[Issuer] GIG Pool: Notice of Upcoming Pool Parameter Restructuring

END Labs is pleased to announce that the GIG Pool has been very well received and is growing in total volume, asset origination, and investor interest.

As part of a long-term strategy to evolve the GIG Pool into better alignment with established traditional structured credit industry, END Labs is implementing stricter credit guidelines with a stronger focus on collateral performance, as opposed to relying significantly on corporate credit. This involves greater transparency through regularly scheduled credit-focused discussions with Asset Originator management, along with more stringent guidelines on reporting of the collateral at the loan level. This also involves an iterative plan to transition the relationships with each Asset Originator to a more robust legal structure that marries the history and knowledge of fifty years of the existence of the traditional structured credit industry, along with the hyper-growth innovation-focused approach we see in DeFi. Incidentally, the first phase of this transition has the externality of putting the DROP and TIN investors in a position with greater overcollateralization.

In our prior structure, END Labs would structure the DROP and TIN to produce a combined advance rate of 100% on the promissory note, which is an advance of 100% on the underlying asset pool. As such, the DROP and TIN would produce a combined 100% advance rate on the underlying asset pool. The Asset Originator would buy back the TIN to retain its first loss position to protect DROP investors.

With the funding of Willa002, we’ve started the process to implement a new structure that is more in-line with structured credit investment opportunities today. The DROP and TIN will still produce a combined advance rate of 100% on the underlying promissory note, but the promissory note will be issued at an advance rate of less than 100% on the underlying asset pool. For instance, if a promissory note has an effective advance rate of 80%, and the DROP has a TIN buffer of 10%, then the effective DROP advance rate on the underlying asset pool will be 72% (80% * 90%). For the asset pool amount not financed by the Promissory Note, the Asset Originator will retain off-chain equity ownership in a first loss position protecting the DROP and the TIN investors.

This leaves the DROP with a lower advance rate and in a more secure position and creates a more attractive opportunity for investors to explore the TIN tranche, which is now effectively in a mezzanine position protected by 20% overcollateralization.

In addition to the structural change, there are three key changes that END Labs plans on rolling out subsequent to launching its new structure:

  • Implementing a monthly loan-level data remittance reporting framework, accessible for DROP and TIN investors, and
  • Exploration of potential extension of terms of subsequent promissory notes beyond sixty days, and
  • Cross collateralization across all outstanding notes.

The new monthly remittance reporting process is not new in the traditional term securitization market - this monthly report will clearly show how the loan collateral pool is paying down, and identifies clearly which new assets have been revolved into the collateral pool to account for pay downs. Additionally, as all outstanding promissory notes are cross collateralized, the asset originator will maintain a sufficient borrowing base across all outstanding notes, and will not be able to selectively leave some notes undercollateralized.

Eventually, END Labs anticipates term securitizations with longer durations with revolving periods over 12 months with clean-up term take-out at the end of the revolving period.

Note that, regardless of the updates on the promissory note structures going forward, END Labs plans to continue to originate notes with a corporate guarantee on the outstanding balance.

To explain END Labs’s rationale on the lower DROP return, given the updated structure and reporting framework, we believe that the DROP return should reflect the credit positive changes that END Labs is proposing.

END Labs’ rationale on the decreased TIN buffer, in conjunction with the repricing of the DROP to better reflect the underlying credit risk, END Labs wants to bring the TIN returns to be in-line with similar mezzanine-type structured credit risks on asset based warehouse lines. With pricing on the TIN in-line with the traditional structured credit market, END Labs plans on initiating discussions with additional sophisticated institutional investors and underwriters, both in the DeFi and TradFi space, to co-invest in the TIN, alongside END Labs.

These changes will produce the following impacts on the GIG Pool:

  • TIN Buffer will be reduced to 10% to reflect the lower risk of TIN due to over collateralization of the underlying loans.
  • DROP APR target reduced to 5% reflecting the lower risk associated with the new structure of the underlying loans.
  • Expansion of the Risk Scorecard to enable the addition of more Asset Originators based on their underlying business models.

We plan to implement these changes in phases with each subsequent promissory note, targeting full transition across all GigPool Asset Originators by no later than the end of Q2 2022. If you are a current investor or potential future investor in the GIG Pool and you would like to learn more about our change in structure, or if you want to get to know our management team better, please reach out to us directly at investors@end-bridge.com or publicly comment below.

