[INVESTMENT] Credix Liquidity Pool

[INVESTMENT] Credix Liquidity Pool

Initial Disclosures:

  • The material herein is proprietary, for informational purposes only, and subject to change. 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 proposal to metaCOLLECTIVE, 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. 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.

Content Outline

  1. TL;DR
  2. About Credix
  3. The Opportunity
  4. Built for Treasury Investing
  5. Next Steps

TL;DR

Credix Finance (“Credix” or “we”), a high-growth decentralized institutional lending marketplace unlocking capital in emerging markets, would be excited to partner with metaCOLLECTIVE (the “DAO”) in a mutually beneficial investment structure that fuels our collective success. We are submitting this preliminary proposal to gauge the community’s interest in investing USDC into the Credix Senior Liquidity Pool. We welcome all comments, questions, and general feedback as we explore this potential partnership.

Credix channels: Website; Documentation; Application; Medium; Twitter; LinkedIn

About Credix

Credix Finance is the most sophisticated, global debt capital market platform in the world. We are powered by Solana and already used by over 25 institutional (debt) funds including multi-billion credit hedge funds such as MGG Investment Group and crypto native funds such as Alameda Research.

Driven by a local credit structuring team, Credix tokenizes bonds from well-established credit FinTechs in Latin America as structured products, with different layers of risk and return. Being off-balance sheet, the securitized deals consist of a first-loss junior tranche (taken up by the FinTech to align incentives), a mezzanine tranche (underwritten by specialized credit funds which do extensive due diligence) and lastly a senior tranche. The Credix Liquidity Pool combines all senior tranches on the marketplace, allowing passive investors to diversify across all underlying products, FinTechs and soon countries while still accessing an attractive, targeted risk-adjusted return of 12% APY on USDC.

The diagram below provides an overview of the Credix marketplace.


Credix allows for the creation of marketplaces which contain multiple individual deals. A deal is a debt facility for a credit fintech represented by a bond backed by real-world loans (auto, SME, etc.). Currently, only the FinTech marketplace has been deployed, but others are expected to go live in Q4 2022. 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/mezzanine/junior tranche structure 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. A capital cushion is built into the SPV and is depleted first if a default happens. In the event the cushion does not cover the defaults, the junior tranche of the FinTech is effected. If additional defaults occur, the mezzanine credit funds are impacted before senior investors would feel any losses. However, to protect against any defaults, we negotiate protective covenants that cut off any additional capital supply to the FinTech if loan losses reach a certain threshold. To-date, we have not needed to act upon these covenants.

Since launch, the Credix marketplace has funded approximately $23 million of loans to emerging markets FinTechs with several other monumental deployments in process. To date, Credix as a company has raised $13.75 million of equity funding across Seed ($2.5M) and Series A ($11.25M) rounds, both of which were anchored by blue-chip investment firms. Credix’s equity investors include Motive Partners, ParaFi Capital, Circle Ventures, Victory Park Capital, MGG Investment Group, Valor Capital, Fuse Capital, DRW Cumberland and Solana Ventures. In addition, over 25 funds have joined our Liquidity Pool including leading firms such as Alameda Research, Rockaway Blockchain Fund, Almavest, Addem Capital, MGG Investment Group, and Transfero Swiss have joined as liquidity providers or underwriters. These dedicated investors are critical to our growth as they provide not only essential capital, but also a wealth of knowledge and guidance.

Additionally, we have partnered with some of the Solana ecosystem’s top protocols. On September 8, 2022, UXD Protocol announced a commitment to invest from its insurance fund into the Credix Liquidity Pool. Earlier this year, Mean Finance announced an integration with their Multisig Marketplace to provide our investors the best, safest and smoothest way of managing their assets and treasury. In addition, Mean Finance joined our Liquidity Pool with a material investment. UXD and Mean Finance are some of the examples of protocols that have joined the Credix ecosystem over the last couple of months after in-depth due diligence and research on security, economics and legal nuances. They are paving the way for a number of select others whom we invited to the Credix ecosystem recently and are in the process of onboarding. We seek these relationships because we believe in building a cohesive, self-sustaining, on-chain ecosystem through protocol-to-protocol partnerships that are synergistic in nature and promote the growth of our community.

