Pluto Loans allows users to spend their future yield today.‍

With Pluto Loans, users can deposit yield-producing collateral and get a loan of their future yield immediately. No liquidation risks. The loan debt is time-based and self-repaying. While the long term objective for Pluto Loans is to be global, the initial rollout will be focussed in Argentina, and with plans to quickly expand to the rest of LATAM.

The Problem: A quick summary

• Argentina has an inflation rate of over 50% [1]
• The Argentinian peso has devalued 2,609% (that’s two thousand six hundred and nine percent) since 2012 [2]
• Argentina has a ban on purchasing foreign currency, but not on cryptocurrencies [3]
• Fixed term deposits in USD have a yearly interest rate of 0.75% - 2% [4]
• Users of platforms such as Mercadopago who deposit ARS benefit from a ~32.3% annual interest rate; which is worse than the aforementioned ~50% inflation rate [5]
• Personal loans in Argentinian pesos have an interest rate of >76% [6] (and most have early cancellation or repayment fees)
  

[1] https://tradingeconomics.com/argentina/inflation-cpi

[2] https://www.xe.com/currencycharts/?from=USD&to=ARS&view=10Y

[3] https://www.washingtonpost.com/politics/2019/09/06/argentina-just-reinstated-foreign-currency-restrictions-heres-what-you-need-know/

[4] https://www.bna.com.ar/SimuladorPlazoFijo/SubInterna/PlazoFijo?subInterna=SimuladorPlazoFijoDolares

[5] https://www.mercadopago.com.ar/cuenta#account

[6] https://www.bbva.com.ar/tablas/tasaprestpers.pdf

The Opportunity

• Pluto is LATAM-focussed, with most of its core team members being based in Argentina, and with Argentina being its main country of operation.
• Cryptocurrency is legal in Argentina [1]
• Users can make use of regional anchors to buy ARS issued on the stellar network [2] or use exchanges to buy XLM
• Users deposit yUSDC and get a loan of 50% of their collateral loaned out in pUSD
• pUSD is a token backed by the future yield generated by yUSDC, intended to trade 1:1 with yUSDC through various pegging mechanisms [3]
• Self-repaying; A loan gets paid by the yield generated by the collateral of yUSDC (and other reward mechanisms), at the maturity of the loan, a user gets back their collateral and keeps their loan
• Get more than yUSDC’s APY due to our “Shared Yield” mechanism where Pluto Loans vault shares “unclaimed” APY with all borrowers
• No risk of liquidation
• No early cancellation fees
• Build on top of other Stellar projects (Ultrastellar’s yUSDC), strengthening the ecosystem

While the concept of self-repaying loans exists in other chains such as https://alchemix.fi, the fees charged by the ETH network make it prohibitive for the average Argentinian to make use of. Thanks to Stellar’s low network fees and broad network of Anchors, we are able to bring financial inclusion to the personal loans space to every Argentinian.

[1] https://www.infobae.com/economia/2020/05/25/bitcoin-es-legal-pero-lo-discriminan/

[2] https://home.anclap.com/, https://anchors.stablex.org/

[3] https://ultrastellar.com/assets/yusdc

The Problem: In depth‍

To fully understand the potential of Pluto Loans, it is important to take a look at the unique economic situation of Argentina;  The Nobel prize-winning economist Simon Kuznets is said to have remarked that there were four types of countries: the developed, the underdeveloped, Japan, and Argentina. [1].

Argentina has one of the highest inflation rates in the world. On an annual basis, consumer prices soared 55.1 percent, the fastest annual rise since June of 2019, quickening from a 52.3 percent surge and beating market forecasts of 53.8 percent. [2]

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This inflation chart comes hand in hand with the depreciation of the Argentinian Peso, a currency that has suffered a massive devaluation in the past few years, going from requiring ARS 4.42  to buy USD 1 in May 2012, to requiring 115.32 to buy 1 USD as of April 2022 [3]

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The unique positioning of Pluto Loans in the Argentinian market could not be completely explained without also mentioning the ban on purchasing foreign currency that was reinstated in Argentina on September 1st, 2019 [4] which has created a parallel market which is often used as a reference for the “true price” of the USD, currently with a ~100% gap with the official exchange rate [4]. This has made Argentinians seek to hold their savings in crypto stablecoins, especially USD-pegged ones, [5] which can be legally bought and traded in the country.

