Hi everyone, we wanted to share with you a quick update on what we’ve been up to, some insights we’ve gathered on the market, and the strategy we believe is best suited to the current market conditions.
What have we been up to?
We’ve successfully deployed $750,000 in USD stablecoins across the Celo ecosystem. Here’s a breakdown of our allocations:
- $75,000 in cUSD: Staked with EthicHub at 8% APY for 12 months, enabling them to expand their loan book and reach more unbanked farmers in LATAM
- $100,000 in cUSD: Staked with Jia at 12% APY for 12 months to support SMBs´ invoice financing in Kenya and the Philippines
- $100,000 in cUSD: Staked with Quipu at 12% APY for 12 months to back their alternative credit scoring for micro businesses in LATAM
- $100,000 in USDc: Staked with Symplifi at 16% APY for 12 months, facilitating supply chain cross-border payments in Rwanda
- $26,000 in USDc: Staked with Ufund at 14% APY for 12 months to initiate a partnership with a debt fund, focusing on emerging market opportunities
- $100,000 in Uwatts: Purchased Uwatts with Unergy, a protocol supporting solar energy mini farms (projects under $1M capex that can source energy for a 30k small town) in Colombia
- $100,000 in USDc: Staked with Untangled Finance to bring TradFi opportunities on-chain. We became the anchor LP for their first deal with Karmen, a leading fintech providing revenue-based financing for SaaS SMBs in France
- $150,000 in USDT: Staked with Roda to provide hard asset loans (bikes and motorcycles) for gig workers, essential for those engaged with delivery apps like Uber.
YTD, all repayments have been smooth, with no defaults.
How are investment decisions made?
We structured the DAO from Credit Collective by 30 people from VCs, Debt funds, and other leading players in the space. You can find an example of the meetings here.
Each participant was granted equal voting rights, equating to one vote per deal. More than 75% of the voters involved in the proposal must approve it for it to pass. For example, if there is 1 vote against and 4 votes in favor, the proposal passes; if there is 1 vote against and 3 votes in favor, the proposal is rejected.
Market Engagement:
We’ve met with over 20 stakeholders, including debt funds, family offices, and companies, to discuss the state of on-chain markets during the following events:
- Side event at the Africa Tech Summit in Nairobi in January 2024.
- Side event and speaking opportunity at the FLII (flii.org) event in Mérida, Mexico in February 2024, where we engaged with the impact ecosystem.
- EthCC in Brussels from July 8th to 11th, 2024: We´re sponsoring the Institutional Digital Asset Forum co-organized with Ethereum France, Celo Europe DAO, and BPI France. If you are around, come say hi
We look forward to seeing familiar faces and meeting new members of the community.
What Have We Learned?
Native vs. Non-native On-chain Credit Protocols
- Native: Protocols where the lending and repayment process is happening on-chain and has a good reason to do so.
- Non-native: Protocols where the act of “lending” happens off-chain, but the companies raise the money on-chain.
Most money managed as RWA is under the “non-native” category. There are three main reasons why companies/funds raise on-chain:
- Big money is managed on-chain today: Investors prefer not to offboard and onboard between investments.
- Data management: Transparency and validated data presentation to investors.
- Senior pools: General pools that distribute money across various pools.
- Secondary market: On-chain secondary markets are gaining traction, offering advantages over off-chain markets.
Native protocols are more “niche” at this moment, often in a “testing” stage. These protocols adopt blockchain because they require a permissionless borderless financial system. Both native and non-native protocols are essential for the blockchain revolution, each building the stage for the next.
The Good, the Bad, and the Ugly
The Good:
- Founders see stablecoin adoption and the Celo blockchain’s push as advantageous, particularly for native protocols. Key advantages include USDT & USDC as gas fees, a market of local stablecoins (KSH, PHP, etc.), and a growing number of users from emerging markets.
The Bad:
- Most protocols are still in their early stages and have yet to be live on the chain. While we remain committed to supporting early-stage projects, many are still in testing mode and are not yet able to generate a significant impact on key community metrics such as active wallets, transaction volume, and total value locked (TVL). As a result, we have not been able to deploy all the capital as anticipated, primarily due to the fewer-than-expected investment opportunities available.
The Ugly:
- The leading protocols that are live and generating meaningful volumes are asking for funding above our mandate, making it challenging to transition them over.
The Way Forward
To best support the ecosystem, we are making a few adjustments to our strategy:
- Support Volume and Liquidity of Local Stablecoins: We will deploy our available capital into liquidity pools to support the volume of local stablecoins. This approach aims to stabilize and create an efficient stablecoin market on Celo. While pursuing this strategy, we will continue to deploy capital into on-chain credit solutions and ensure capital efficiency.
- Larger Check Sizes for Some Projects: We will consider deploying larger checks than our initial mandate of $150K max per project.
Additionally, we are in touch with Bancor regarding the deployment of both CarbonDeFi and The ArbFastLane Protocol on Celo. We believe these products will be super helpful in making the stablecoin market on Celo more efficient.
Carbon DeFi is an on-chain orderbook-like protocol. Importantly, end-user traders are usually makers, not takers. Contrary to AMMs, this means no slippage and no sandwich attacks.
Carbon DeFi is essentially built for on-chain asset managers and funds.
The ArbFastLane Protocol is a decentralized system with a single smart contract and an associated bot that anyone can run (so far 80 unique wallets are running it). The bots monitor DEXes on a chain and if there is a profitable arb to be made, the order is sent, driving volume, unique wallets and transaction numbers to multiple protocols.
We believe this strategy will support the fundamentals needed to make the stablecoin market on Celo more efficient and attract credit protocols and continue deploying money into on-chain protocols that benefit the Celo ecosystem.
*Known risk:
Non-liquid assets often experience high price volatility due to low trading volumes and market interest. Sudden price swings can result in significant losses over Credit Collective staking liquidity.
Best regards,
Sebastián Buenaventura
Credit Collective