We have shared some of our transformational updates on our Medium including:

Credix’s founders have deep experience building innovative tech-enabled services together with specific knowledge of our core Latin American economies. Making up our founding and core leadership team are:

  • 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.
    • Past Experience:
      • Vice-President, Head of Blockchain and Crypto - IntellectEU
      • Associate - P20 Consulting / Hogan Lovells
      • Analyst - Motive Partners
    • Education:
      • 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.
    • Past Experience:
      • Head of Product Management - IntellectEU
      • Head of AI, Data, and Quantum Computing - IntellectEU
    • Education:
      • Master in AI - 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.
    • Past Experience:
      • Head of Business Development, Emerging Markets - IntellectEU
      • Product Manager - IntellectEU
      • Marketing & Growth - Settlemint
    • Education:
      • Master in Finance - University of Antwerp

The Opportunity

Credix’s Liquidity Pool supplies capital to the Senior tranches of all deals across a marketplace. Thus, the Liquidity Providers’ (“LP”) capital is not only protected by its payment seniority, but also by the diversification of investing in multiple deals. Our Liquidity Pool earns a targeted 12% APY on USDC. Further, it is a passive investment position, given that the due diligence and deal structuring is performed by the Underwriter, which is always in a more junior position and typically a blue-chip global investment manager with deep direct lending experience. Thus the LPs can rely on the expertise of an experienced investor with more “skin in the game” to structure optimized deals. Further aligning incentives, the FinTech issuer provides the first-loss capital in deals.

Today, the metaCOLLECTIVE treasury holds $422,682.885 USDC, representing ~21% of its total assets. Our Liquidity Pool currently offers the highest Base APY on USDC of all Solana stablecoin pools:


Notably, this reflects the base APY highlighting the pure yield generated to our Liquidity Pool with no short-term incentive reward payouts or inflationary tokenomic designs. Our 13.15% APY shown above is generated by real payments on real loans from real borrowers.

metaCOLLECTIVE today, by our understanding, does not have investments in or exposure to traditional, off-chain asset types. Real World Assets (“RWA”), if you will. Our Liquidity Pool exposure in a protected, high-yielding vehicle that delivers this asset class to the metaCOLLECTIVE community. We see an investment in our Liquidity Pool as a mutually beneficial opportunity for all parties.

Among other highlights, this investment could allow the DAO to:

  1. Offset its cryptocurrency exposure via and protect against market volatility with a diversified portfolio of RWA loans
  2. Generate a targeted ~12% APY on USDC
  3. Build our native layer one chain by investing in a Solana-based protocol
  4. Invest alongside some of the most highly-regarded investors, both traditional and crypto-focused
  5. Have a social impact by delivering much-needed capital to under-invested areas

We are excited by this opportunity and hope the metaCOLLECTIVE community is as well.

Built for Treasury Investing

Treasuries, including those built for investment purposes, should be closely managed and not recklessly invested. We understand and support this thesis. We designed our platform with several core tenets that we believe should provide comfort to DAO treasury investors.

Below, we identify four core pillars that make for a successful treasury investment and explain how we strive to support them.

