Proposal: Collateralizing VAI with $20 Million in Real World Assets with Credix Finance

Venus Governance Venus - Governance Discussions
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The execution is much more difficult than theories.
I am going to vote against it proposal…
So many uncertainties and you don’t know how it turns out

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I don’t like it neither.
20M VAI not collateralized by actual liquidable tokens, that’s against the definition of VAI as an overcollateralized stablecoin.
Fintech assets are not tangible assets, it’s basically forcing VAI holders to invest into some sartups. Some chance to get +12%, high chance to lose all. Investing into startups should be done with capital and stock options. High risk, high reward, but here it’s high risk and 12%APY reward.

And what would they do with 20M VAI minted out of thin air? There’s barely 800K of liquidity for VAI currently.

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8

Not a good idea… I don’t like it at all… hopefully our voices are heard… Please don’t vote for this proposal with the community wallet

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Please see the disclaimers in the original proposal above which are also applicable to these comments.

Hi @Eugenius: Thank you for your review and questions. Please see our responses and let us know of further questions.

  1. its a risky business to provide liquidity with such conditions… at the end Credix are issuying uncollateralized loans, to pretty much everyone who “qualify” . For me it sounds like it is a Quick / Flash Loan scheme.
  • Credix provides liquidity to finance pools of familiar asset types, such as auto loans, leases, credit card receivables, mortgages, and business loans. These asset types represent contractual obligations to pay.
  • The Credix Liquidity Pool consists of senior-secured loans, meaning it is first in the repayment structure, and invests in the Senior tranche of a diverse set of debt facilities (‘’deals’’)
    • Each deal consists of hundreds or thousands of individual loans allowing for diversification (borrower, geography, asset types, etc.).
  • Credix issues less debt than it has assets meaning all facilities in this pool are overcollateralized and backed by full legal agreements.
    • To illustrate, for every $100 of loans in the underlying pool of assets, Credix would only issue $90 of debt. The $10 difference represents the amount of “overcollateralization,” which serves as a cushion for debt investors.
  • The diagram below depicts the typical SPV structure of an individual deal (note the LP position):
    • Average Liquidity Pool deals over-collateral ratio: ~117% today.
    • In case of defaults, first the fintech will lose their potential upside and then their equity. If more defaults occurred, the junior investor will be affected before the liquidity pool, according to the waterfall and aligning incentives.The junior investor participates in the due diligence and underwriting and are tradfi credit funds, specialized in EM credit.
  • Potential borrowers must meet defined eligibility criteria then pass stringent screening, structuring, and due diligence processes conducted by our internal teams and specialized credit funds.
    • Please see Section 5 of the proposal for a summary table outlining these eligibility criteria.
    • Our screening & diligence process typically include:
      • KYC / KYB of company & management; on-site diligence & interviews
      • Financial analysis (historical, current, internal modeling, etc.)
      • Credit analysis (loan tape, collections, policy, etc.)
      • Legal review (company docs, ownership, etc.)
  • This process has helped our platform maintain a pristine record of 0 defaults and 0 missed payments for investors to date.
  1. It is not clear what exactly comes as collateral? What are those RWA in the “real world”?
  • Two types of Collateral exist:
    • An asset representing a contractual obligation to make payments.
      • These are contracts, such as leases, mortgages, loans, and agreements that define payment obligations to create the contractual cash flows.
      • These are “real” assets such as vehicles which can be pledged as additional collateral
    • Over-collateral in the form of equity pledged to the SPV, which can be in the form of cash or additional assets as described above
  • Liquidity Pool investors receive an “LP Token” which technically represents their pro rata investment in the pool.
    • The pool invests in the Senior position of a basket of overcollateralized deals.
      • The LP Token is an investor’s claim on their respective portion of each of these overcollateralized facilities.
  • Each facility is issued to a fintech non-bank lender that provides loans to SMEs and consumers and remain in the bankruptcy remote SPV during the tenor of the facility, monitored by a 3rd party agent.
    • The chart below outlines the current Liquidity Pool’s composition of underlying loan types:
  • Collateral underlying these deals in the “real world” is secured by traditional legal agreements.
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Please see the disclaimers in the original proposal above which are also applicable to these comments.

Hi @Isitbathtime: Thank you for your review and questions. Please see our responses here and above then let us know of further questions.

