END Capital--Portfolio Manager: Bridging TradFi Assets to DeFi

@Saltines123 thanks for your questions!

Each loan drawn from the TrueFi pool will be a levered tokenized version of a loan (“Loan A”) to a company that originates loans (“Loans B”) to its customers. Loan A is collateralized by a pool of the Loans B that are originated by the company. So in essence, the answer to this question is both: the Loan A (and thus each loan drawn from the TrueFi pool) will be collateralized by real world financial assets (Loans B), but the cash flows would be dependent on the future cash flow streams generated from Loans B. We’re finalizing a visualization of what this structure looks like, and will update our post shortly.

Yes, but this would be a very Draconian scenario (where “borrower” is the company borrowing from Loan A), as it would require bringing in a third party servicer to collect on the pool of Loans B collateralizing the Loan A. There are other structural features in Loan A that would entail a significant de-risking (i.e. paydowns on Loan A, which flow through as paybacks to the TrueFi lenders) before arriving at such a scenario. These structural features come in the form of protective covenants and performance triggers, but most importantly a borrowing base concept that essentially forces the company borrowing from Loan A to initiate paydowns before defaults on the pool of Loans B gets too high.

The END Capital team receives from the borrower company, on a monthly basis, a data feed representing all the loans (Loans B) that they’ve originated, and any collections made on all loans originated. With this data (and possibly other external data, if the company’s history is limited), we determine what the collection rates and default rates for each categorization of loans that this company originates. Based on this data, we adjust the structure to maintain a certain level of credit protection (my response to rattlecage represents the current structure we have in place).

With our current company borrower, the loan collateral (Loans B), along with the cash reserve, are pledged. As we shift towards larger transactions, we would be exploring an SPV structure and a true-sale of collateral (Loans B), though this would entail significant legal costs (SPV creation docs, DACAs, servicing agreements, trustees, etc) - hence, this is a structure we plan on exploring when we start pursuing larger transactions (which should be very soon).

As I mentioned in my response to the valuation question above, we review the company’s originations on a monthly basis. For TrueFi lenders, we intend on producing monthly reports compiling the highlights of our analysis, distributed to lenders via a data room. On a side note - we do have a technology team taking learnings/insights from the work that END Capital does, to bring this process on-chain.

This is correct, assuming in this example that you are an early stage fintech lender. This structure is quite common when it comes to private credit lending facing early stage fintech lenders (i.e. post seed, series a, series b) with limited and/or volatile origination performance history. These companies will typically have large slugs of capital from their latest raise, a significant portion of which is earmarked for originating loans. Naturally, as the company matures and their loan performance history becomes more established and more importantly, becomes more stable, the cash reserve portion would decrease. The terms of someone borrowing from one of these companies would be based on the actual loan product that these companies offer (not based on the deal structure we have in place with the company). Currently the GigPool is working with one company at the moment, but is in discussions with two others; for the one company that has already been onboarded onto the GigPool, a borrower would present this company an invoice for services rendered, and the company would provide a short term advance on the face value of that invoice (at a discount), and would collect on the full invoice.

1 Like