Crypto Collateral vs RWA Collateral

Hello fellas. Um I'm gonna try to make this at least a little bit spicy. Um so you know starting with something um easy. Um what are what are the core financial trade-offs of your design? Um and why is uh yours better than the alternative?

Um trade-off. So on Wildcat you there's basically no overcolateralization. If you look into the crypto industry and especially if you look into credit everything in DeFi if it is related to credit it's mostly overcolateralized and that is very capital unefficient. So if we compare crypto 3.5 trillion versus traditional finance we have about 300 trillion.

So crypto in everything so bitcoin all stable coins everything in ETH all rollups are 3.5 trillion so 1% of what's actually happening in the traditional space if we want to be a viable alternative we do need to use the systems that trade fire is using which is underolaterized credit that does introduce more risk because there's not collateral that can be liquidated um but It also provides more transparency since every everything's going to be onchain. All right. So, um I guess in that similar vein, um VIFI seeks to let's say synthetically represent tailend currencies where like US um is the USDC and USDC yield related currencies are on the back end. But what you realize if you try to synthetically create these currencies at what the emerging market banks would say they are technically overvalued and if you were to collateralize at that ratio it's almost like over collateralizing which is um capital inefficient and we create a mechanism in which it's almost like you could price in the DPEG you could um from a market driven approach figure out how much that currency is overvalued and that leads to um the market being able to price in what that local currency could could be worked from an emerging market perspective and where we create like novelty is that um the LPS and the liquidity is single-sided.

It's only on the US side. So they're not taking um collateral risk risk in holding like a Kenyan chillin or Colombian peso but we allow them to expose holding the exposure of this local currency. And the novel way in which we u backs stop that um is that it's like a long-term bet that these currencies are going to inflate over time. So I'm sorry that sounds like FX gambling to me. That's literally what holding your major market currencies are.

Doesn't sound like too too safe, man. Okay. Um, Andreas, um, I actually wanted to to to dive in a bit like so in essence, I imagine there is sort of like a a facilitator that on boards the undercolateralized um, uh, exposure like like how does the incentive structure around that look like, right? like like how do I make sure that I don't enter adverse selection like somebody's just like onboarding whoever they can find just to like increase numbers like like are they first loss capital like how does that work so we take a very objective role in determining who can be onboarded and who cannot be onboarded. The one thing that we do make sure is if this is actual a legal entity and if all of the KYB documents are in order and if they make sense similar to whatever this company would also need to get onboarded to a centralized exchange.

If those documents are sound that's good enough reason for us to onboard him. Now in terms of like risk and uh underwriting like Wildcat does not underwrite the credits that are being asked for on the platform. You can imagine us as a Tinder for private credit or a Craigslist for private credit. Every borrower on our platform can create their own credit markets and they specify what type of credit they want. They specify what money like USDC, USDT, do they want to have wrapped ETH?

They determine how much. They determine under which rates APR. They determine what the withdrawal cycles are. They determine if it's a fixedterm market, if it's a open term market. They present themselves and make the market interesting for lenders to deposit money into.

If it's not interesting for the lenders, they don't deposit money into. If the company does not like if nobody knows the company that creates the market and there's no online presence of them, people won't put money into the market. If the borrower does not present him in a way to be sexy or to be interesting for the lenders, they won't put money into the market. So it's all basically on the side of the borrower to present his case, make sure that it is interesting for lenders to deposit money into and this can be by either providing a sufficient use case that makes sense which then also decreases the risk for the lender to default because the business model is something that makes sense. It could be that the bar is so big and known that if that bar would default, then losing my money is the least amount of risk that would happen generally because they're just so big.

It could be that they provide additional documents if or uh additional capital uh offchain or some legal agreement, master loan agreements, etc. Or it could also be just the possibility for the lender to reach out to them and understand what they're doing a little bit more. So we provide all of those you know possibilities for the borrower to present them but also working with other protocols out there that focus on credit risks. There have been protocols out there like uh key ring or accountable that deal with credit risks and understanding of how stable coins actually work or how the credit actually works and the company profiles. And I do assume since private credit is something that is going to increase over the next couple of years more and more that we will have more onchain information for those borrowers that gives them more and more you know risk profile for lenders to understand.