  • Capital Protection
    • A treasury fund serves a DAO as a “just in case” reserve. It must be protected. In our deals, LPs invest in the Senior position across all deals in a marketplace. This delivers protection in the waterfall prioritization and also diversification from multi-deal exposure. The Underwriters, which invest in the Mezzanine position and lead comprehensive due diligence, are typically top-notch global firms with extensive investing experience. The Credix internal team, which includes in-market operators, conducts additional due diligence, while Vert Capital monitors loan and collateral quality. To-date, no investor has lost any amount of capital on our platform; Credix has a flawless record of protecting your capital.
  • Liquidity
    • It’s your capital; you’ll want to know you can get it back. We strive to always make that possible through a variety of mechanisms. First, our Total Value Locked (“TVL”) has expanded more than 30% over the trailing 30-day period. Organic platform liquidity is quickly growing. Second, we target a utilization ratio (TVL/Deployed Capital) of ~85% and seek to actively manage that balance. Additionally, we have key institutional partners that stand ready that can provide liquidity by buying out LP interests. Finally, as principal and interest payments accrue to the platform, Senior LPs are repaid first thus providing recurring earned liquidity. Overarching all of these themes is our OTC marketplace which is in the final development stages and, with a targeted December 2022 launch, will allow investors to transfer or sell LP or Tranche tokens.
  • Returns
    • An investment should provide a return. Our LP investments provide above-average, stable, understandable returns. Limited access to capital in our core LatAm markets creates naturally higher interest rates due to supply / demand dynamics. For example, traditional rates on auto and student loans are over 35% and 45% per year. Our efficient marketplace allows in-market FinTechs to drive business by undercutting these rates while also maintaining a positive spread. Our investors reap the benefits. There is no leveraging of investor capital, inflationary tokenomics, or general “smoke-and-mirrors” activity. Additionally, we have experienced zero missed payments or defaults to the platform since inception and use active, frequent monitoring of our FinTech partners’ financial condition. Our platform delivers understandable, natural yield bolstered by strong asset quality metrics; we are built for the long-run. Uninvested capital is losing purchasing power at unprecedented rates as inflation spikes worldwide. Our high-yielding LP product mitigates this inflationary decline and exceeds the hurdle rate to deliver a net positive return.
  • Protocol Risks
    • Security is the backbone of everything we do; it will always come first. We reduce smart contract risk through rigorous testing and frequently undergo third-party audits. In our full test suite, we constantly run unit tests, visual- and automated in-app user-flow tests, and leverage our full-fledged digital twin to run infinite numbers of end-to-end scenarios through the smart contracts. Our marketplace is fully-permissioned, meaning all stakeholders must undergo full KYC / KYB in order to get whitelisted. This helps reduce the risks of bad actors gaining access to our platform. Finally, we strive to always maintain full legal & regulatory compliance with two in-house legal counsels, local and global lawfirms while taking a metered expansion approach. We are fortunate to be in frequent communication with Banco Central do Brasil (Brazilian central bank), which serves as a testament to our efforts. Showing additional approval of our regulatory, legal, and compliance framework, multiple blue-chip investment firms have partnered with us.
    • The Credix development team has built a best-in-class protocol with a layered security model. Our most recent third-party audits below validate this security and functionality:
    • We have partnered with Securitize to provide investors streamlined, state-of-the-art KYC / KYB, AML, and accreditation validation. Accredited individuals can now be fully cleared and onboarded via an entirely digital process in 24 hours and institutions in approximately three days or less, assuming all documentation is in place. This is an industry-leading balance of efficiency and security designed to provide our partners the best possible user experience.
    • On-chain or off-chain, legal matters. We work with top-tier law firms, including ones in our target markets, to structure legally-compliant transactions that provide the utmost protection for all parties. Some of the law firms we work with include Clifford Chance (London & USA), Pinheiro Neto (LatAm, Brazil) and VBSO (Brazil).

We believe that we deliver capital protection, liquidity and above-average returns, all on a security-first, legal- and regulatory-compliant platform with substantial growth.

Next Steps

We look forward to engaging with and answering questions from the metaCOLLECTIVE community as this preliminary proposal is reviewed. We also would propose to host an Ask-Me-Anything call on one of the DAO’s servers to help the community gain comfort with our team.

We believe a metaCOLLECTIVE-Credix partnership is mutually beneficial for all involved parties and hope the DAO shares the same feeling. We see this as the beginning of a long and prosperous collaboration. Both of our projects are expanding rapidly with passionate community members. With a positive response, we will proactively move forward with structuring an investment by the DAO’s treasury into our Liquidity Pool. We are ready to move as quickly as the DAO is.

