Markets & deals
You can think of a market as a closed ecosystem in which credit deals are created and funded. Most markets are defined by one of the following two structures:
In the fund structure, an asset manager will propose deals, which have been underwritten by the asset manager already. The asset manager can still provide capital to the tranches of the different deals, or put capital in the liquidity pool. Credix’ role is to set up the market, help in the governance of the market, and bring investors of our ecosystem to invest in the pool + tranches of deals of that market.
Traditional credit funds leverage this model for efficiency gains + to tap into the Credix ecosystem’s capital for funding. In general, those funds have a long history of analyzing and providing credit.
When a FinTech or other corporate becomes too large for the FinTech market or needs to raise capital on terms that are not attractive for the FinTech market, a syndicated loan market is created. The asset manager (= most often the lead investor for this market) will perform the due diligence on the FinTech/corporate, negotiate commercials and structure the debt. In contrast to the fund structure, a syndicated loan structure does not have a liquidity pool. Similar to the fund structure, Credix’ role is to help set up the market + governance thereof and to bring other investors to the table. Those other investors can co-invest alongside the asset manager in the tranches of the different deals.
Technically, a hybrid structure of the fund- and syndicated loan structures is possible. Both market structures can be open- or close-ended.
The asset manager can create deals within a market. A deal is the on-chain representation of the off-chain securitized product (e.g. bond, debenture, …) and contains all the information of the underlying facility such as tenor, the public key of the borrower,…, as well as tranches, and a repayment schedule.
A deal is split up into tranches, creating investment opportunities for investors with different risk/return profiles. Most often a senior/mezzanine/junior tranche setup is used. In this setup, the senior tranche has the lowest risk, with the lowest return because it is protected by more junior tranches in case of defaults. If a default happens, the junior investors will lose (part of) their invested principal and gained interest as it flows to the senior tranche. Though this tranche setup is used in the majority of deals, the Credix platform allows for the creation of up to 10 tranches.
When the market is set up as a fund structure, the senior tranche is always funded by the liquidity pool, meaning that investors which invest in this pool have exposure to all live deals. In a syndicated-loan structure, the senior tranche is funded on a deal-by-deal basis.
When a deal repayment hits our smart contract, it automatically calculates how much should go to every tranche’s principal and interest (based on the repayment schedule and tranche structure).
The repayment schedule defines how much interest/principal is expected per repayment period (e.g. 30 days). When a borrower does not repay on time, late fees are charged. Our technology allows arbitrary interest/principal schedules such as bullet, amortization, amortization with grace period, or any other exotic structure.