POP: BlockTower (Series I - IV)

Real World Assets Pool Onboarding Proposals (POP)
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POP: BlockTower (Series I - IV)

  • Business Name: BlockTower Credit
  • Target Launch Date: December 13, 2022
  • Location and Team Size: Miami and New York, > 30 members
  • Key Professional Partners (legal, accounting, operational, technical, structuring):
    • BlockTower Credit
    • Centrifuge
    • Reed Smith LLP
    • Ankura Trust Company

Strategy:

As an institutional structured credit investment fund within one of crypto’s most prominent asset management firms, BlockTower Credit is committed to professionalizing Real World Asset (RWA) DeFi and proving the merits of distributed ledger technology to the world. We aim to do so through our partnership with Centrifuge and Maker, which aims to deploy over 150M Dai into senior credit facilities, whole loans, and Investment Grade structured credit in the real-world. We maintain structural alignment with Maker on each deal by taking a significant first-loss, junior capital position through the acquisition and retention of the TIN token associated with each of these Maker integrated Tinlake pools.

A summary of our transaction with Maker through Centrifuge is as follows:

  • Counterparty: BlockTower Credit
  • Real World Asset(s): Senior credit facilities secured diversified pools of short duration, real-world loans and credit receivables. Whole loans. Investment Grade structured credit.
  • Aggregated, Initial Maker Debt Ceiling: $150MM
  • Minimum BlockTower Junior Capital Position: 30% junior capital (TIN) on every exposure
  • 12-month goal: Demonstrate exemplary performance, scale responsibly, and play a critical role in raising the bar for Maker through RWA arranger efforts and governance participation
  • DROP Rate: 4% - Fixed

Structure: Risk & Terms

This POP contemplates four (4) Tinlake pool deployments matching four (4) Maker RWA Vaults. The 150MM DAI aggregate Maker Debt Ceiling will be spread across four Maker vaults / Tinlake pools, of 20MM, 30MM, 30MM, and 70MM DAI, respectively.

Within this structure, BlockTower Credit aims to arrange or originate products, including:

  1. Senior Secured Credit Facilities - Traditional asset-backed private credit strategies, focusing primarily fintech and non-bank originators. These facilities will have terms less than or equal to 36 months with the advance rates to the originator ranging from typically 60 to 90%.
  2. Whole Loans and Receivables - Loans and receivables purchased in the bulk transactions with term up to 72 months (subject to a cap of 50% of the pools with maturities greater than 48 months)
  3. Investment Grade Structured Credit - Investment grade asset-backed securities (ABS). These products typically maintain a weighted-average life (WAL) of less than 48 months. Exposures will be to structured credit sebsectors like:consumer ABS, auto ABS, CLOs, Residential Solar ABS, Credit Card Facilities, etc.

Maker will benefit from a minimum credit enhancement or subordination of 30% from BlockTower Credit holding the TIN position. This means that BlockTower Credit will absorb any first-losses associated with any Tinlake pool and vault pair, on top of any expenses BlockTower has incurred and will incur, like legal, etc. At full deployment of Maker’s debt ceiling, BlockTower Credit will have, in aggregate, at least $64 million of its own capital in the form of DAI in the first loss position. Furthermore, BlockTower Credit intends to overfund each vault to ensure that the Minimum TIN Percentage is always maintained. Overfunding will mean that Maker’s exposure in a Vault is proportionately reduced to the extent of such overfunding.

Further protections for the senior creditor, Maker, are implemented in our legal structure for the above transactions. We have adopted an Indenture Trust structure, which Centrifuge has pioneered with Maker (see discussion here). We have also onboarded agents like Ankura Trust, who provide critical services related to asset eligibility verification, loan NFT confirmation, and payment servicing, etc. These protections, along with that provided by the Centrifuge Tinlake protocol, ensure strong alignment in our transactions.

Capital:

BlockTower Credit will maintain its minimum 30% TIN position through investments from its fund. Through junior capital, BlockTower Credit is able to bring institutional investment and rigor to both the Maker and Centrifuge community. As the sole and primary TIN token holders, BlockTower Credit provides enhancements to the senior lender (Maker) by providing significant first-loss capital. Furthermore, this capital ensures strong alignment of incentives between BlockTower and Maker.

Timeline (work so far):

For well over a year, BlockTower Credit has dedicated significant resources to both Centrifuge and Maker in building community alignment, structuring critical aspects of the deal, and operationalizing the transaction. Our official Maker introduction and proposal were posted in July 2022. Since then, we’ve engaged finance, legal, and technical subject-matter experts to refine the transaction, resulting in comprehensive risk and technical assessments. Our proposal was evaluated by the community and passed the final Maker Governance Poll with 78% voting “yes” and only 0.17% voting “no”. With the passing of the Maker Executive Spell on December 11th, we would like to finalize the deployment of the related Tinlake Pools with this POP Submission.

