Lending Pool for Venture Margin
As just mentioned, the Venture Bond generates funding for startups by using money generated by retail in margin funding activities, insured and over collateralized.
Margin funding isn’t a new concept. There’s almost $800 billion in margin funding in traditional markets. Margin funding isn’t new to crypto either. Exchanges companies like BlockFi and Celsius have been providing this for a while. It has now taken center stage with the DeFi surge.
There is an instant market tap worth billions of dollars.
Margin funding is essentially money used by traders for leverage. To do so, traders have to provide over- collateralization, with the standard being 200%. While at the initiation of the Venture Risk Tokenized Bond we will work with industry providers that are insured and overcollateralized, we will launch our own platform NEPRIV to internalize the margin supply Venture Risk Tokenized Bond creates; this will be in the form of a lending platform.
Origination fees will be collected, per industry standards, and added to the reward pool. Origination fees are the costs charged upon interest, to borrowers.
NEPRI is working on launching a single platform that offers venture funding in tiered risk levels. In the meantime, we will put our theory of retail being excited to participate in venture funding if the risk level can be reduced.
Our intent is to create a single platform that offers retail early-stage exposure to startups that are working on everything from finance, food, and insurance to healthcare and transportation. Some of these are best if issued with equity, while others are best if issued with tokens. While their nature as early-stage ventures will carry risk, the framework with which the platform will conduct the fundraise will enable varying levels of downside protection.
Venture Risk Tokenized Bond is a structured financial product designed to do the following:
· Enable startups to issue a bond accessible to retail
· Deploy principal funds collected from bond purchasers to generate interest in overcollateralized DeFi/CeFi margin lending markets based on NEPRIV tokenized risk protocol
· Swap interest for equity/tokens: the interest generated from the principal becomes funding to startups, while the retail purchasers of the bond earn tokens/equity
· At bond maturity, bond buyers are returned their principal
While the bonds may generate just 8% to 15% in interest, which as mentioned above is nothing special, the early-stage equity or tokens they are swapped for could deliver a 100x. With the bond, retail only captures 15% of the growth in the swapped equity or tokens. So, a 100x translates to 1,000% growth not 10,000% growth. Even then, 1,000% is far, far more exciting than the base 10%, yet it does not risk principal funds like traditional venture capital.
Of course, the swapped equity or tokens may go to 0, and hence achieve a -100% return, which is the key reason retail has been aversive to venture investments, to begin with. However, with the VRTB, the principal was not exposed to early-stage equity or tokens. So, a swapped token or equity reaching -100% return in fact leads to a 1x return, essentially no change in portfolio.
Personal finance is a rapidly growing market. It crossed the $1 trillion mark in 2020, due to a near 50% growth over the past 12 months. It’s incredibly rare for a market of this size to grow at this pace, but it’s reasonable given there’s great wealth in retail that is now being applied towards growth. However, retail makes up less than 1% of the $300B global venture investment market. NEPRI is structuring the VRTB to create a pathway for far greater retail involvement in venture funding by greatly reducing the risk factor. This is done by capitalizing on the stable interest generation capacity of CeFi and DeFi.
Interest generated is swapped for early-stage equity and tokens, and principal is returned at bond maturity. While 8% to 15% is unappealing to retail as it’s a return that below the current 10-year average returns of the S&P500, the possibility to have that 8% to 15% be multiplied by 100 is a value proposition that offers incredible excitement, capable of generating a rapid influx of users.