  1. Are these real world assets paper agreements where person A could get out of by defaulting on the loan?
  • Facilities extended to the fintech lenders are backed by loan portfolios with true sale of the assets (“loans”) into our SPV. These are indeed secured by traditional legal agreements. Additionally, the fintech posts equity as first loss collateral which would be liquidated first in the event of defaults.
  • Fintech clients can not just default on their loan. They have a legal obligation to repay, with the right of seizure of goods in order to recover the loan, and their personal credit score will be impacted very negatively.
  1. Is the Vai kept in your treasury or is it sold to USDC (or similar) once transferred.
  • We do not custody funds.
  • Venus would convert VAI to USDC then deploy that USDC into the Credix Liquidity Pool.
  • The Liquidity Pool USDC would be deployed across the senior tranche of a diversified basket of debt facilities, which is then off-ramped into local currencies and finances the fintech facilities
  • Venus would recognize principal and interest payments in USDC which it could then hold or convert to an asset of its choosing.
  1. If a business accepts the terms of the loan agreement will they be offering anything directly to Venus? What I would like to see is for businesses we support to accept VAI as a form of payment and hold its balance sheet in VAI (to bring much needed liquidity to the platform)
  • Businesses in this instance would be the fintechs receiving debt facilities. They will be receiving local fiat currency to fund their lending activities and not yet transacting in VAI or any other digital asset.
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Please see the disclaimers in the original proposal above which are also applicable to these comments.

Hi @Jmn: Thank you for your review and questions. Please see our responses here and above then let us know of further questions.

  1. Fintech assets are not tangible assets, it’s basically forcing VAI holders to invest into some sartups. Some chance to get +12%, high chance to lose all. Investing into startups should be done with capital and stock options. High risk, high reward, but here it’s high risk and 12%APY reward.
  • Credix is not investing in fintechs or startups, but is purchasing their portfolio of loans, which is backing the facility our platform finance for them. This means that even if the fintech would go down, the investor’s claim is on a segregated loan book.
  • Our facilities are overcollateralized by tangible assets. Please see the replies above for more detail on the structure.
  • To date, our capital providers have not experienced a single missed payment or default.
  • Venus would be invested in the Liquidity Pool which is the senior, most protected, tranche of a diversified basket of facilities (+15 today). This is the most protected vehicle on the Credix platform.
  1. And what would they do with 20M VAI minted out of thin air? There’s barely 800K of liquidity for VAI currently.
  • We recognize VAI does not have the liquidity and volume of a USDC or USDT. Converting from VAI to USDC may initially be a slower, more metered process. We will work with the Venus community to establish the optimal schedule based on market conditions and VAI liquidity.
  • One key goal of this structure is that it could actually increase VAI liquidity by collateralizing the asset with a highly scalable asset class: traditional private credit. As referenced above, our identified addressable market today is over $1 trillion and we have long-lasting partnerships already in place to deploy hundreds of millions (in USD terms) across LatAm.
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Thanks for having provided insights.

to deploy hundreds of millions (in USD terms) across LatAm

So your business is pretty much like Financiera Contigo or CAPEM. They exist for >10 years, and have portfolios in the $50M. They will be your competitors, I’m not convinced you’ll be able to easy overtake their market, which is, for the whole LatAm, maybe in the billion, not in the trillion. Private credit (auto, installement, home…) is a profitable business but with many solid lenders already in place.

Converting from VAI to USDC

If you plan to borrow VAI and just convert it into USDC, why not borrowing USDC at the first place? With 20M VAI whose sole purpose is to be swapped for another token, you’ll create a gigantic sell pressure, and no usecase, on a token struggling (and mostly failing) at keeping its peg.
I don’t see how this could benefit to VAI, excpet being sacrificed in case of failure, like UST was for TerraLuna or HUSD was for Huobi.

But considering there’s less than 1M liquidity and 2M market cap for VAI currently, you’ll have to wait for VAI to actually work before starting your plan. With VAI mint re-enabled, it will increase the market cap, create sell pressure, but no more liquidity.

You should first have a stablecoin that works on its blockchain, and then you extend it to the Real World. Like DAI did. You’re doing the opposite.

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I agree that using VAI only to convert to USDC is a risk of excessive liquidity, which is very difficult to maintain. Plus, the transfer of liquidity from one chain to another does not look like something convenient and fast. It is likely that there is a more detailed business model that will demonstrate the benefits to the community members and dispel all concerns, while it is very difficult to assess the potential of this proposal.

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Please see the disclaimers in the original proposal above which are also applicable to these comments.

Hi @Jmn: Thank you for the follow up. Please see the replies here and let us know of further questions.

