.8 million of interest repaid and no defaults or missed payments to the platform. Credix’s in-market “boots-on-the-ground” team has decades of experience in credit structuring, recourse, and debt recovery. A lower-risk, higher-return strategy to scale and could help secure VAI while unlocking capital in under-invested emerging economies.
We have been working closely with the Venus core team for several months to optimize the terms and structure of this proposal for Venus’ operations. We have jointly analyzed existing codebases with guidance from expert third-party advisors and are prepared to begin executing on this structure as soon as approved to do so. We are now excited to present this partnership opportunity to the full Venus community for approval then collectively move forward to implement it.
2: Strategic Benefits
In this section we outline some of the many strategic benefits to Venus of partnering with Credix.
- Collateral Diversification: Real World Asset diversification would help protect Venus from crypto-specific market volatility by spreading the protocol’s exposure into traditional assets uncorrelated with the crypto sector. Venus’ Total Value Locked (“TVL”) is currently comprised entirely of cryptocurrency assets, which makes the protocol wholly exposed to the crypto market’s performance. In a broad crypto downturn, as seen several times in 2022, Venus could suffer substantially. Conversely, the Credix Liquidity Pool includes traditional loan types such as revenue based finance, hard asset backed loans, SME financing, student loans, and direct consumer loans. All deals on the Credix platform are overcollateralized. This diversification and excess collateral introduce a new source of stability for Venus.
- Yield Generation: The Credix Liquidity Pool currently has a 13.8% 90-day trailing APY (APY as of 03.22.2023), paid 100% in USDC. The LP, which is designed for a 12.0% APY target, does not pay rewards via inflationary token emissions or invest users’ assets in any other protocols. The double-digits yield is generated by real, understandable loans and always paid in USDC, crypto’s de facto digital dollar. Fully deployed, this partnership would generate upwards of $2.4 million per year. This return could be used to strengthen Venus’ insurance buffer, fund ongoing expenses, buy back XVS tokens, or any other iniative decided upon by the community.
- Layered Due Diligence: Venus’ Liquidity Pool investment would be protected by multiple layers of due diligence performed by seasoned professionals on the underlying borrowers. Credix’s internal Credit, Risk & Structuring team, which is the initial screen, brings experience from top-tier firms such as Mubadala, Deutsche Bank, LinkLaters, BNP Paribas, CPP Investments, and many more. The CRS team, located in-market in Latin America, meets with and thoroughly vets all potential borrowers. Once the CRS team completes its process, the Underwriters, traditional blue chip credit funds, perform complete secondary due diligence. The Underwriter invests in the Junior portion of the debt facility, which is subordinate to the Liquidity Pool’s Senior position thus aligning all investors’ incentives and strengthening deal due diligence.
- Aligned Incentives: Subordinate to Venus’ capital in the Liquidity Pool, the Underwriters would comprise the Junior tranche with the asset originator providing over collateral at the SPV level, which also holds an excess spread generated by the underlying assets. This excess spread buffer represents the asset originator’s potential upside and remains in the SPV. Thus, the FinTech and then Underwriters would absorb any unexpected losses on the underlying assets before the Liquidity Pool would. Finally, Credix’s fees are paid as the final step of the waterfall after all investors receive their respective remittances. This mechanism aligns all incentives directly with Venus’. They will “take their own losses” on any poor lending decisions first providing Venus and the other Liquidity Pool investors comfort that they will act in the best interest of all investors.
- Investing Alongside Highly-Regarded Institutions: Venus would be investing alongside or ancillary to seasoned equity and credit investors that have already tested and validated the Credix platform. Credix is trusted and supported by some of the most reputable institutions across traditional finance and web3. Our equity investors include blue-chip names such as Motive Partners, ParaFi Capital, and Valor Capital with equally experienced underwriting partners. Addem Capital, MGG Bayhawk, and Almavest are a few of the key firms that have led investor due diligence on individual Credix deals.
- Successful Prior Stablecoin Backing: Venus may look to other stablecoins that have already successfully integrated with the Credix Liquidity Pool as collateral backing. In January 2023, UXD Protocol initiated its integration with Credix whereby ~50% of the UXD stablecoin will be backed by Credix’s Liquidity Pool. The yield earned on the investment, a targeted 12.0% APY, is passed on to UXP holders via token buybacks and the protocol insurance fund to further secure the protocol. UXD worked closely with the Credix team to assess the risks, both technical and commercial, prior to finalizing this architecture. Our protocols continue to collaborate very closely and the investment has delivered tangible value to UXD’s community where Credix has strong support.
