Why build a real-world asset tokenization platform and an associated lending protocol

DAO treasuries, crypto funds, crypto native startups, and Crypto OTC desks sit on large amounts of stablecoins and other crypto assets. The DeFi TVL crashed after Q2 2022, so most crypto native assets are not participating in the DeFi ecosystem.

Meanwhile, real-world assets such as Treasury bills and Agency-backed MBS in the US have become productive due to the rising inflation and central banks who have responded by raising rates. This has increased the rate of high-quality fixed-income assets such as US treasuries and RMBS securities. The prominence of real-world fixed-income assets is here to stay as the era of quantitative easing and free money is ending. This means that the DeFi native assets would remain uncompetitive with the real-world assets unless the inflation rates in the real economy go down significantly, which is an unlikely scenario based on historical patterns.
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What are the products

Excellar will create two products on Sorobon, Excellar Mint, which will be used for asset tokenization, and Excellar Repo (xRepo protocol), which will be a repo-like lending protocol.

Excellar Mint will tokenize public and private funds holding real-world assets.  Note that the tokenization platform will be hosted at http://excellar.finance.

Excellar Repo will allow token holders to borrow stables against those tokens unlocking liquidity for the short term if needed. Note that the lenders of stables on the Excellar repo lending protocol would differ from the borrowers due to their different liquidity, duration, and risk tolerance profile.  Note that the tokenization platform will be hosted at http://xrepo.finance

Further, crypto holders can borrow stables against their crypto from DeFi protocols such as AAVE and then use those stables to mint the tokens and earn higher net rates on their crypto as the rates on real-world assets will be higher than those in DeFi. This will also push up DeFi rates.
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Excellar Short-Term US Government Treasury Fund (XUSG)

Fund Holdings: Our first tokenized fund (XUSG) would be a Short-term US Government Treasury Fund holding iShares Short-Term Treasury Bond ETF (NASDAQ: SHV) and cash. The ETF documentation is available here https://www.ishares.com/us/products/239466/ishares-short-treasury-bond-etf.

Transparency: The fund administrator is an independent service provider who does an independent valuation of the fund and publishes a Net Asset Value (NAV) at a frequency specified in the fund prospectus. The administrator also publishes reports of the asset holdings of the fund.

This fund is a typical Regulation D private fund offering in TradFi, where investors receive a prospectus, limited partnership agreement, and a subscription document. Together these documents detail the operations of the fund, the assets holdings, and details of the service providers, such as the fund attorney, administrator, and auditor.

Please note that we will tokenize more funds in the future, each with a clear specification of the fund asset holdings in its prospectus.

Full documentation on the tokenized fund and the repo-lending protocol is available here.
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Documents for Excellar Finance Tokenization Platform:

https://scife-stella-protocol.vercel.app/docs

Documents for xRepo Lending Protocol:

https://scife-xrepo.vercel.app/docs

Regulation:
We have chosen a Regulation D private offering for the fund, which is a well-tested private fund offering model in TradFi. The fund has a Delaware-based master and a Cayman-based feeder vehicle. Such funds are quite common in the TradFi world. The only innovation in this structure is tokenizing the fund's shares, which will be done on the Excellar Mint. They will have resale restrictions similar to other RWAs being tokenized on blockchains.

These tokens can only be used as collateral on the xRepo protocol. They will not change hands as they will not be rehypothecated. During liquidation events, they would be liquidated by pre-approved parties.

Fund investors would need to go through a KYC process, and AML checks would be done on them. Also, only whitelisted addresses would interact with the tokenization platform and the xRepo protocol.

Only accredited and qualified investors could buy and hold these tokens per the restrictions imposed by the Reg D offering.We continue to work with our attorneys to ensure that our offerings meet local regulations.

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Product Workflow:‍

Asset Tokenization

1. Lisa deposits Fiat at Excellar Mint to buy XUSG.
2. Use Tokenized Assets to Borrow Other Assets
3. Lisa has short-term funding needs and uses XUSG as collateral to borrow USDC from Excellar Repo.
4. Amit supplies USDC to Excellar Repo, and this USDC is lent to Lisa, and Excellar Repo locks up Lisa's XUSG collateral for Amit.

Close Position

1. Lisa returns the borrowed USDC to Excellar Repo.
2. Excellar Repo returns the USDC to the original supplier Amit.
3. Excellar Repo unlocks Lisa's locked XUSG collateral and returns it to Lisa.
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Liquidation

1. Price of XUSG drops, so Lisa's risk-adjusted liability increases, exposing her to liquidation risk.
2. A liquidator (must be authorized to handle XUSG ) comes in and buys the XUSG collateral at a discount with USDC.
3. The USDC is returned to the original supplier Amit and makes him whole.
4. The liquidator redeems the XUSG at par via Excellar Mint and gets paid in Fiat.DifferentiationSince Lisa is already earning 4% on her collateral, she's willing to pay a higher rate to borrow, a benefit that is passed on to Amit.
5. Lisa's collateral will be locked up on-chain for Amit, similar to FICC's GCF repo, and can't be rehypothecated. Meanwhile, Amit has full transparency into the collateral "posted" to him.
6. Criteria for tokenized RWA as collateral: liquidity in the underlying product, yield-generating, stable-in-value.