Our pipeline is building with exciting new investment opportunities and we are selectively inviting key partners to join us on this journey. Our exclusive network of institutions and individuals includes some of the most prominent names in both traditional and decentralized finance. We believe metaCOLLECTIVE belongs in this reputable group and look forward to bringing this combination to life.

Hello, first of all thanks for the comprehensive proposal! My first thought is that this is definitely an interesting proposal and worth exploring as sustainable yield coming from RWA is a key area currently underserved in DeFi. A few questions that come to mind:

  • Here:

you mean that no investor (as underwriters of the senior tranche), ever lost money or that in general the default rate has been 0%? If the former, can you share more stats about default rates and returns for the other tranches? If the latter, that’s definitely surprising, in your opinion is it exclusively due to the in-depth due diligence done by your team and partners or there other factors in play? Finally, is the ~12% targeted rate gross or net return?

  • Do you expect / have you seen default rates to be impacted from the current macro environment of rates hiking?

  • Here:

what kind of diversification are LPs exposed to? I.e. is across multiple deals within the same geographic area, or are loans across countries pooled together and then tranched?

  • The early exiting of LP positions would be very valuable for us, can the institutional players buy out LP interests and principal as well? What kind of haircuts should we expect in such cases?

Also thinking out loud, but a possible point of consideration is also ironically that the risk profile might be too low? That is, my feeling is that some (many?) of cMETA holders expect the DAO to take highly leveraged bets (where it makes sense ofc) and farm relatively without too much risk with the rest of the capital. Not entirely sure where this investment would fit (but also why having capital available on demand would be key). In such view, a relatively safe lending might not fit, though arguably 12% is better than 0% of the funds currently sitting idle in the treasury.

Also would be interested to your thoughts @PorcoRosso

Many thanks again and looking forward to engage further!

1 Like

Hi @heremitas: Thank you for the review and great questions. We certainly appreciate the engagement and have done our best to cover all of your points below. Please let us know of any additional questions or follow-ups on our replies here.

Hello, first of all thanks for the comprehensive proposal! My first thought is that this is definitely an interesting proposal and worth exploring as sustainable yield coming from RWA is a key area currently underserved in DeFi. A few questions that come to mind:

1.

To-date, no investor has lost any amount of capital on our platform; Credix has a flawless record of protecting your capital.

You mean that no investor (as underwriters of the senior tranche), ever lost money or that in general the default rate has been 0%? If the former, can you share more stats about default rates and returns for the other tranches? If the latter, that’s definitely surprising, in your opinion is it exclusively due to the in-depth due diligence done by your team and partners or there other factors in play? Finally, is the ~12% targeted rate gross or net return?

  • No investors in any tranches of our deals have lost any amount of capital. We have 0 defaults and 0 missed payments that have impacted the platform or our investors. We believe this is due to:
    • Due Diligence is perfomed on the fintech lender in at least three layers:
      • Our in-market internal teams meet face-to-face with the fintech lenders and perform comprehensive due diligence. So far just 8 out of over 120 passed our due diligence.
      • The deal Underwriters, which take the 2nd loss mezzanine positions, lead due diligence for the investors and negotiate stringent convents to minimize their risk. These are typically well-known, experienced emerging market, traditional credit funds.
      • VERT Capital, our local securitization partner and the lead securitization services of Latin America, does its own due diligence on the fintech lender as well as additional eligibility check.
      • Additionally, VERT Capital provides monthly reports on the underlying assets and validates elgibility criteria/covenants of each facility.
    • The Tranche Structure of our deals requires the fintech lender to take the first loss position in the debt facility. Thus, it is aligned with the investors’ incentives and acts in their best interest.
    • A Reserve Buffer is built into the local SPV vault through the excess spread between the interest payments and the financing fee (+ costs). This layer protects even the fintech’s junior tranche.
  • The 12.0% targeted APY represents the net return. It is 12% APY on your investment back into your pocket.

Do you expect / have you seen default rates to be impacted from the current macro environment of rates hiking?

