Business Name: Defactor
Current AUM: Currently Defactor does not have any assets under management as we are using Consolfreight’s structure to test our business model. We have created our financial structure including an SPV in Delaware that will allow us to securely manage and meet compliance requirements for the assets placed through our platform. The idea is to move some of the assets from the current Consolfreight pool, CF4, into the new Defactor pool.
$ Volume of Transactions Completed Last 12 months: $16.92M Since Dec 2021. All these transactions have been placed by Consolfreight using our Defactor platform. The idea behind this was to help Consolfreight scale and expedite growth through technology.
Target Launch Date: ASAP
Location and Team Size: Defactor is based in Switzerland, with an operational company running from Dublin, Ireland (Lanzo Ops) and with our SPV located in Delaware, US. This follows the structure already tested by Consolfreight and Centrifuge. The total team is 17 people between Tech, Operations, Marketing and Commercial.
Years in Operation, if less than 2 years in operation, number of years founding team has worked together: Defactor originated in 2021 with an experienced founding team from across the financial services, technology, and global supply chain industries. Although the team had been working together for 3+ years on other projects, they formally established Defactor from the experience in supporting the mission of Consolfrieght, one of the first businesses leveraging liquidity on Centrifuge. The team experienced first-hand how Defi could address liquidity problems in a traditional finance system.
Historical Loan Tape (years): 300+ assets, 30M+. The Defactor co-founding team includes two executives from Consolfreight, together with more than 30 years experience working in global trade finance and supply chain ecosystems. To-date they have 300+ assets and over $30M+. As one of the asset originators scheduled to be part of the Defactor pool, Consolfreight is on track to place more than $80M in 2022.
Key Professional Partners (legal, accounting, operational, technical, structuring):
- Legal (Wagner and Vieli, McCann Fitzgerald, Manatt, Phelps & Phillips, LLP)
- Accounting (Centralis)
- Operational (Lanzo Ops)
- Technical (Internal resources + Atom +Xportal)
- Structuring (Genesis Block)
- Issuer Governance (Citadel SPV LLC)
Describe your business and go to market strategy.
- What makes your approach unique within your industry?
Our approach is to support the wider business community prosperity by providing alternative liquidity funding to Asset Originators to support businesses to execute good quality trade transactions that are excluded from the TradFi banking due to overly restrictive criteria. Our immediate focus will be to provide liquidity for trade related asset classes including Receivables Financing, Trade Finance and Inventory Financing. Having direct experience of going through this process previously allows us to guide companies on their journey and introduce them to DeFi liquidity to meet their needs. As mentioned above, Defactor is bringing 2.5 years experience in the defi space applied to RWAs. This comes as part of the journey alongside Centrifuge when building Consolfreight’s business model. Consolfreight was the first AOs to hold a revolving pool in Tinlake and it is the longest pool holder in Tinlake. It has also been a strong partner for Centrifuge in this journey and helpful on the test and development of some of the current solutions provided by Tinlake.
- Why are you a good partner for Centrifuge?
Defactor will accelerate the onboarding of A/O onto the Centrifuge platform providing key derisking, monitoring and covenant management. Our mission is to broaden the use cases for DeFi with focus on growth industries, SMEs, and specific global markets.
Furthermore, we share the same vision of making Defi accessible and democratisation of investment use of funds.
- How do you differentiate yourself from competitors?
We differentiate ourselves through our focus on RWA, building a team of industry experts, delivering simplified user experience, and web3 first-approach for building solutions.
We are focused on real-world asset tokenization and therefore, aligning strongly with Centrifuge. Defactor is an early entrant into a segment of the DeFi market which has far-reaching implications and huge growth potential. Instead of representing abstract digital value, tokens represent tangible goods and services.
We will leverage Web3 technologies and build a bridge from TradFi to deliver faster and lower barriers to entry for borrowers and investors. Furthermore, Defactor’s specialist knowledge in supply chain finance means it can consider deals that a bank might deem as presenting too much risk, but that in reality they are not. The key is to provoke innovation across AOs on how risk is assessed and mitigated.
Lastly, our model is SME friendly. We recognize banks are disincentivized to handle SMEs which do not satisfy their risk assessment criteria in terms of cash flow and credit history, preferring safe bets on large, established businesses. Defactor leverages its specialist knowledge of supply chain finance to provide accurate risk assessments of businesses of this scale.