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Competition

Excellar will face competition from protocols built on Solana and Ethereum, such as Ondo Finance and Open Eden. However, the large set of real-world assets that can be tokenized and diverse user profiles in terms of risk tolerance, duration, and liquidity needs will mean that no one-size-fits-all product can capture the whole market share. Building on Stellar will give us an edge as Stellar is synonymous with compliance, and asset tokenization is built into its DNA. The compliance first approach of Stellar will help us attract institutional players.

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Why did we choose Stellar and Soroban

Stellar is our platform of choice because its technology is built for compliance and asset tokenization, and its ecosystem is focused on real-world and compliant usage of blockchain technology. Furthermore, Stellar's Anchor network model would allow filling the gap between the off-chain and on-chain world and help bring real-world assets on-chain. In our view, Stellar's focus has been on solving real-world problems, and this has led to an ecosystem around Stellar that reflects that focus. We strongly believe that the next wave of successful use cases on blockchain will have real-world applications. Stellar, with its focus on compliance and usability, will benefit from this movement.Sorobon's smart contract functionality allows us to build a lending protocol for the real-world assets tokenized on Stellar. Stellar is also built with KYC/AML in mind. We want to ensure that the participants in our products are KYC-ed first.

We are building a fund asset tokenization platform and a repo-lending protocol using Soroban on the Stellar network. In our first supported fund, the users will create tokenized U.S. Government Treasury Bills called XUSG on the tokenization platform at https://www.excellar.finance. These tokens will accrue interest and can be redeemed for principal and interest.

The holders of XUSG tokens (or any tokenized asset supported by the repo-lending protocol) can supply these tokens as collateral on the xRepo protocol at https://www.xrepo.finance and borrow stables to satisfy their short-term funding needs. This is analogous to the ubiquitous FICC GCF Repo in the  TradFi world.

Our first deliverables are as follows.

1- Create a beta version of the asset tokenization platform.

To complete the above deliverable, we created an asset tokenization smart contract for XUSG and provided a detailed guide about the contract API and steps that a reviewer can take to test the contract functionality. Additionally, we created a loom video walking a reviewer through the steps needed to test these functionalities.

2- Structure a fund and create online documentation for the tokenization platform, Excellar.

We launched the beta version of the tokenization platform website, www.excellar.finance. We have provided links to the documentation on the website. Note that interaction with the smart contract is currently not possible from the website. The reviewer will need to follow the steps described in the next section and use Soroban CLI to interact with the smart contract.

We also created a fund structure to invest in Blackrock's iShares Short Treasury Bond ETF (SHV). Once the tokenization platform is released, an investor can bring supported stablecoins such as USDC to Excellar (www.excellar.finance) and mint the fund token XUSG which is fully backed by a combination of SHV shares and a small amount of the supported stablecoin(s) to manage daily creation/redemption liquidity. The fund manager will buy the ETFs in the fund representing the subscription amount of the investor. The document describing all the details of our first tokenized fund and XUSG token is available on the website.

3. Design a repo-like lending platform that accepts tokenized real-world assets as collateral. Create documentation for the repo-lending protocol, xRepo.

We modeled a repo-like lending protocol to match our target clients' short-term funding needs. In the repo-lending protocol, we identified the appropriate interest rate model to facilitate optimal relationship dynamics between rates, demand, and supply of stablecoins. Further, we created a protocol design ensuring the protocol minimizes the risk of collateral loss. These details are available in the documentation section of the repo-lending protocol's website.

How can a reviewer check you completed your first deliverable?

Each of the three deliverables and the steps a reviewer needs to follow are outlined below.

1- Create a beta version of the asset tokenization platform.

• The reviewer can review the token and tokenizer code on this GitHub repo https://github.com/scifecap/excellar.
• The README.md file describes the asset tokenization platform (Excellar) API at https://github.com/scifecap/excellar#testing-the-functionality.
• The instruction to interact with the smart contract and test the functionalities of the beta version are at https://github.com/scifecap/excellar#testing-the-functionality.
• The details of how the XUSG token price is calculated are at https://github.com/scifecap/excellar#price-calculation.

  Here are the demos (these can be skipped by a technical reviewer who should be able to follow the testing steps given on the GitHub page mentioned above):

• An account deposit: https://www.loom.com/share/3d02feacb60648f183b93359ad701a4c?sid=7bf2a4a4-7f38-45ea-8bbd-fa8edd2da427
• Second account deposit: https://www.loom.com/share/e7e37f0c2d7f4c419def51ddc48e5946?sid=2c8ec669-28fa-4868-b157-ea932d203c55
• Using cash to buy the tokenized ETF: https://www.loom.com/share/80217782912e40b284bd37af2cdc1ac1?sid=89b7e0fd-1370-4858-951e-251f40febb2d
• How real-world ETF value affects price and withdrawal amount: https://www.loom.com/share/68930046b36544d2b5d9c14ea30bdf4f?sid=4ca17398-91a0-4d79-96be-f9386e639438

2- Structure a fund and create online documentation for the tokenization platform, Excellar.

• The Excellar U.S. Government Short-Term Treasury Bill Fund details, such as structure, eligibility criteria, onboarding, subscription, and redemption, can be reviewed at https://www.excellar.finance/docs

3- Design a repo-like lending platform that accepts tokenized real-world assets as collateral. Create documentation for the repo-lending protocol.

• Details of the Repo protocol xRepo such as repo functionality, model, examples and illustrations, use cases and benefits, income strategies, inner workings, liquidation model, mechanisms, and interest rate model, can be reviewed at https://www.xrepo.finance/docs