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What is FinCypher Crypto Collateralized Debt Obligations?
The FinCypher CCDO is the crypto equivalent of the financial CDOs. Our toolset enables the pooling of a large number of risky assets, such as DeFi loans, assets attached to betting results, even mainstreams receivables, and the application of trenching within a contract to issue Fyncypher tokenized instruments using those underlings as collateral. The protocol itself is a smart contract-based special purpose vehicle and related marketplace, which fully abstracts the complexity of the issuance and trade of this type of complex derivatives. The whole system is fully decentralized and very developer-friendly.
FinCypher protocol design to facilitate generation of crypto CDO
The Rational of the Tranching using the System
The credit tranching mechanism is a protocol that enables the creation of the FinCypher CDO tokens which have the claims over defi lend pools as underlining debt token representing a claim to funds deposited or “locked”.
Each tranche is specified by its attachment and detachment points as the percentages of the total collateral. The lower tranche boundary is called the attachment point, while the upper tranche boundary is called the detachment point. The CDO tranche loss occurs when the cumulative collateral loss exceeds the tranche attachment point.
Furthermore, the protocol itself enables creation of the both Fincypher standard CDO mechanism as well as variable attachment point mechanism. In the case of the last mechanism the attachment/de-attachment points (which define the tranching structure) may vary over time.
The tranche spread is defined as a fraction of the total collateral. The amount of money that the originating bank should pay per year (payments are usually made quarterly) to have this tranche “insured” is the spread times the tranche size. In a standard CDO contract, the attachment and detachment points for each tranche are the same for the whole contract period. Therefore, the bank originator should make the same payments every period (if the tranche has not defaulted)
The interaction of the end-user (CDO originators) with the FinCypher CDO smart contract involves the following steps:
(1) a selection of the crypto that will be included in a CDO ( also includes a decision on the crypto asset will be applied as underlying as well as the collateral if the CDO is insured by the originator) ;
(2) structuring of Fincypher CDO contract and setting of attachment/detachment points, (which is the process of tranching and has a direct impact on the returns of the CDO tokens issued for each tranch;
(3) further, the originator can choose to define the size for the whole pool (close-ended) of the underlying or keep the pool open-ended which would that new
Governance of the FinCypher Ecosystem
The FinCypher token has 2 main functions in the system:
- It is applied as a base currency in the Fincypher ecosystem for the trade of Fincypher Crypto CDOs,
- token drives the governance process in Fincypher ecosystem allowing stakeholders to securely execute Fincypher protocol upgrades.
FinCypher token will be the system’s governance token, empowering token holders to vote on updates to the platform. Combining governance mechanisms and incentivizing holders, it will serve as a means to align the different stakeholders in the system. Overall, decentralized, automated governance, that incentivizes participants and aims for security, sustainability, and participant welfare is key to a DeFi protocol’s success.
Security features in Fincypher — Application of Cryptography & Blockchain in FinCypher System to Optimize the CDO Development
Cryptography is applied in the Fincypher infrastructure to ensure that electronic records among distrusting participants in a secure and confidential way without compromising the independent verifiability of the data. We believe that the securitization industry (not only DeFi but broader traditional finance) would benefit from FinCypher technology in order to allow all market participants, including investors, to join the ledger while preserving confidential information. Fincypher could allow investors and issuers to interact on the same decentralized digital platform and get access to near-real-time updates about CDO performance while preserving the confidentiality of the underlying loan-level data.
The Application of Cryptography to Solve issue regarding the Real-time Data Analytics
The beauty of the technology is that even without sharing sensitive loan-level data, investors can still perform analytics on the hidden data at the pool level, which allows them to monitor the performance of their loans and improves their ability to price risk efficiently and independently. It allows investors to build their own queries at any point in time. For instance, an investor could query trends about loan default for one particular asset class instead of waiting for the service reports. All queries (sum, mean, correlation, etc) are interactive and the party that the investor is trying to query must exchange information with the investor otherwise he cannot query the table, another form of information control for issuers and servicers.
The pool disclosure–the loans, with their performance and yields– in the security’s offering documentation could also be automatically and almost instantly updated to reflect the very latest portfolio performance.
Furthermore, FinCypher providing investors the ability to perform anonymized analytics that is publicly verifiable provides additional security, transparency and reduces the asymmetry of information in the market.