Okay. So so sounds sounds like typical banking. You basically I basically take credit if I prove I don't need it. If you what? If I prove I don't need it.

If you don't need it. As in like if I if I prove I have like assets offchain. Yes. Okay. Yes.

And and again that's like the the crypto in its current form is so capital inefficient that if we want to be an a valid alternative to compete or just being an alternative to the traditional finance, we need to use instruments that they're using in the traditional world and bringing them on. One of the biggest problems that we currently can see is that credit risks or credit ratings are being created with overcolateralized positions which basically results in the credit rating of that person or the company being useless because it's over collateralized. Like you can't get a good rating with over collateralized credit. That's also something that we want to try to work on to like increase the credit rating from people that use underolateralized credit and then actually get a track behavior on how they repay credit that is underolateralized. Um that sounds like reliance on the traditional system.

Uh Vernon, is that the case with on your side as well? Um I mean there's always some level of um let's say reliance on traditional systems. If you think of something like USDC, you might have USDC held as collateral in your background, but if circle goes under, you know, that has to actually u be liquidated and then pay out to creditors. So um in some sense if you hold USDC and then you say okay well I'm on a liquid is the USDC and you're like okay well then maybe I hold Etheina right you're like I hold USD because that's held by you know staked ETH with um um holding a short position in per so there's always some risk involved um obviously you want to remove as much let's say legal and judicial risk because then that um the enforcement is slow and you want to let's say optimize for like a trust minimized um efficient um let's say modality which the blockchain allows for in which you could immediately programmic programmatically swap and trade these risk. Um so it's fine if you hold USDC and USDC goes down because then you have a share token to say okay when you actually do liquidate give me my my $1 share.

So why why why are you providing more yield per unit of risk than wildcat? I don't know. How much yield are you providing? I'm asking you then you get to respond. Okay.

What? Repeat the question. So so so basically why why I mean we know that the market is extremely competitive. So so so why are you providing a better riskadjusted yield than Wildcat? Um I'd say that we are doing like a combination where on the back end we are aggregating onchain yield plus swap fees from tn currencies to US currencies.

So our goal is to basically let's say you were LP you want to take a position that we provide the right riskreward compared to whatever the onchain yield is the aggregated onchain yield and every time you go percentage points outside the the aggregate onchain yield you're taking some level of risk and we want to say you could take that same level of risk plus um people who want to go in and out of um longtail currencies and like I said the speculation is that these currencies are going to inflate. So it's like parking your money and then it's being invested while your money is parked. So So the risk adjusted deal comes from FX. Yes. In teen currencies.

Andreas, does that outperform you guys? Well, we have a lot of different types of bars on our platform and we're actually looking for different types of bars that do different use cases. The first white paper that was released for Wildcat, we like the first paragraph was we actually don't know who's going to use this. Like we don't know what type of use cases are going to be built on top of us. And like right now we've seen you know we have market makers on our platform.

We have um companies that uh you know just collect 5 million fixed term within four hours to uh frontr run or try to frontr run the the plasma ICO to get into that and then provide the yield that they generate there to the lenders. We have a company that's trying to build up more Bitcoin mining facilities across the world. um we have smaller um market makers that you know haven't been around as long as the big market makers but still need the additional capital so they provide a higher APR um which then potentially also means that not a lot of people know them but if they get outreach to them they understand their business model so we don't have like the one risk model in our platform because every borrower does something different with the capital that they're asking for So yeah, it's it's like we we can't really say what what people are using the the money for because every borrower does use it for different use cases and that's good because you know that's how private credit works. Private credit is being used from different different people for different cases which then also generate different types of APR. Okay.

Right. Um touching touching a bit on composability. Um what are the constraints that your system introduces? Um in in what direction of composibility? Well, like so I mean a lot of a lot of the discussions today have been like like um the ability to take an you know a pool token from one protocol and use it somewhere else within DeFi.