[1] https://web.archive.org/web/20140223164842/https://files.nyu.edu/sms267/public/tesis.pdf

[2] https://tradingeconomics.com/argentina/inflation-cpi

[3] https://www.xe.com/currencycharts/?from=USD&to=ARS&view=10Y

[4] https://dolarhoy.com/

[5] https://news.yahoo.com/why-argentina-embracing-cryptocurrency-230940587.html

The Solution: Pluto Loans

The core concept presented by Pluto Loans is simple: A user takes out a loan by locking away yUSDC which is a yield-generating asset, with an estimated yield of 9% at the time of writing [1] and 50% of the locked amount is loaned out in the form of pUSD (therefore, pUSD is backed by the future yield of yUSDC). After the yield produced by the collateral has covered the loan amount, a user can get back their initial investment and keep their loaned amount.

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In order to illustrate the basic operation behind Pluto Loans, let’s consider a user who wants to take out a loan. They would deposit 100 yUSDC into Pluto Loans’ platform which would be securely locked away and start generating a daily interest thanks to yUSDC’s mechanics, and immediately get 50 pUSDC disbursed to their account. This happens atomically in one single transaction.

The user is free to spend those 50 pUSD how they see fit, perhaps exchanging it to other stellar assets such as BTC or ETH because they believe the price might go up.

After ~4.5 years, the original 100 yUSDC has generated 50 yUSDC in interest @ 9% APY; At this point, the owner of the loan can simply withdraw the original 100 yUSDC and keep the 50 pUSD, which are now backed by 50 yUSDC still locked in Pluto Loans’ account.

Note: Pluto Loans generates revenue by keeping 10% of the APY generated from loans, which is omitted from the calculations and diagrams to keep things simple. In the above scenario, the 100 yUSDC would take ~4.87 years to generate 55 yUSDC to pay for the 50 pUSD loaned out and the 5 yUSDC service fee to Pluto Loans.

Extra repayments, pegging mechanism and rewards

While the title seems to have disjoint topics presented, this section will explain how they are interconnected.

The Pluto Loans system allows users to pay back their loan debt at any time, with no repayment or cancellation penalty. Consider the case of our user who took out a 50 pUSD loan and locked away 100 yUSDC. If they were to regret their decision and pay back the debt immediately (50 pUSD not considering Pluto Loans’ service fee), they would pay back the 50 pUSD which would in turn be burnt (as they are no longer backed by future yield of yUSDC) and the 100 yUSDC would be sent back to the user.

An important aspect of the burn mechanism is that Pluto Loans accepts pUSD always at a 1:1 rate, regardless of market price, this incentivizes borrowers to buy more pUSD when the price is low, helping to maintain a 1:1 ratio. Let’s see an example.

1. A user deposits 100 yUSDC and gets a 50 pUSD loan.
2. The market rate is 1:1 with yUSDC.
3. The user buys ETH with those 50 pUSD (now they have 100 yUSDC locked and 50 USD worth of ETH).
4. The price of pUSD drops, and is now 0.9 instead of 1:1.
5. The owner of a loan can now purchase 50 pUSD at 0.9 yUSDC each (spending 45 yUSDC), and repay his loan with the 50 pUSD, since Pluto Loans always accepts pUSD at a 1:1 rate regardless of market price.
6. Our user now has the 100 yUSDC back, 50 USD worth of ETH and because they bought pUSD, this drove the price up, helping to maintain a 1:1 balance.
   

Pluto Loans considers yUSDC, USDC and USDT as valid USD assets, and any of them can be used to repay a loan at a 1:1 rate, regardless of market price, and they may choose to use any of these assets to make repayments or cancel a loan, which has a in interesting consequence for the Pluto Loans ecosystem.