- Impact Investing: The growth of Latin American economies is hindered by a lack of accessible capital. This limits not only business growth, but also upward mobility within these societies. Credix enables the funding of debt facilities to LatAm FinTech lenders that then distribute that capital directly across their local markets. Venus has the opportunity to unlock life-changing opportunity by funding these facilities and moving capital to the underserved markets where it has historically been difficult to access.
- Uncapped Scale Potential: A stablecoin with full collateral backing can only grow to the size of that collateral’s Total Addressable Market (“TAM”). Thus, for a 100% crypto backed stablecoin, the scale potential is limited to the total market cap of its approved crypto collateral. Credix’s TAM is exponentially larger. Today, there is a ~$5 trillion annual funding gap in emerging markets, with over $1 trillion, or ~22%, concentrated in our core LatAm markets we seek to address. Through Credix, VAI can scale to nearly limitless supply. Our borrower demand is extremely high and there is no shortage of high-quality capital deployment opportunities solidifying our longterm growth potential.
3: About Credix Finance
Credix Finance is a next-generation credit infrastructure providing borrowers in emerging countries access to previously untapped capital. Credix runs the protocol that facilitates the transaction between the investors and the borrowers, making capital accessible at an attractive rate directly to local institutional lenders that then lend the funds to individuals and SMEs in their core markets. Investors can access these securitized, high-yield opportunities directly via the Credix platform. Credit funds (’‘Underwriters’’) can invest in credit deals directly, or can spread their risk by investing in liquidity pools, which are diversified across deals. The diagram below provides an overview of a Credix marketplace.
Note: Diagram represents an example deal structure. Individual deals may differ.
Credix allows for the creation of marketplaces which contain individual deals. Comprising each marketplace are select deals, each of which is split up into tranches, creating investment opportunities for investors with different risk/return profiles. Most often a senior/junior/excess collateral design is used. In this setup, the senior tranche has the lowest risk, with the lowest return because it is protected by more junior tranches in case of defaults. In many scenarios, if a default happens, the originator would lose part of its excess spread, before affecting its own excess collateral. If additional defaults come in, the junior investors will lose (part of) their invested principal and gained interest as it flows to the senior tranche. Though this tranche setup is used in the majority of deals, the Credix platform allows for the creation of up to 10 tranches.
Since launch, the Credix marketplace has funded nearly $33 million of emerging market loans, with several other deployments in process, generating approximately $2.8 million of interest repayments.
Credix Finance was conceptualized in early 2021 by Thomas Bohner (CEO), Maxim Piessen (CTO), and Chaim Finizola (CGO). Longtime friends and colleagues, these three founders recognized the need for access to credit in emerging markets and set out to solve that inefficiency by leveraging their deep understanding of blockchain technology. Credix began as an idea in May of 2021, became a full-time focus by November and closed its Seed Funding round in December of 2021. In September 2022, we announced our $11.25 million Series A round led by Motive Partners and ParaFi Capital. Other key investors in the round included Valor Capital, MGG Bayhawk Fund, Victory Park Capital, Circle Ventures, Fuse Capital, and Abra. These noteworthy partners continue to stand alongside us as trusted advisors and many have joined as liquidity pool investors as well. Since the Series A, we have nearly doubled our team, expanded into new geographic markets, and invested heavily in fortifying our technical infrastructure.
In just over one year of full operation, our platform has unlocked approximately $33 million of capital for underserved emerging economies across Latin America while expanding our product suite and continuously working with some of the most prominent investors in both decentralized and traditional finance.
The Credix Team
Thomas Bohner (Founder, CEO)
- LinkedIn; Twitter
- Responsible at Credix for defining strategic priorities, coordinating execution with management, and relationships with key shareholders, investors, and business partners.
- Spent his career designing and delivering complex financial services solutions across capital markets and banking.
- Launched from the ground up a blockchain sales & engineering team across 3 continents, growing to 100 FTEs. Closing major deals with clients such as London Stock Exchange Group, BNP Paribas, and Euroclear.
