Proposal for Allocating $5m from the Celo Community Fund to RWA Lending Pools with Untangled Protocol

Governance
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Dear Celo Community,

Following the feedback and advice provided by some community members, we are pleased to present this proposal for your consideration and further discussion. Our proposal centres on establishing a sustainable mechanism for the Celo Community Fund to offer liquidity support to ecosystem projects. We will be at Co-OPERATE à Paris, and looking forward to discussing this proposal with many of you in person, should you happen to be there.

Executive Summary

Untangled, a credit platform underpinned by asset-backed lending, requests your support in allocating cUSD 5 million from the Celo Community Fund. This allocation will be utilised to participate in initial lending pools, backed by institutional-grade Real World Asset (RWA) collaterals. Contingent upon approval and performance metrics, the fund deployment will happen in phases, with the first drawdown of cUSD 500k set for early September. These funds will be lent to reputable originators who have demonstrated a track record with institutional investors.

Introduction to Untangled

Untangled is a RWA credit platform that leverages institution-grade collateral and a native liquidity engine. We’ve been an active part of the Celo ecosystem since early 2022, learning and contributing as we go: here for an intro to Untangled and here on green assets as collaterals for stable coins and here for a reserve liquidation mechanism.

Strategic Benefits

Strategic alignment. Our proposal aligns with Celo’s vision as the home of Regenerative Finance (ReFi) by supporting greener, real-world economies. The proposed allocation mechanism is sustainable as it ensures the return of principal and interest to CCF. This strategy is in line with a framework expressed by the community in favor of such allocations.

Yield/TVL. Assuming a yield of 8% per annum, this allocation will result in an increase of around $400k to the Fund at full deployment. Given the limited yield opportunities currently within the Celo ecosystem and wider crypto space, we believe that solutions like Untangled could provide much-needed alternatives.

Diversification. Holding entirely in crypto native assets comes with a level of volatility that can create difficulties in meeting future commitments for the Fund, such as grants, regional DAO operations and bug bounties. Therefore, diversifying the fund’s holdings with strategies like ours can help manage asset-liability mismatch within the Fund.

How it Works

The proposed transaction structure involves setting up a legal entity representing the DAO. Our base asset will be cUSD, and we plan to collaborate with Mento to manage any potential slippage during the conversion of Celo to cUSD and then bridging cUSD to USDC.

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Transaction Terms:

  • Principal Amount: $5 million
  • Targeted APY: 8.0% (to be paid in cUSD)
  • Term: 1 year (extendable)
  • Disbursement Schedule: An initial cUSD 0.5m for the first 6 months. This would be followed by drawing down the remaining balance at cUSD 1.5m, then a subsequent cUSD 3m contingent on achieving milestones, bringing the total loan to cUSD 5m over a period of 12 months from the first drawdown.
  • Protection: The Celo Community Fund (CCF) loan will constitute the senior tranche, thereby being protected by junior tranches and any excess collateral.

Risk Factors and Mitigation

There are potential risks associated with this proposal, and we have outlined mitigation strategies for each:

  • Credit/Counterparty Risk. We will source collaterals from originators with proven track records with institutional investors.
  • Liquidity Risk: The absence of a secondary market for this type of token could lead to liquidity challenges. However, this can be mitigated through the short-term nature of loans and a backstop liquidity facility (at a cost).
  • Smart Contract/Cybersecurity Risks: Our contracts were audited by Verilog. An updated audit has been planned prior to the deployment.

Conclusion

This proposal aims to establish a strategic and sustainable relationship between the Celo Community Fund and Untangled. By allocating a portion of the fund to Untangled’s RWA lending pools, we hope to generate consistent returns, diversify the fund’s holdings, and contribute positively to the ecosystem’s growth. Your input and support are vital for the realisation of this proposal, and we look forward to your feedback and further discussions.

Please feel free to reach out to us in the forum or on telegram/discord:
Discord: Untangled
Telegram: @mutangled; @QuanAnhLe

8 Likes
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Congrats on the development! If you need On/Off ramp of Celo assets in Brazil, you can count with us from Lovecrypto.

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Hi Ed, thanks for your offer. We don’t have Brazilian assets in the first few originators we work with. Our borrowers / or the issuing SPVs will handle the on/off ramp. Will certainly be in touch when we need help!

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Hi @Muntangled

Thanks for submitting this proposal. I’m in favor of more actively deploying the Celo Community Fund; however, I think it’s essential for the ecosystem to manage it professionally.

From your proposal, it’s not clear what type of loans Untangled issues - can speak more about these loans?

2 Likes
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Hello Luuk,

Thanks for your question.

In this proposal, we will be partnering with a UK-based institutional asset manager, who is currently financing a diverse array of over 130 originators globally. Leveraging this partnership, we have the opportunity to access these originators and their diverse, high-quality loan assets.

For our initial engagement with the Celo community, we’ve selected a few originators from this pool who have great performance track record and bring social impacts. Below are a couple of examples:

  • An European invoice factoring company -this company has a proven track record of supporting SMEs as they expand and grow. They offer cash advances to SMEs based on their receivable invoices, helping these businesses to bridge cash-flow gaps and better manage their finances.

  • A Singapore-based Neobank - known for their innovative financial solutions tailored for underrepresented blue-collar and lower-middle-class communities in India. They provide salary advances to individuals who might otherwise struggle to access credit cards. This company has received backing from several prominent venture capital firms and their assets are recognized as investment-grade, demonstrating their strong business model and potential for growth.