When a user makes an early repayment in pUSD, these are burnt since they are no longer backed by the underlying asset. However, when repayments are made in USDC, yUSDC or USDT, there is no need to burn these assets since their value has a different pegging mechanism. When this happens, these funds are exchanged to yUSDC and since they don’t belong to any loan, they start creating “Shared Yield”, which is distributed proportionally based on the weight of each loan, which effectively means that the yield of Pluto Loans is always higher than the yield of yUSDC alone.

Because the yield is higher than simply keeping yUSDC, some users may choose to keep their funds locked in Pluto Loans vault even if their loan has already been paid out in order to keep generating interest. This is also possible and encouraged, as a small 0.5% fee is charged and added to the “Shared Yield”.

Other pegging mechanisms include rewarding those users who provide liquidity to pUSD and other valid USD pegged assets.

Finally, recalling the original scenario when a roach has reached its maturity and it has been self-repaid, “... the owner of the loan can simply withdraw the original 100 yUSDC and keep the 50 pUSD, which are now backed by 50 yUSDC still locked in Pluto Loans’ account.” Those 50 yUSDC are also now generating “Shared Yield”, further helping to auto-pay down loans faster.

[1] https://ultrastellar.com/assets/yusd

Technical considerations

While Stellar has created Turrets, a clever smart contract protocol for stellar [1], they have lost momentum due to the recent announcement of native Smart Contracts [2]; Pluto has decided not to pursue an implementation using Turrets but rather build its software in a way where the server-based approach can be replaced by smart contracts once they become available. Two models are being considered at the moment, one which is purely CEFI (Pluto must be trusted as an entity), and another one which is semi-CEFI (trust is still required, but it guarantees that the funds will not be spent by Pluto).

The technical design for the full-CEFI solution is as follows:

From a storage perspective, Pluto Loans does not use a centralised database and instead relies on account balances stored on-chain. This design puts the system in a good place to be migrated to smart contracts later on.

When a user takes out a loan, they send the money to a Pluto Loans account, and in exchange they receive tokens that represent their loan status; the reason for this approach is that

1. Any data we ask the user to store on their account can be erased by them later on, so it cannot be relied upon.
2. We can’t store it in our own account since Stellar accounts have a 1000 subentries limit [3]

By using the AUTHORIZE [4] flag on the assets sent to the user we can guarantee the assets are immovable and the user cannot transfer, delete or otherwise alter their loan data.

A common authorization pattern looks as follows:

Operation 1: Issuer uses SetTrustLineFlags to fully authorize account A, asset pUSDDEBT

Operation 2: Payment of pUSDDEBT from Pluto Loans to A

Operation 3: Issuer uses SetTrustLineFlags to set account A, asset pUSDDEBT to AUTHORIZED_TO_MAINTAIN_LIABILITIES_FLAG state (effectively freezing the asset)

The list of immovable assets we use are:

• pUSDDLP, which represents the loaned amount
• pUSDSHARE, which represents the locked collateral (while right now it’s 2:1 ratio in the future this could be configurable which is when having separate assets is necessary)
• pUSSDEBT, which is used to calculate the portion of the yield generated into the Pluto Loans Vault account that each user is entitled to

When the loan has been repaid in full, either because of an early repayment or because the loan has been self-repaid, the borrower can ask Pluto Loans to get back their collateral which will then unfreeze the Pluto Loan assets and burn them, and give the user back their collateral.

The technical design for the semi-CEFI solution is similar to the above, but with the following twist:

Instead of one central vault, each loan will have it’s own vault (account) of which Pluto and the user will carry 50% each of the required weight to perform any operation. This guarantees that Pluto cannot move the funds without the users’ consent, and also that the user cannot withdraw the collateral without Pluto’s consent.

Due to Ultrastellar’s innovative model, yUSDC is paid daily into this vault; the loan gets repaid over time automatically. It is innovative because generally in dApps the interaction is initiated by users (e.g. “Claim reward”).