- Vice-President, Head of Blockchain and Crypto - IntellectEU
- Associate - P20 Consulting / Hogan Lovells
- Analyst - Motive Partners
- Master in Finance - University of Antwerp
Maxim Piessen (Co-Founder, CTO)
- LinkedIn; Twitter
- Responsible at Credix for our global technology and product strategy & execution, translating stakeholder needs and requirements into a scalable product architecture and coordination with the engineering team.
- Physicist with strong expertise in artificial intelligence & blockchain working on innovative products at IntellectEU for the private banking and investment management industry.
- Head of Product Management - IntellectEU
- Head of AI, Data, and Quantum Computing - IntellectEU
- Advanced Master in Artificial Intelligence - University of Leuven
- Coding Bootcamp - Le Wagon
- Master in Physics - University of Antwerp
Chaim Finizola (Co-Founder, CGO)
- LinkedIn; Twitter
- Responsible at Credix for commercial and business partnerships, scaling growth through marketing, communications, and business development.
- Led emerging market business development and marketing efforts at IntellectEU. Launched ClaimShare, a fraud detection product for the insurance and financial industry using DLT.
- Head of Business Development, Emerging Markets - IntellectEU
- Product Manager - IntellectEU
- Marketing & Growth - Settlemint
- Master in Finance - University of Antwerp
August Widmer (DeFi Partnerships & Strategy)
- LinkedIn; Twitter
- Experienced traditional finance professional with deep expertise across the web3 ecosystem specializing in decentralized finance.
- As Credix’s head of DeFi Partnerships and Strategy, August will serve as Venus’ primary point of contact.
- Lending Oversight Core Unit at MakerDAO
- Investment Banking Vice President, Financial Institutions Group at Stephens Inc.
- Investment Banking Associate, Financial Institutions Group at Raymond James Financial
- Private Equity Associate, Financial Services at Patriot Financial Partners
- Investment Banking Analyst, Financial Institutions Group at Keefe, Bruyette & Woods, Inc.
- BA from Hampden-Sydney College
Carolina da Costa Carvalho (Head of Credit Risk and Structuring)
- Accomplished private equity professional with experience sourcing, leading, and delivering creative capital solutions across Latin America, specializing in the Brazilian FinTech sector.
- Private Equity Investment Professional I (Noon Capital Partners)
- Private Equity Investment Professional I - Infrastructure (CPP Investments)
- Private Equity Investment Professional I (Mubadala)
- BA from Insper Instituto de Ensino e Pesquisa
- MBA from Columbia Business School
Christian Corcino (Head of Capital Markets)
- Senior emerging markets, capital markets, and structured credit leader with proven track record launching new businesses and products
- Co-founded AlphaNotes
- Senior Vice President for Working Capital Solutions and Alternative Assets Syndication at GE Capital
- Vice President of Emerging Markets structured products origination and trading at Deutsche Bank
- BA from Manhattanville College
- MBA from Cornell University
Marco Bottino (General Counsel (Brazil & Emerging Markets))
- Experienced lawyer with broad expertise in Credit and Structured Finance, Securitization and Distressed Debt Investment, as well Bankruptcy and Debt Recovery.
- Capital Markets Foreign Associate at US law firm Simpson Thacher
- Founding Partner of Bottino Advogados focused on bankruptcy and credit recovery
- Partner of private equity firm Zion Invest
- BA from FGV-SP
- JD from PUC-SP
- LLM from the University of Chicago.
Website; Documentation; Application; Medium; Twitter; LinkedIn
4: Transaction Structure
Preliminary Transaction Structure
Venus would collateralize $20 million of VAI with an investment into the Credix Liquidity Pool. The capital would be generated by newly minted VAI, which would then be converted to Solana-native USDC and invested in Credix’s LP. The diagram below outlines this flow of funds and associated contractual relationships.
Note: Process would operate in reverse for the realization of interest repayments to Venus Protocol.
The following outlines key assumptions and processes referenced in the above structure:
- BEP-20 RWA Token: Venus would create a BEP-20 token to represent its investment in Credix’s liquidity pool. Using an oracle, the token would be valued equivalent to Venus’ Credix LP Tokens held on Solana. This “placeholder” is necessary because there is no BEP-20 representation of Credix’s LP Token today. MakerDAO uses a similar operation for its Real World Asset investing, which is outlined in its MIP21: Real World Assets - Off-Chain Asset Backed Lender.
