Real Asset-Backed Loans
Users can borrow cryptoassets or cryptocurrencies using their own real assets as collateral.
Loan Purpose
When it comes to securing cash liquidity based on real assets, there are country-specific restrictions. In particular, the scope of loan availability is limited according to the loan-to-value (LTV) ratio in the first financial sector, and accordingly, asset securitization limitations may appear. ELYFI can be a solution to overcome these limitations. When a real estate owner needs to securitize their assets beyond the loan limit, they can take out a real asset-backed loan through ELYFI. At this time, the loan can be invested through the liquidity supplied by ELYFI's investors. Because liquidity can be supplied from investors around the world, the Money Pool can become large and easily accessible at the same time. In addition, since the process of exchanging crypto assets for cash has been simplified today, ELYFI can provide a realistic alternative for owners of real assets who need additional asset securitization.
Bond Formation
An asset owner must enter into a contract with a collateral service provider to obtain a loan using real assets as collateral. The process of entering into this kind of contract is similar to that of a loan contract in the traditional financial market. When the contract is concluded, the right to collateral security is established and a bond is formed. However, the following differences exist when connecting to the financial market on a decentralized blockchain.
The Blockchain-Bond Connection
A bond is a formal contract that can receive legal protection in reality, and ABTokens are issued that link them with a financial system on the blockchain. These ABTokens, as non-fungible tokens (NFTs), contain basic information related to a loan contract. When the holder of the ABTokens exercises the right to the tokens, the bond is transferred to the holder. The borrower agrees in advance to this.
The obligation to transfer the bond when the ABToken holder exercises the right is included in the pre-contract. If the borrower does not comply with this, the holder of the ABTokens can claim compensation for such non-compliance. In that way, the right of the holder is secured.
Collateral Effect
The ownership of ABTokens can be transferred through free transactions between individuals. When the owner of the tokens exercises the right to the tokens, the actual bond is transferred. In order to seize the collateral and receive the transfer, it is necessary to hold the ABTokens against real assets and the bond to be transferred through the tokens. When a collateral service provider deposits the ABTokens in the Money Pool and takes out a loan, the ABTokens linked to the bond are locked-up in the Money Pool as collateral. The borrower must hold the ABTokens to seize the collateral contract for the real assets. In other words, the ABTokens deposited in the Money Pool can serve as strong collateral on the blockchain.
Scenario 1. Loan
Contract Management Process
This is the procedure for creating a collateral-based loan contract between a borrower and a collateral service provider. There are three sub-steps in the contract process as follows:
Step 1: Submit Loan Documents
Submit to the collateral service provider various documents necessary for evaluating a loan secured by real assets. These documents include a copy of identification card, resident registration record card abstract, appraisal report, and real estate registration certificate.
Step 2: Loan File Review
Based on the documents submitted by the loan applicant, risk analysis for the relevant asset is conducted, and the loan availability, maximum loanable amount, and interest rate are calculated. In the case of the interest rate, the interest rate is calculated by reflecting current conditions such as the deposits of cryptoassets to be loaned from the Money Pool and the loan status.
Step 3: Prior Approval Loan Procedures
Proceed with the drafting of a contract to establish the right to collateral security between the collateral service provider and the owner of the real assets. When the contract is concluded, an asset-backed loan is created. The contract can be concluded through a written contract or an electronic contract.
Issuance of ABTokens
This is a process by which loans or bonds existing outside the blockchain are tokenized into ATokens through the NFT standard and flow into the on-chain. Through this process, it is possible to prove the external debt relationship on the blockchain, and the ABTokens created based on the loan receivables are recognized as collateral by ELYFI. The collateral service provider deposits the ATokens as collateral in the Money Pool and takes out a loan of the desired type of crypto assets. The specific process is as follows:
Step 1: Uploading a contract
The (electronic) contract and documents between the borrower and the collateral service provider are uploaded to the Smart Contract.
Step 2: Signing the contract
The uploaded information is signed electronically by the borrower and the collateral service provider. When verification of the contracting entities listed on the Smart Contract is completed, a third-party review agency (e.g., law firm) reviews this and also signs it electronically.
Step 3: Issuing the ABTokens
When the information registered in the Smart Contract is signed by the borrower, collateral service provider, and law firm, a unique ABToken that proves the asset-backed loan is issued.
Depositing the ABTokens
The ABTokens are automatically transferred to the Money Pool and deposited as collateral immediately after issuance.
Prior Approval Loan Procedures
The collateral service provider can take out a loan of value equivalent to the collateral recorded in the ABTokens, up to the LTV ratio. When the ABTokens are deposited and the loan amount is determined, the total amount minus the preliminary interest is transferred to the collateral service provider's wallet. The moment the collateral service provider takes out the loan, the ABTokens are locked. In addition, DTokens equivalent to the amount borrowed are issued. The DTokens store information on the loan amount and interest to be paid, and serve as the basis for the repayment total. The loan between the collateral service provider and the Money Pool is created based on the Smart Contract. When cryptoassets backed by real assets are borrowed, there is maturity set in the contract, unlike cryptoasset-backed loans.
Loan Remittance
The collateral service provider remits the loan in cash to the borrower on the date specified in the contract.
Scenario 2. Redemption
Loan Repayment
A borrower who takes out a loan secured by real assets pays off the loan and interest within the repayment period specified in the contract. If repayment is not possible within that period, the liquidation process will begin for the ABTokens deposited as collateral in the Money Pool. For further information on liquidation procedures, see the “Liquidation” section.
Loan Repayment and ABToken Receipt
The collateral service provider pays back the principal by transferring the cryptocurrencies to the Money Pool Contract before maturity. When repayment is complete, the DTokens are destroyed and the collateral of the locked up ABTokens in the Money Pool is unlocked. The ABTokens are sent to the deposit address of the collateral service provider that made redemption.
Termination
When the ABTokens owned by the collateral service provider are burned, the collateral contract is terminated.
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