Um yeah is that is that possible? Is there like you know that reliance on FX markets or on you know like private arrangements does that break composibility? I take this. Yeah I can take it from um it depends on what the borrower defines. Yeah.

So like since we do give the power to the borrower, they could define a full restriction of the market which means that if a lender deposits money into the market, the debt token that they do get in return or for example not transferable. So then that's basically just like I owe you something, please don't move it somewhere. That's the only one. But our markets also do allow for for more than that. Yeah.

So they do allow for people receiving the debt tokens and then also exchanging those on the secondary market or we have seen cases where the debt tokens of markets are actually being used to pay for OTC deals on the platform of one of the market makers that are on our platform. So it's actually being used as uh ways of payments because of course the the the issuer of the debt token will say of course I will accept the debt that you have towards me as a payment through additional way. But there are also you know other scenarios that we see coming where you can use the debt that is being issued by wildcat markets as additional collateral for um other credit protocols out there. Oiler or Ava depending on you know if they accept the pools that you can create and then provide that credit. Yeah.

Um to answer your question about um the composability um especially with things like LP tokens which are like super abstract there's like a concept of net asset value when respect to the LP tokens. Um to simplify the liquidity provisioning we wrap that in a rebasing yield token. So it would be as users just deploy USD liquidity and then they get their rebenting token that is being retroactively put into different um currency FX pools and it's being rebalanced to give the optimal um what what they say yield and there's a lot of um you could say in some sense you don't have isolated ability to deploy capital into one market like what if you wanted to put um liquidity into only Kenya and not Colombia or Mexico and then vice versa. Um the idea here is that you could run into like liquidity attacks where people are like putting amount of liquidity in then pull it out then you have M uh MEV and to simplify the approach um so that the FX markets are stable for swapping we abstract that into a rebasing token and that rebracing token is composable composable. Yeah.

Yeah. Okay. um a few months or a few years down the line, next black swan event hits, what is it and how how is your platform protecting the users or is it is it still like race for the door and you just hope you're not the last one in? I mean I I think um our protocol would be um pretty well if if anything it kind of optimizes for like a black swan in some sense because like we are betting on local currencies devaluing and in some sense when like a black swan hits with like let's say in the US usually tail currencies do worse um so like a black swan event for us is these local currencies like like finding discovering vibranium and then become is like super like super strong. But um yeah, we we kind of are built um for the exposure for Black Swan.

It's uh interesting since like one of the biggest last crashes that we have was during FTX times which was also underolaterized private credit and now I'm sitting here saying use let's the the the difference is like at least on how how we work is the the full transparency that you have on chain and like everything that happened in the past with private credit everything was good up until everything was not good anymore and nobody knew where actually the money is nobody knew how much money is at risk. Nobody knew who who is at risk. Yeah. Um and we do have all of that information, you know, on our platform onchain. Um every market health indicator where you can also see like in in which state is the market currently, is it still healthy or is it currently delinquent?

Is it in penalty state? You can track um if the borrowers were able to repay money, if the lenders wanted to withdraw the money. So you have an additional scoring there. And you can also basically see the markets of each individual borrower with the legal entity attached to it. And then you can do your research or have that data already in some way to know what will happen in terms of like black swan.

And if you know I mean we we we all saw the the letter signed by Kyle saying like we're good for the money. That's that's true. But it was like a letter on a piece of paper without anything onchain that you can actually track without any you know um analytics of where the money is going or how many lenders were actually um exposed in some way and everything all of that wrapped out afterwards when it was already too late. There were like no indications that something will happen and and I'm pretty sure something will happen in future again. The question is will this additional transparency that we provide result in a better management of this like defaults will happen in the future.

Uh crashes will happen in the future. The only power that we have since we have the blockchain is to provide more transparency on it so that we can move and react in a way that nobody loses all of their money or Yeah. or worse. That sounds hopeful. It's managed fallout.

Yes. Yes. Yes. It's it's a soft landing. Well, on on on that soft landing.

Thank you everyone for being here. Thank you guys for joining me. Thank you. All right. Thank you very much.