Closing Remarks:

Centrifuge has and continues to be key partners in our mission to bring DeFi and credit closer together. We’re eager to work with the community, so please let us know if there’s anything that our team at BlockTower can help clarify. Should you have questions, please do not hesitate to reach out!

DISCLAIMER:

Any projections or forecasts contained in this document are speculative in nature, as matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors. Investing in newer and smaller asset classes such as cryptocurrencies is speculative, risky and unsuitable for some investors even when representing only a portion of a broader investment program. The graphs, charts and other visual aids are provided for informational purposes only. No representation is made that these will assist any person in making investment decisions and no graph, chart or other visual aid can capture all factors and variables required in making such decisions. Certain links, too, are provided as a convenience and do not imply the Adviser’s sponsorship or approval of any third-party websites or their content.

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Very excited to see this POP, I have been waiting since the introduction with the hope that what I saw on Maker and here is a reality. I really like that this reads easily and that you are brining funds of your own and Maker, nice change of pace. Additionally the caliber of external partners is top notch and really comforting.

Also saw great coverage here, congrats this is very impressive in the current market :tada: :

Some questions on your POP:

  1. You are looking to launch 4 pools at the same time correct?
  2. Are the Pools going to be the same asset classes?
  3. Can you please share what asset class(s) will be brought on chain?
  4. What would the average Asset size and duration be?
  5. How long has Blocktower itself been around?
  6. Given today is the 13th, i would recommending amending the target launch date, right?
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Thank you for your POP submission @BlockTower! I am also really excited about this proposal. It’s really great to see that you are bringing capital from MakerDAO to the Centrifuge protocol!

It would very helpful if you could provide some information, in addition to what @sirj is inquiring, about the following:

  • Strong Pipeline: 12 month forecast that is 2x “Pool Value in 1 Year”
  • Volume Originated last 2 years: At least 2x of target pool size on launch
  • Historical Loan Tape : 2 years+

according to the POP criteria outlined here.

Cheers!

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Curious, what was the big selling point for Maker to give the green light? 4% seems like a great rate!

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Congrats on makerdao. Would have thought this POP would have been at same time as makerdao was deciding.

When would the funds come on chain for TIN? How fast do you anticipate ramping up maker DROP funds to the credit line ceiling?

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Good day, Bloctower and welcome to the Centrifuge forum!
I’m very excited to see the POP submission from BlockTower!
I have a couple of questions:

  • What is the goal for the long-term vision for 2-3 years for BlockTower?
  • We are in a bear market and usually, all try to keep the wallet “closed”, but BT with Maker, just now, launching 4 pools. Why now?
  • I’m curious to know why BlockTower chooses to invest in and through Centrifuge in RWA. What makes Centrifuge special for BT?

Thank you in advance!

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Thanks @sirj! Like many, we’re very excited to continue building in this space!

  1. You are looking to launch 4 pools at the same time correct?

Correct! We’re launching four Tinlake pools alongside four Maker vaults that will consider asset classes, including Whole Loans, Senior Credit Facilities, and Investment Grade Structured Credit.

  1. Are the Pools going to be the same asset classes?

No, see answer to (1)

  1. Can you please share what asset class(s) will be brought on chain?

Whole Loans, Senior Credit Facilities, and Investment Grade Structured Credit are all novel asset classes that will be onboarded onto the Centrifuge platform on-chain. These assets typically make up private credit fund strategies and we are excited to continue to bridge the gap between existing best-in-class assets / practices and DeFi.

  1. What would the average Asset size and duration be?

The three asset classes proposed by BlockTower will have varying asset sizes and duration depending on the loan pool, facility size, and bond size. The duration and size profiles of the collateral may also vary depending on if they are consumer loans, auto loans, corporate loans, etc., typically ranging between $1K to $1M with terms ranging from 1 to 72 months. Average consumer loans are $7 to $12K with terms of 36 to 60 months.

  1. How long has Blocktower itself been around?

BlockTower Capital was founded in 2017 by Ari Paul (CIO) and Matthew Goetz (CEO).

  1. Given today is the 13th, i would recommending amending the target launch date, right?

The current target launch date is when the Maker and Centrifuge co-developed on-chain smart contracts are executed, which is 12/13. With this, we are eager to work with the Centrifuge development and operational teams to launch when ready!

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Of course @Rhano! In regards to your points:

  • For Whole Loans, we have relationships with three of the leading consumer loan originators and are discussing various types of loan purchase agreements while working through data and collateral analysis to further refine our credit box. Our pipeline size here is potentially 250mm annually.
  • For Structured Credit in investment-grade rated and whitelisted collateral, we have identified at least ~$1.5 billion in eligible products that meet our target credit profile that were issued in 2022. This does not include similarly-rated and eligible products from previous years (2019-2021), so our pipeline is considerably larger.
  • For Senior Secured Facilities, we are constantly meeting with prospective borrowers, working through our credit risk analysis, and have a current pipeline size of approximately $150 million against an initial funnel of approximately $700 - $800 million.
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@Festina_lente - Happy to share some insights based on our negotiations and discussions. First, the 4% rate is net of fees, and considering that there were and are considerable legal and operational expenses for this transaction, which would typically be borne by both the senior and junior lenders in traditional structures. However, in this case, the cost is only borne by the junior provider and not Maker. An appropriate estimation of the gross rate would between closer to 5% to 6%. Furthermore, BlockTower, alongside Centrifuge, are working to lay the foundation for future initiatives that will benefit the Maker community.