  1. So your business is pretty much like Financiera Contigo or CAPEM. They exist for >10 years, and have portfolios in the $50M. They will be your competitors, I’m not convinced you’ll be able to easy overtake their market, which is, for the whole LatAm, maybe in the billion, not in the trillion. Private credit (auto, installement, home…) is a profitable business but with many solid lenders already in place.
  • Credix is not a direct lender to SMEs and consumers.
  • Credix extends debt facilities to non-bank lenders that then lend to SMEs and consumers, similar to the way a traditional bank would provide a warehouse line of credit to a non-bank lender.
  • In our model, Financiera Contigo and CAPEM might actually be borrowers on the Credix platform as they source external capital to fund SME and consumer loans. Those both appear to be high-quality examples that are the type of organizations we work with. In fact, we have already partnered with multiple similar fintechs that have originated over 100M USD in loans and we have live operations with similar lenders in Mexico.
  1. Regarding VAI liquidity:
  • Our goal is to partner with Venus and scale this partnership as VAI’s presence grows.
  • We recognize VAI’s trading depth today is not as deep as other top stablecoins and will work to fund this partnership incrementally as organic demand grows.
  • We are not proposing to immediately mint or swap $20M of VAI, but instead to do the process over an extended period based on market dynamics with the health of the protocol and stablecoin in focus.
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Financiera Contigo and CAPEM might actually be borrowers on the Credix platform

Ok, so I was wrong about your business target, thanks for having corrected. You’re closer to Esketit so, which also gathers deposits in USDC or USDT and lend them to non-bank lenders, themselves providing private credits to end consumers.
Your model would be similar, in LatAm, and with Venus as an intermediate, which ensure privacy (they have a KYC).
The yield is consistent too: they offer 11%, yours is 12%.

Still, the market is not in the trillion. 1T is the GDP of Mexico, 1T is the marketcap of the whole cryptosphere, not the market of non-bank finance in LatAm.

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Thanks for the responses. I’ve had my own private discussions with a few community members that talk privately on telegram :sweat_smile: Steakhouses are addressing the biggest concerns and with steakhouse onboard I will back Cerdix (high risk high rewards for me personally but if the team is confident I’m in!). My question is, after speaking to some other Venus community members - This feels like a long term strategy, which is great I fully support that! But there are also members here that are looking for short-term goals. They might only hold Venus for 3…6 months or plan to exist at the top so they will not accept a proposal that could bring short term damage and aren’t interested in proposals with long term goals.

Having a breakdown of our partnership with milestones and short term targets would help more of us see the benefits :wink: so what are the short term goals, any short term damage, what are the noticeable milestone achievements and long term goals with this?

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Hi @Isitbathtime: Thanks for your comment and considerations. I think that’s a very good point you raise. We are able to move relatively quickly with this pilot and expect to be able to potentially upscale this collaboration in the future as our partnership matures, and we realize mutual benefits.

Looking at what’s next in the short term, I would split it in three phases.

  1. Preparation. As soon as both the Steakhouse proposal and this current Credix proposal pass the first vote, both teams will be working closely with the Venus team to get the infrastructure, final due diligence and tech ready for the collateralization to be implemented. We expect this process to take approximately 4 weeks.
  2. Collateralization & Funding. We’ll work with the right parties to convert the VAI, mitigating sell-side pressure by working with experienced OTC desks as much as possible. We expect Venus could gradually deploy the full amount over the course of 4-6 months after a positive VIP vote. We plan to work alongside the Venus and Steakhouse teams to make this a smooth and efficient process. Each incremental investment would begin earning the targeted 12.0% APY as soon as it is deployed.
  3. Yield generation. As soon as an USDC is deposited in the pool, the LP tokens are expected to start earning yield for Venus, generated by the underlying RWAs (collateralized by “hard assets” such as autos loans, motorcycles loans, invoices, etc.). The protocol can choose what to do with the generated USDC: automatically re-invest or withdraw for other purposes such as buying back governance tokens, implementing a native yield, etc…

So overall, if all goes according to plan, we would expect the protocol to start earning yield on an initial funding tranche by May.

In the mid/long term, we can explore increasing the collateralization volume (after community vote), creating specific RWA pools with specific assets for Venus or creating specific RWA vaults. We’re very excited to explore all options with the community and see a lot of potential and synergy.

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what is possible donwside of this RWA thing? What theoretically can go wrong? What are Venus protocol risks in a simple terms?
Also, Please provide a real example of how this all works in Colombia, let’s say (cause you guys operate in Colombia, as I understand), that can be understood by anyone, cause the way how you explain things may not be understandable for anyone

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It would be awesome if you could elaborate on the questions that were brought up by Eugenius.

If I understood everything right, you are proposing that VENUS mints 20.000.000 new VAI.
So far, so good.