One final note: you may have noticed that we currently use the name END Labs. When we originally launched the GIG pool we used the name END Bridge, but over the past few months we have decided to operate as END Labs. Our team is a blockchain development studio that builds things that are Early, New, and Different (END) and we feel like END Labs better articulates who we are as a team.


Thanks! A couple of questions:

  1. It looks like you are updating the structure to make this more secure: can you say more about any changes in the underlying business model in terms of types of end borrowers, etc.? Perhaps a pipeline of the type/profile of additional asset originators
  2. Will we be able to review any documentation for the off-chain equity ownership

@roollie Hello! My name is Jeremy and I am a part of the End Labs team.

To answer your questions:

1. It looks like you are updating the structure to make this more secure: can you say more about any changes in the underlying business model in terms of types of end borrowers, etc.? Perhaps a pipeline of the type/profile of additional asset originators
The structure is indeed more secure for both DROP and TIN investors.
Regarding the underlying business model, for Willa, there have been a few key updates since their Series A, and since the GigPool started lending to them:

  • Originations volume has grown, and they’ve collected enough data to support a more robust data-driven underwriting model.
  • Hired a Head of Risk (with a background building out a credit platform for Nubank) and started building out their risk team.

The combination of the two - a quantitative, data-centric head of risk making data-driven decisions regarding underwriting and pricing, and a larger data set of past transactions - has lead to adjustments made on their pricing models to avoid negative selection, and a more targeted underwriting approach to better cherry-pick the stronger credits.

There are additional developments in Willa’s pipeline that would potentially result in a stronger, more stable credit.

In terms of updates to the GigPool’s business model - there are no significant changes - our focus will still be on lenders focused on serving the Gig Economy, though we will be implementing initiatives to institutionalize the structures and reporting transparency of the Asset Originators that we lend to.

Regarding our pipeline - there are not any specific Asset Originators that we are in any significant discussions with at the moment, but our expectation is that any new Asset Originators that we onboard onto the GigPool will adhere to these new structures and reporting guidelines from the start. We believe that this new framework will allow us to continue approaching venture-backed fintech lenders, but also more established lending platforms that fit our Gig Economy theme.

2. Will we be able to review any documentation for the off-chain equity ownership
The off-chain equity ownership isn’t specifically a tranched security or a loan, so there isn’t really equity-specific documentation, but rather reflected in the effective advance rates on the promissory notes.

Basically, the promissory notes will be issued with an overcollateralization buffer from day 0. With the structure proposed above, the overcollateralization level will be 20%. That means neither the DROP nor the TIN suffer any losses until the collateral-level loss exceeds 20% of the pool, assuming of course, that the Asset Originator is unable to originate new loans to replace the ineligible collateral, then the TIN will begin to incur losses (this would be the “attachment point” of the TIN). Once the collateral-level losses exceeds 28% (this would be the “detachment point” of the TIN), then the DROP will begin to incur losses (this would be the “attachment point” of the DROP). Investors should be able to see this reflected in the language of the promissory note agreements as the “advance rate”.

Naturally, if we notice the start of potentially credit-negative trends, we would look towards lowering advance rates to manage the credit exposure of the DROP and TIN.

During all of these processes, we plan on having these reports available for investors in a data room.

Thanks! Just so I understand 2. Do the asset originators themselves just provide a lower advance rate or do they put in cash for the overcollateralization?

For new issuances of promissory notes, we, the GigPool, will offer a lower advance rate at the promissory note level to the Asset Originators, if we see the beginnings of a credit negative trend in the performance of the receivables that the Asset Originators originate.

For existing/outstanding promissory notes, the Asset Originators would be required to maintain the minimum overcollateralization levels per the advance rate. So for instance, if we are considering a promissory note that has already been issued at the initial OC level of 20%, if there is a single dollar of loss, then the Asset Originator will be required to either put in cash to maintain the 20% OC level (i.e. $1), or add additional eligible receivables.

Of course, cash would be the least risky solution, but from the Asset Originator, likely the less desired solution. The risk of Asset Originators getting aggressive with new originations to meet these overcollateralization maintenance needs will be managed with our continued monitoring of the early performance of new originations at the platform level (i.e. if we see new receivables collections trending slower, then we will consider adjustments on subsequent notes to that Asset Originator).