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Thanks @Lumination! The funds for TIN would come prior to or concurrently with anticipated DROP funding events. We anticipate sourcing attractive credit assets to ramp up the Tinlake pools and to the credit line within the next 6 to 12 months.

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POP Criteria Score

The Centrifuge community has reviewed the POP for BlockTower (Series I - IV), based on the 10 criteria, and the result is: :nine: / :ten:.

SCORE

For each criteria, either a :zero: (criteria not met) or :one: (criteria met) will be given.

Below you will find the results of the individual criteria:

Business Years in Operation: :one:
Off-Chain Institutional Investors: :one:
Strong Pipeline: :one:
Volume Originated last 2 years: :one:
Historical Loan Tape: :one:
TIN Tranche: :one:
DROP Tranche: :one:
Pool Value at Launch: :one:
Pool Value in 1 Year: :one:
Asset Maturity: :zero:

RESULT

:white_check_mark: This proposal meets the threshold of >66% and has passed step 2.

NEXT STEP

Step 3 will be to get a recommendation from the Centrifuge DAO and the result will be published here on the Forum.

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POP Review DCM: BlockTower

Hi, I’m Mike, the Founder of DeFi Capital Markets (“DCM”), an entity in the Centrifuge community that is focused on building the future of decentralized capital markets by onboarding institutional investors, assets and infrastructure to the DeFi ecosystem. Previously I was a core member of the Centrifuge team and we at DCM are currently contributing to the Centrifuge, RWA Market (Aave) and MakerDAO ecosystems. The current, and future, employees of DCM are largely from institutional investment and credit backgrounds, and we intend to provide views on proposed pools coming through the POP process. Our views do not amount to financial advice, and nothing contained in this post constitutes a solicitation, recommendation, or endorsement of any investment. Community members should do their own independent research.

I will reuse my recent macro wrap: Macro conditions have broadly deteriorated across markets as inflation has reached a multi-decade high and has spurred a more aggressive Fed policy. The resultant rise in interest rates has driven a sharp sell-off of global financial assets, crypto being no exception. DeFi liquidity has contracted markedly in the last few months, and recently we have witnessed several large-scale insolvencies that have shaken confidence in the sector. As deFi investors retreat and significant swathes of capital are erased from the ecosystem it makes for a notably difficult backdrop to raise new financing. Real-world assets tied to productive cash flows outside the crypto ecosystem offer investors a new avenue to generate yield in a more sustainable fashion. Given the financial conditions, investor appetite for new endeavours is expected to remain limited for the time being, however we are optimistic this could improve once the dust settles and RWAs continue as an emerging trend.

That being said, BlockTower is in a unique position as they have worked to pre-fund the pool through MakerDAO. We commend them on this hard effort and look forward to their institutional grade pool launching. We believe the BlockTower team is a professional outfit that will bring institutional rigour to the Centrifuge ecosystem, helping the platform take the next step in terms of growth. The professional background of the operators and service firms looks substantial and well qualified to execute. The team lacks a formal track record but has given a clear indication of the asset classes they will be active in and intends to underwrite their positions by putting up significant junior capital.

We are excited to see this pool move forward, as, in our view, it is not only an important step for Centrfiuge/BlockTower/MakerDAO, but also DeFi as a whole.

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POP Review k/factory: BlockTower Credit

Hello I’m Jeannice, Partner and Portfolio Lead at k/factory, the core team building Centrifuge. I’m writing this review together and on behalf of the k/factory business development team, and we intend to provide views on proposed pools coming through the POP process. Our views do not amount to financial advice and nothing contained in this post constitutes a solicitation, recommendation or endorsement of any investment. Community members should do their own independent research.

BlockTower Credit has several positive things going for them:

  • DROP funding of Dai 150M and DROP rate of 4% provided by Maker
  • Updated legal structure with use of Ankura Trust should give investors like Maker more comfort
  • Known name in crypto investing, and emerging name in credit investing along with the credit team it has hired over the past year
  • Personally, I’ve observed that BlockTower has really put in the work to understand how Tinlake works on a technical and operational level

We would suggest the following questions for the pool party:

  • On whole loans and receivables, what is the average maturity?
  • Do you have concentration limits?
  • Are the products fixed or floating rates?
  • How are the products spread geographically?
  • What are your default procedures?
  • Tell us more about how you manage your portfolio, without breaking confidentiality
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