I think that no matter how slowly VENUS will try to swap those VAI and how many OTC Desks are being used: VAI will depeg.
If you do not believe so: Time will tell.
I remember the days when minting was enabled and every John and Jane Doe were selling VAI at no matter what price: I don’t wont to see those times again.

Perhaps it would be better if Venus BUYS VAI when it is below peg.

Lets assume that swap for USDC is possible.
At the current rate 20.000.000 VAI will swap for 19.400.000 USDC
If there will be a small wonder and you will receive close to 20.000.000 USDC: perfect!

Whoever would buy those VAI is a question that does not need to be answered.
But another question is: What will the buyers to with it?

Lets say they stack it into the vault and earn 0,9 APY (should be the rate if you throw 20.000.000 VAI at the vault, perhaps its even less).

Don’t you think this will create sell pressure again?
Who wants 0,9 % APY when every other stable has more?

Another problem: Liquidity wise, there would be nothing gained, compared to todays situation.
So a small sell (at the moment 50k VAI sold, would push send the price to 0,85 USD) would make the stability fee kick in and whoever minted those VAI would have to pay high stability fees.

What about a bad actor intending to liquidate the assets that where used to mint those 20.000.000 VAI? I think you could easily push the price somewhere, where your minted VAI has to be liquidated

What am I missing here?
It all seems to be a lose lose situation.

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Hi @Hiromatsu: Thank you for your comments and review. We’re in the process of drafting replies to the questions from both you and @Eugenius, which we’ll have posted ASAP.

Thank you again,
August

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Please see the disclaimers in the original proposal above which are also applicable to these comments.

Hi @Eugenius: Thank you for your review and questions. Please see our responses and let us know of further questions.

  1. what is possible donwside of this RWA thing? What theoretically can go wrong? What are Venus protocol risks in a simple terms?
  • The “RWAs” in this instance are private credit investments. Some of the primary risks associated with this type of investment are:
    • Liquidity Risk: Typically 1-3 year duration limits liquidity of underlying assets.
      • Credix Liquidity Pool mitigates this by pooling investor capital into one liquidity pool. This means investors don’t need to remain within one deal for the full tenor as other investors also get in and out of the liquidity pool as capital comes in through other investors, interest repayments, amortizations,… Also, Senior position (Liquidity Pool including Venus in the proposal) receives interest repayments first. Lastly, we’re working on features to create additional liquidity solutions.
    • Credit risk: Risk that a high volume of pledged loans default, causing missed interest/principal payments.
      • Credix mitigates this with a comprehensive multi-layered due diligence model and ongoing monitoring by third parties. Our platform has seen no missed interest payments or defaults to date. Additionally, we work with monitoring agents to provide investors a real-time data feed on underlying assets that tracks eligibility, covenants, defaults, etc. This is visible within the platform on a deal by deal basis.
  • Outside the realm of private credit, smart contract / technical risk is a consideration.
    • We will work very closely with the Venus team throughout the implementation and ongoing throughout the investment. We plan to hold regular calls to share updates from a technical perspective and solicit any feedback from the Venus team. We believe that working together on a seamless integration will help mitigate smart contract risks.
    • Credix mitigates this and other protocol risks through a layered security model. Please see this blog post from Maxim (Co-Founder & CTO) for full detail.
  1. Also, Please provide a real example of how this all works in Colombia, let’s say (cause you guys operate in Colombia, as I understand), that can be understood by anyone, cause the way how you explain things may not be understandable for anyone

  • This is a great request. Thank you.

  • As you note, we are active in Colombia. We expanded there with a proof-of-concept facility for our $150M partnership we announced with Clave, a Colombia asset originator.

  • For a purely hypothetical example, let’s use a Small-to-Medium Enterprise (SME) debt facility. The diagram below lays out how the illustrative flow of funds and contractual relationships in this type of deal. Below it are the associated steps in order of how they are executed. Please keep in mind that each deal varies, but this is a general framework that we build upon as/if necessary.

  • Each deal is housed in a Special Purpose Vehicle (“SPV”). This serves as the interaction point for all investors and borrowers.

  • Steps:

  1. Investors provide capital to SPV through the Credix platform
    1. Non-bank lender pledges equity in the SPV
    2. Underwriter invests USDC in Junior tranche of the facility
    3. Liquidity Providers invest in Liquidity Pool which invests in Senior tranche of the facility
      1. Venus would invest in the Liquidity Pool and therefore in the Senior tranche
  2. Non-bank lender issues loans to SMEs
    1. SMEs pledge collateral (+ equity, creating over-collateral) to the SPV in return
      1. Collateral may be equipment, hard assets, receivables, etc.
  3. Third-party agents contracted by Credix monitor all operations
    1. Back-up servicer prepared to collect principal & interest payments
    2. Monitoring agent provides investors real-time data on the underlying loans made to the SMEs
  4. SMEs make repayments of principal & interest
    1. Funds go directly from the end-client to the SPV, not to the fintech
    2. Senior tranche is paid first (Venus’ position)
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@August Please take your time

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Please see the disclaimers in the original proposal above which are also applicable to these comments.