  • Global macro risks will exist in all investments. We certainly cannot say we will be completely protected from them. However, as the Economist recently wrote while comparing this rate-hike cycle to that of the Volcker era, “it is the central bank in Britain, not Brazil, that is scrambling to avert a bond-market crisis, triggered by the government’s reckless budget. In part this resilience is testimony to the fact that emerging markets are in better health today.” These markets are thriving, and growing extremely quickly. Our investors receive strong returns because of capital scarcity; not because of underwriting junk debt.
  • We have seen a minor uptick in non-performing loans across broad emerging markets, however, this is typical of these economies and our fintech partners are experienced in navigating this environment. This is a stark contrast to more “advanced economies” which do not have the same experience managing credit volatility. From a sourcing standpoint our mezzanine underwriters, which lead the deal structuring, have a preference for asset-backed, SME or agro loans over consumer loans in this current macro environment, which we take into account in the liquidity pool composition. Thus, more “hard asset” loan types are being onboarded.

2.

Thus, the Liquidity Providers’ (“LP”) capital is not only protected by its payment seniority, but also by the diversification of investing in multiple deals.

What kind of diversification are LPs exposed to? I.e. is across multiple deals within the same geographic area, or are loans across countries pooled together and then tranched?

  • As of today, we have 11 active deals to 7 individual fintech lenders, all of which are based in Brazil. We are currently in final discussions with two additional fintech lenders for deals that will expand our presence into two separate Latin American nations. We chose to build a strong base in the Brazilian market, as we have deep roots and connections there, prior to expanding out into neighboring nations.
  • Each deal is specific to one fintech lender, by investing in the Liquidity Pool, your investment is spread across the Senior tranche of all active deals.
  • For example, if an LP invested in the Liquidity Pool today, they would have exposure to the Senior tranche of each of the 11 deals active in Brazil. Once the two aforementioned deals are live, an LP would have exposure to 3 nations (Brazil+2).
  • Please see the illustration below using a hypothetical 5 deal marketplace:
    Notes: (1) Display purposes only // (2) 11 deals are currently active // (3) B = End Borrower

3.

The early exiting of LP positions would be very valuable for us, can the institutional players buy out LP interests and principal as well? What kind of haircuts should we expect in such cases?

  • As it stands today, an investor may exit their position at any time if there is sufficient undeployed liquidity in the liquidity pool. This amount varies as capital is deployed and redeemed, however, so it cannot be guaranteed.
  • We are in the process of building out the transferability functionality, which will be in the form of an OTC marketplace, and should provide much deeper liquidity for investors.
  • Institutions have shown interest in buying out LPs at a haircut, as you note. However, we cannot provide exact ranges on the type of discount that might be necessary to incent a buyer as it is subject to individual negotiation.

4.

Also thinking out loud, but a possible point of consideration is also ironically that the risk profile might be too low? That is, my feeling is that some (many?) of cMETA holders expect the DAO to take highly leveraged bets (where it makes sense ofc) and farm relatively without too much risk with the rest of the capital. Not entirely sure where this investment would fit (but also why having capital available on demand would be key). In such view, a relatively safe lending might not fit, though arguably 12% is better than 0% of the funds currently sitting idle in the treasury.

  • Regarding your comments above. In our opinion, diversification and risk-offsetting is critical building a stable portfolio. All risk is too much risk and all safety is too much safety; balance, achieved through proper risk allocation, is key. Our liquidity pool offers capital protection in the most senior position with the highest base yield on stablecoins. It targets safety and income simultaneously. We do not offer a “YOLO” investment product with triple-digits APYs based on token kickers, but we do offer real, understandable yield that doesn’t come wrapped in a blanket of DeFi-complications. It is a straightforward, highly-protected method for delivering strong returns on otherwise undeployed USDC.

Also would be interested to your thoughts @PorcoRosso
Many thanks again and looking forward to engage further!

Thank you again for your thorough review and analysis. We welcome any additional comments or questions!