- Venus Off-Chain Entity: Credix, like many RWA investment opportunities, is a permissioned platform limited to investors compliant under Know Your Customer / Business (“KYC”) and Accreditation / Qualified investor status standards. Venus, governed and operated by its community, would need to establish an entity to undergo Credix’s compliance and regulatory verification. The entity would establish the Solana Wallet referenced herein that is ultimately used to invest in the Credix liquidity pool. Other protocols have successfully implemented off-chain entity structures and may be examples Venus could follow to invest with Credix. For the avoidance of doubt, our views here do not opine on the legality or provide any sort of legal advice related to the establishment of such an off-chain entity.
- Exchange: Our proposal is that Venus swaps VAI for USDC-SPL via an exchange which would then be withdrawn to Solana for investing in the Liquidity Pool. This would eliminate a counterparty by allowing the swapping and bridging from VAI (BEP) to USDC (SPL) to occur on one platform.
- Solana Wallet: The Credix platforms operates on Solana with native USDC (“USDC-SPL”), which Venus would need to use in order to invest. We propose Venus mint VAI, exchange that new VAI for USDC-SPL via an exchange, then withdraw that USDC-SPL to a Solana wallet. Venus may then initiate the investment with the USDC-SPL in its Solana wallet. We have worked successfully with multiple Solana wallet solutions, including Fireblocks, and can provide platform suggestions to the community.
Credix LP Token: Credix Liquidity Pool investors receive a Credix LP Token which represents their pro rata interest in the LP. This token accrues in value as principal and interest payments are made on the underlying loans. LP Token holders may then redeem the accrued value on the Credix platform to recognize their respective earned yield amounts. The LP Token is non-transferable and only available on Solana today, not able to be deployed as a wrapped version. Venus would need to hold the LP Token in its Solana wallet and periodically redeem the accrued value, either manually or through smart contracts. Using an oracle, as described above, Venus would hold the BEP-20 RWA Token value held on BNB equivalent to the LP Token value on Solana. As the LP Token’s yield is redeemed, that capital would be sent back through the process outlined above:
- Redeem LP Token accrued value as USDC-SPL
- Send USDC-SPL from Solana wallet to Exchange
- Withdraw from Exchange as VAI
- Note: May also exchange to another asset on BNB Chain if desired.
5: Transaction Terms and FinTech Eligibility Criteria
Preliminary Transaction Terms
We propose Venus deploy $20 million into the Credix Liquidity Pool at a targeted Annual Percentage Yield (“APY”) of 12.0%, paid entirely in USDC. The Liquidity Pool’s APY does fluctuate based on the underlying loans’ dynamics, but its target is 12.0%, which it has historically exceeded into the range of 13%.
Below is a summary of the preliminary terms we propose:
- Principal Amount: $20 million
- Targeted APY: 12.0% paid in USDC-SPL (varies at rate paid to all LP investors)
- Investment Medium: USDC-SPL
- Term: No term. Withdrawals may occur as liquidity is available anytime following the Initial Lockup Period (see below).
- Disbursement Schedule: Beginning at contract implementation; Targeted $5 million per month subject to VAI liquidity and market dynamics. Final Disbursement Schedule will be established working with Venus and Venus advisors following a successful initial vote.
- Standard Lockup Period: Initial 90 days
- Venus Protection: Venus’ investment would always be in the senior position of the underlying debt facilities, thus ensuring downside protection by junior tranches and excess collateral.
Ongoing Deal Monitoring
Credix works to deliver investors maximum transparency through full on-chain reporting and real-time third party monitoring agents.