How is your entity financed today, what are the current sources of capital:
- Equity raised:$14M
- Debt raised:$5M including CF4
What is your entity’s revenue/fee model:
- Origination fees: Annual membership fee
- Target fee spread: up to 2.0% APY being a volume based fee calculated on the volume of funding provided linked to number of days funding so its directly related to the business needs.
- Other: Ancillary services will be provided at a later stage
- Please explain the source(s) of, and ability to scale, your first-loss junior (TIN) capital in the pool: We will operate a number of pools per each asset class, each with a distinctive risk profile and each with a segregated first loss Junior Tranche. All AO’s coming into their respective pool need to participate in the Junior tranche at the required level. In addition, Defactor will invest capital in the short term to support this process. At a later stage, we will welcome external investors to participate in the junior tranche.
- Please explain the source(s) of, and ability to scale, your senior (DROP) capital in the pool: We will pursue external investors to scale. We have scaled up our Team in recent months with LP research and targeting being currently completed to enable pitching from Q3.
- Capital relationships and how much you will bring through Centrifuge KYC to invest in either senior or junior tranche of your pool: We expect the total pool to be at $50M within 12-months with all coming through the Centrifuge ecosystem.
- Outline why DeFi is important to your business strategy: We believe it will unleash a new wave of financial solutions to the TradFi system. Defactor is tapping into the emergent market of real-world asset tokenization and is particularly suited to addressing gaps in accessibility to liquidity for Small and Medium-sized Enterprises (SMEs), which account for over 95% of global businesses and over 60% of global employment. As well as financial, there is a clear social benefit in supporting these SMEs due to the fact they are often neglected or underfunded by Traditional Finance (TradFi) institutions. Tokenization can be used in the broadest possible sense to include digital assets, physical assets, or documents representing value.The global trade finance market was valued at $7.6T (USD) in 2019 and is projected to reach over $10.9T (USD) by 2030. This presents broad opportunities for providing liquidity to tech-savvy new businesses in the space. With our expertise, our unique approach to the market and Centrifuge’s innovation, we are confident, together we will have success.
Articulate why Centrifuge’s community and protocol is a fit for financing: As the first and leader in the RWA space, we are keen to work with teams and technology that align with our mission. It is a parachain of Polkadot and connects to Ethereum via a bridge. Investors receive returns in yield as well as rewards in the native token, $CFG. Additionally, Centrifuge has a strong community of builders that can be potential partners or collaborators for Defactor. We believe an active and collaborative community is critical for driving adoption, innovation, and stronger outcomes for Defi. Furthermore, we believe this partnership can evolve in a way that a strong correlation between $CFG tokens and Defactor token ($FACTR) will benefit both communities, and in the long run positively impact other bigger communities like Maker DAO.
Structure: Risk & Terms
Please explain the key risks inherent in this opportunity and asset class:
- We provide collateralised cash flow funding based directly on the underlying transaction asset to provide full risk visibility supported by real time risk reporting
- To minimize risk of non repayment we will complete a risk assessment at multiple levels being 1) Underlying Debtor assessment 2) A.O. assessment.
- A.O. risk assessment is completed by both quantitative and qualitative criteria.
- This means we risk rate both levels prior to funding so that the transaction risk profile is fully understood at all times in the funding cycle.
- This information will be available in our platform risk dashboard with detailed documentation stored in a virtual data room.
- This rating process will be dynamic and repeated on a quarterly basis for the benefit of both AO’s & LP’s.
- Based on our risk profile assessment this will determine both the funding contract risk covenants and APY for AO’s plus allow LP’s to fund transactions that meet their risk appetite.
- Collateral is captured by transferring AO debtor assignment rights plus any insurance coverage to the SPV structure giving scope to pursue multiple sources of repayment in case of non payment by any one source.
Pool Size & Pipeline:
- At Launch: US$ 10MM
- 6 Months after Launch: US$20MM
- 12 Months after Launch: US$ 50MM
- Origination Pipeline Details: We have 3 companies in the pipeline for origination purposes. Few of the deals these companies have in the pipeline are as follows:
- -. $10MM Facility for 1 Year South Africa Mine
- -. $8.5 MM Facility to aggregate (2 Months) Coal and Export against a L/C
- -. $2 MM X Month Facility to Export Sugar from Guatemala to UK
Asset & Rates:
- Asset Type(s): Supply Chain Finance (Receivables)
- Average Ticket Size: $100K
- Average Asset Maturity: Max 120 days
- Expect Default Rate: <1%
- Expected borrowing rate on senior tranche (on-chain): 3.5% - 5%
Expected lending rate to end borrower (off-chain): 9% -15%