To ensure that Celo community’s interests are protected:

  • Each asset has an ‘over-collateralization’ providing additional security.
  • The majority of these assets are either credit insured or considered investment-grade.
  • Originators are mandated to invest 5%-20% cash as a ‘first loss’ provision, reinforcing their commitment.
    Our proposal to the Celo community involves investing in senior tranche loan notes. Consequently, the community’s investments are protected by the aforementioned measures before any impact occurs.

As we go deeper into the governance process, we will provide dataroom access on these originators.

Please feel free to continue this conversation if you have further queries or need more clarity.

1 Like
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Dear Celo community,

We have successfully launched a RWA credit pool to Celo on 2 May 2024 (Untangled). There has been strong support from the Celo community, including the Credit collective. Please refer to a Coindesk article (https://www.coindesk.com/business/2024/05/02/tokenized-private-credit-platform-untangled-opens-its-first-usdc-lending-pool-on-celo/) on the launch.

We have also developed Credio, an RWA risk oracle network that provides credit price feeds from machine learning models directly to smart contracts in an automated, decentralised and privacy-preserving manner.

Given recent development, we are seeking comments on a draft CGP for a grant of $200k worth of Celo to seed the initial Untangled RWA pools.

Overview

Untangled, a credit platform underpinned by asset-backed lending, requests your support in granting cUSD 200k worth of Celo from the Celo Community Fund. This grant will be used to participate in initial lending pools, backed by institutional-grade Real World Asset (RWA) collaterals. These RWAs are originated by proven asset originators who have already been funded by Fasanara, an institutional asset manager regulated by the FCA in the UK.

The grant will be used to seed liquidity enabling other stakeholders in the Celo ecosystem to discover and participate in institutional-grade real world lending.

Status

Describe the issue that motivates this CGP. It should indicate all parameters that are being changed and why doing so is important.

As demonstrated by our protocol deployment on Celo Mainnet in October 2023 and our recent launch of the first RWA pool, we focus on building a highly differentiated RWA offering based on the following 3 pillars:

  • Source quality RWAs that can bring attractive risk-adjusted yields and impact. The first pool is to purchase assets from Karmen, a fintech lender in France specialising in revenue-based finance for SME SaaS businesses. Other pools of high quality assets will soon follow.
  • Ensure robust legal structure for token issuance: This involves a SPV holding collaterals backing up the real world lending. The legal structure is based in Luxembourg, a jurisdiction that is well recognised by institutional investors. This legal entity is audited by a Big 4 firm.
  • Build a rigorous credit pricing and monitoring our credit oracle service, Credio, that offers machine learning based models predicting probability of default and on-chain portfolio monitoring.

Explain what benefits the enhancement this change will bring. To the extent possible, enumerate use cases affected by this CGP.

Network growth: Our proposal aligns with Celo’s vision by supporting greener, real-world economies. The launch of these pools will bring a new standard in on-chain real world lending, a first on Celo. Together with other developments such as USDC and USDT deployment and Celo L2, this could usher a new wave of use cases on the Celo network, attracting institutional investors and sophisticated investors alike.

Return/TVL: Given the limited yield opportunities currently within the Celo ecosystem and wider crypto space, we believe that yield solutions like Untangled could provide much-needed alternatives.

Strategic alignment: This proposal has been structured as a grant due to potential difficulties for the CCF to extend a loan directly to Untangled pools, due to legal reasons or otherwise. The protocol is however working on a pre-farmed strategy, where, upon a launch of the protocol’s governance token, a portion of token supply will be allocated to early liquidity supporters. This will help align interest between CCF and Untangled, paving the way for CCF’s direct lending to Untangled pools when regulatory impediments are resolved.

Proposed Changes

Fill out the following template for each transaction in the proposal

A multisig wallet hosted on Safe will be employed to manage and deploy the funds, requiring a 2 of 3 signature threshold. The multisig wallet is at 0xE35A476Ac46c34C15d90C6b2efd3FAFAFB815BeB and can be found here. The signers for this multisig are:

  • Manrui Tang (Untangled)
  • Isha Vashney (Celo community member)
  • Quan Le (Untangled)

Verification

[TO DO]

An explanation of how voters can verify that this CGP does what it intends to do. Can be left as “TODO” until the proposal is made. Include things like CLI commands to run and pointers to code.

Risks

Highlight any risks and concerns that may affect consensus, proof-of-stake, governance, protocol economics, the stability protocol, security, and privacy.

There are potential risks associated with this proposal, and we have outlined mitigation strategies for each:

  • Credit/Counterparty Risk. We will source collaterals from originators with proven track records with institutional investors. All initial RWA pools deployed on Celo are co-invested by Fasanara. In addition, Credio oracle will act as a source of independent pricing for credit risks and the monitoring of the underlying collaterals.
  • Liquidity Risk: The absence of a secondary market for this type of token could lead to liquidity challenges. However, this can be mitigated through the short-term nature of underlying collaterals and a backstop liquidity facility (at a cost).
  • Smart Contract/Cybersecurity Risks: Our contracts were audited by Verilog. An updated audit has been completed prior to the launch.
1 Like
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Hi @Muntangled thanks for your revised proposal.

As it passed more than 1 year from your first submission, it is necessary to go thought the Governance process from the beginning, starting with a new up-to-date Forum post.

It is required to post the proposal as a new discussion thread in the appropriate category and to mark it with [DRAFT] in the title. Proposal authors are expected to be responsive to feedback.

A proposal needs to be up for discussion for at least 7 full days, during which responsiveness from the author is mandatory.

Additionally, you can find useful info and proposal template here: https://hub.celopg.eco/

Thanks for your understanding.

2 Likes
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Thanks @0xGoldo. We will do.

1 Like