Hi @Hiromatsu: Thank you for your review and questions. I’m breaking up your key points below and providing feedback on each. Please let us know of further questions.

  1. At the current rate 20.000.000 VAI will swap for 19.400.000 USDC. If there will be a small wonder and you will receive close to 20.000.000 USDC: perfect!
  • To be clear:
    • We are not proposing Venus mint and/or exchange $20M at one time.
      • Attempting to do so could indeed be challenging and put downward pressure on VAI. That is not our approach.
    • We are proposing that this balance be minted and exchanged over time as demand organically grows.
  • There are multiple reasons why VAI demand may grow
    • VAI has the opportunity to become one of BNB’s most dynamic stablecoins. To my knowledge, no other similar assets on BNB are backed by Real World Assets today.
    • Venus would be generating a targeted 12.0% APY. This could be used to incentivize new VAI demand, perhaps through a specific pool or rate paid to VAI holders.
    • Venus’ multichain expansion may drive new demand.
  1. Lets say they stack it into the vault and earn 0,9 APY (should be the rate if you throw 20.000.000 VAI at the vault, perhaps its even less). Don’t you think this will create sell pressure again? Who wants 0,9 % APY when every other stable has more?
  • We’re looking again at where VAI is today. How could that 0.9% APY be improved when VAI is generating a targeted 12.0% APY? That is a community decision, but the opportunity is significant for driving financial returns to VAI holders.
    • With the type of yield bearing collateral we propose, VAI could have an inherently above-market interest rate to incentivize demand.
    • New demand from this interest rate could then limit sell pressure.
    • With sell pressure limited and demand building, more VAI could be minted against more RWAs.
    • This could create an organic growth engine that helps VAI outpace other stablecoins.
  1. Another problem: Liquidity wise, there would be nothing gained, compared to todays situation. So a small sell (at the moment 50k VAI sold, would push send the price to 0,85 USD) would make the stability fee kick in and whoever minted those VAI would have to pay high stability fees.
  • From a liquidity standpoint, the main constraint appears to be demand for VAI. As outlined above, let’s assess how this partnership can increase that demand. Venus would be receiving a targeted 12.0% APY, which may be used to incentivize demand for VAI.
  • We plan to work closely with Steakhouse and the Venus teams to develop a plan with set parameters intended to limit downward pressure on VAI as the swaps take place.
  • For full clarity, we do not recommend executing the full exchange at one time. It would be best as a deliberate, metered approach guided by the available liquidity and market tolerance. We are not proposing to mint all $20M at once.
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All: I’m highlighting an edit we just made to the proposal for full visibility. The “Disbursement Schedule” under section 5 was updated as noted below:

Old:

  • Disbursement Schedule: $5 million per month beginning at contract implementation.

New:

  • 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.

Thank you all for your continued interest and engagement. Please let us know of additional questions or comments.

August

cc @Hiromatsu (as this relates to your question)

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TLDR: Snapshot to start the risk assessment and implementation of Credix proposal

Part of our RWA initiative proposal to the Venus community is to perform up to 4 assessments on RWA.

According to our current RWA strategy, onboarding Credix would be in the third prong. As noted by some Venus participants, the protocol is not ready yet to allocate 20M of capital to a RWA. Yet, doing the risk assessment and implementation package will take some time and we expect months of work from the Credix and Steakhouse team. By delaying this part of the work, you might end up not being able to invest in RWA when the protocol will have the funds to be invested.

We have met with Credix team many times and consider their proposal interesting. Credix team feels strong and the asset class is interesting. To be clear we don’t have an opinion yet on the proposal, that would be the result of the assessment. But we are interested to do an assessment on the Credix proposal and report to the Venus community.

Should the community approve, we will work with Credix to perform the assessment and solve any RWA-issue along the way. The goal is to provide Venus community with an assessment and an implementation plan. Then, the Venus community will have the opportunity to vote on execution or not.

PS: For the sake of efficiency, @steakhouse will ask to be added on the whitelist to post snapshot votes in order to maintain transparency and community engagement along the process.

PPS: Snapshot is live, please feel free to vote

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