- All asset transfers will be trackable on-chain through block explorer platforms
- Credix will lead ongoing deal monitoring through multiple third party service providers and provide all investors regular updates
- Key areas the monitoring agents will assess include:
- Delivery of debt facility
- Compliant collateral pledging
- Cashflow management and verification
- Loan origination to fintech
- Eligibility criteria check for fintechs and end-borrowers
- Ongoing monthly reporting
FinTech Eligibility Criteria
Credix facilitates the creation of debt facilities to best-in-class Latin American FinTech lenders that meet the parameters defined below at the time of origination
|Eligible Geographies||Emerging markets in Latin America, primarily Brazil, Mexico, and Colombia|
|Historical Loan Performance||Minimum of 12 months of loan performance data|
|Collection Rate (LTM Average)*||≥ 75%|
|First Payment Default Rate (FPD) (LTM Average)*||≤ 5%|
|Delinquency 30+ (LTM Average)*||≤ 10%|
|Delinquency 90+ (LTM Average)*||≤ 10%|
|Underlying Assets Interest*||Monthly fixed payments (not less frequently than quarterly) with an average excess spread of 1.3x the facility financing fee|
|Sectors||Factoring with & without recourse; SME revenue financing; SME equipment financing; Leasing; Asset-backed loans; Remittances; Supply Chain Financing; Payday/SS benefits advances; Buy-now-pay-later; Consumer; Credit Cards; Agriculture loans|
|Collateral of Underlying Loans||Off Balance Sheet: Fiduciary assignment of underlying assets within defined eligibility criteria; Potential additional guarantees on a deal-by-deal basis. ‖ On-Balance Sheet: All-assets pledge; No debt senior to Credix’s facility (preferably); Additional deal-by-deal covenants (e.g. maximum debt-to-equity ratio, tangible net worth minimum, etc.)|
|KYC & AML||Full KYC/KYB and AML verification and compliance|
|Documentation||Able to provide the fintech loan tape/portfolio, legal docs and recovery information|
|FX Hedging||ForEx risk hedging determined on a deal by deal basis led by the Junior Underwriter. The operational execution of the hedge will be carried out by the administrator of the SPV where the FX currency risk lies|
Note: Current eligibility criteria optimized for current market conditions and may evolve as market dynamics shift.
*Magnitudes calculated based on an equivalent portfolio to that of the expected transaction to be financed (i.e. product, credit scoring quality, etc.)
6: Potential Risk Factors
Summary of Potential Risk Factors
This summary of risks below is not intended to be comprehensive and other unforeseen risk factors may materialize throughout the investment period.
- Counterparty Risk: Venus would interact with several new counterparties in the transaction which could add a layer of complexity and potential risk. Venus and Credix have not yet worked together and it is assumed that Venus would establish an off-chain entity under this transaction structure. These specific risks are mitigated as Credix has had no defaults since inception with its capabilities trusted by blue-chip firms, as investors in both deals and the company. Additionally, other crypto-native protocols have successfully used off-chain entities in multiple large-scale deals providing a template for Venus’ approach.
- Underwriting Risk: As in any lending structure, a significant level of trust is placed on the underwriter to source and execute appropriate loans. Credix works to mitigate any such risk by performing stringent due diligence and monitoring on every FinTech lender. Our platform is designed with an unprecedented level of due diligence security as a FinTech must pass Credix’s then the Underwriter’s processes in order to be onboarded. Credix’s Credit, Risk, and Structuring team is highly skilled with deep local knowledge. Additionally, specific parameters will be defined as to the type of loans the FinTech may issue and we always utilize an in-market servicing agent.
- General Operational Risk: General loan operations, including recoveries, rely heavily on each FinTech’s operational processes. While this may pose a structural risk to some, it is mitigated as we ensure our FinTech partners have records of exemplary asset quality, clearly defined recovery processes, and are led by top-notch seasoned management teams. In short, we will only work with the best. Additionally, at Credix we’ve launched over 20 tokenized bonds and in the meantime are well positioned to assess this kind of risk.
Strong alignment of incentives overarches all facets of this partnership and significantly mitigates all of these potential risk factors. Credix, the Underwriters, and every FinTech lender will be financially incentivized to act in Venus’ best interest. They are repaid only after Venus is repaid.
We believe this proposal is a unique opportunity for Venus to partner with one of the most innovative and trustworthy lending platforms on-chain or off-chain. By backing VAI with Real World Assets in our Liquidity Pool, Venus can diversify into assets insulated from crypto volatility while generating a targeted 12.0% APY, thus delivering stability and above-market returns. Venus’ investment would be structurally safeguarded by excess collateral coverage, its senior position in each debt facility, and multi-deal diversification built on the deep credit analysis performed by Credix and our Underwriting partners. Central to all of these aspects, we would be unlocking capital for underserved markets in Latin America and providing real, tangible, economic benefits to the local populations.
We are excited to present the Venus community this proposal and engage, discuss, and ultimately execute it. We believe this will be the beginning of a mutually beneficial and long-lasting partnership between Venus and Credix.