AAVE credit delegation to trust minimized bonds.
The MiniMice project executed for the ETH Lisbon hackathon 2021 was rewarded with AAVE's 3rd place bounty!!
In EthicHub we are focused on solving the main problem of the previous financial system: almost a quarter of the world's population is excluded. And since most of the unbanked are farmers, they are our initial focus.
We started in 2018 with a p2p lending model without collateral in which the borrowers were small coffee producers in Mexico and we've been successful interacting with them not only at financial level but also partnering with them to sell their crops (we have already traded more than 140 tons of coffee, which is the business model of the equity company behind EthicHub).
In his presentation at ETHcc Stani said the next thing in DEFI will be to bring back to the real world part of the money that has been coming to DEFI and he mentioned there are two ways to do so: tokenizing real world assets to be able to use them as collateral or simply to use credit scoring models and lend without collateral. We have a third way, to create a Compensation System based on our token (the Ethix) that people buy to bet on new credit Originators (any entity that works with the base of the pyramid, typically farmer cooperatives or agritech projects).
Before the ethixholders can bet on an Originator, there has to be an onbording process in which an Auditor has carried out a due diligence on the economic viability of the credit line and the positive impact of the project (we call ourselves EthicHub because we care what the money is used for).
Once the Auditor and the Originator have skin in the game by buying ethix and staking them as the first level of collateral, the EthicHubbersare able to participate in the creation of the Originator’s collateral vault. Once the collateral vault is funded the loan Originator can then access the liquidity of the system.
In addition to the collateral vaults we have a second level of collateral that is the Compensation Reserve and a third level that is the general staking. All together we have almost USD 30M in the Compensation System while there is less than USD 1M in ongoing credit.
Until now, loan originators access liquidity asking for a credit on EthicHub crowdlending platform but we were very inspired by the success of Aave switching from p2p to liquidity pools solution so we decided to focus on crowd collateral and delegate the lending activity to Aave would exponentially scale our solution: by providing collateral to these small farmers with our system and creating a lending market on Aave, we think this could be an inflexion point in the history of financial inclusion.
What id does the AAVE credit delegation to trust minimized bonds.
Aave user selects the term and gets an 8% apy bond with his/her credit borrowing capacity. This bond is collateralized at 300% ratio with Ethix tokens from EthicHub compensation system. First market is ours, the impact market: Credit delegation for collateralized bonds connected to real world economy (smallholder farmers in developing economies).
Whats next for credit delegation to trust minimized bonds?
This is the first marketplace but this solution can be used by many projects specialized on loan origination in the real world economy allowing credit delegation to become a successful use case that can grow exponentially specially during cryptowinter.
Advantages for Aave
Creating this market will be valuable for Aave’s ecosystem in two different ways:
Launching a market with the credit delegation system and with almost zero risk. We understand a market with focus on credit delegation is a priority for Aave and doing it with us would be the less risky way since it will be overcollateralized.
While during next cryptowinter will make traditional crypto collateral lending suffer and TVL maybe will decrease over -80%, if lending to real world economy is already operational, all this TVL could go to real world economy using AAVE instead of going back to fiat world using Tradfi.
Positioning Aave as first mover between the top DEFI protocols in Social Responsibility and commitment to the Sustainable Development Goals (SDGs). In EthicHub we are fully committed to using Blockchain for good since 2018, contribute to 9 out of 17 SDGs and have a lot of impact awards so we consider we have the legitimacy to lead the conexion of DEFI to the Impact space and so we are the perfect partner for Aave in this regard. Sooner or later the demand for a clear position on the issue of impact will also be a must in DEFI, especially for blue chips, just as it is already being for all listed companies in the world. To become the first mover among the Bluechips to position on the impact space, can provide a very valuable brand recognition for Aave, especially in circles not so crypto as institutional investors, regulators, etc.
Regulators will have a better perception from DEFI. In fact, I met Stani in the INATBA forum with a focus on regulators, where they invited EthicHub despite being a very small project because INATBA wanted to show regulators that DEFI is not only used to speculate, but it can also help change the world for the better.