This approach has the benefit of clear accounting, but it requires managing multiple vaults which has some drawbacks:

• A user’s vault contains yUSDC which are 50% in the users’ control and 50% in Pluto’s control. Even after the loan is repaid, the funds cannot be moved unless the user wants to.
• Harder to migrate to smart contracts (locked funds would not be entirely in Plutos’control)
• Pluto also pays out extra yUSDC from its shared yield vault. In the CEFI model, this is a mathematical formula that calculates how much extra yield the user has accrued, in this second approach, the shared yield would have to be paid into each vault, following Ultrastellar’s model, which increases risk of failure and is more computationally expensive.

Pluto has so far implemented the fully-CEFI approach but will be seeking community feedback regarding the semi-CEFI approach.

[1] https://turrets.stellar.org/

[2] https://www.stellar.org/blog/smart-contracts-on-stellar-why-now

[3] https://developers.stellar.org/docs/glossary/accounts/#number-of-subentries

[4] https://developers.stellar.org/docs/issuing-assets/control-asset-access/#example-flow

The DAO

Is Pluto a DAO? Not yet, but we want to be, and we are working very hard to achieve it. In order to show our commitment to the full decentralization of our project, Pluto has open sourced its governance projects which will provide the on-chain voting mechanism that the DAO will be built on top of:

• ‍https://github.com/PlutoDAO/gov
• https://github.com/PlutoDAO/gov-ui
• https://github.com/PlutoDAO/gov-worker
  

The Pluto team has been hard at work developing the governance module which is open source and publicly available. The Pluto Loans is in the final stages of development, with the MVP for the API complete, and actively developing the UI to do a soft launch (closed beta) by August, and a full launch in December.

By end of June 2022 users will be able to do the following on the testnet:

• Connect their wallet using Simple Signer (an open source wallet aggregator)
• Take out a loan using yUSDC as collateral
• Reclaim their collateral once the loan reaches its maturity
• Early full repayment with no cancellation fee (only full repayment available by May 2022, no partial repayments)
• See their loan status
  

PROBLEM & SOLUTION

Pluto Loans aims to improve the financial inclusion of Argentinians to the loans sector. With an inflation rate of over 50% and a ban on the purchase of foreign currency, their only option is to get loans with an interest rate which surpasses 75% p.a.

Pluto Loans offers a unique solution to the Argentinian market:

• Loans in US Dollars.
• Self-repaying via the interest earned from the locked-in collateral.
• The interest earned from the locked-in collateral is higher in our vaults than simply holding them in your wallet

How do you use Stellar in your solution? ‍

Stellar is at the very core of our solution. It’s the network's low fees and far-reaching network of Anchors that makes it possible for Argentinians to take their pesos and get US Dollars (in the form of yUSDC for our project needs); Pluto Loans leverages ultrastellar’s yUSDC to create the self-repaying concept, and in turn, creates pUSD, a USD pegged asset emitted on the Stellar network, backed 1:1 with yUSDC.

TARGET MARKET

Pluto Loans targets markets that are in need of financial inclusion. In the Latin American region, cryptocurrencies are an instrument of financial inclusion due to its lower-cost way of transferring funds. Nearly ~50% of people are unbanked, according to The World Bank [1].

Considering all crypto assets, the total value of the market surpassed USD 2 trillion as of September 2021 which represented a 10-fold increase since early 2020. This growing ecosystem has been driven by emerging countries, especially from Latin America.

A research from Statista shows that If we look at the percentage of users or owners of cryptocurrencies in each country, we will see that Argentina (21%), Colombia (15%), Chile (14%), Peru (13%) and Brazil (13%) have a greater crypto adoption compared to powerful economies such as the US (10%), Russia (8%), China (7%), Germany (7%) and Japan (4%). [2]

Our initial target market is Argentina; The economic conditions that the country goes through makes it fertile ground for a project such as Pluto Loans to thrive. This is a market we know well: every member of the team is either Argentinian or lives in Argentina. Argentina is ranked #10 worldwide for cryptocurrency adoption [1] and #1 in Latin America [2]

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The Washington Post published an article titled “Worried about inflation? In Argentina, it's a way of life” [1]; this is a problem that permeates every Argentinian home. Very high inflation rates trigger two things:

1. Spending the money as quickly as possible (the same amount of money will not buy you the same products next month… or next week!)
2. Changing your money to another currency. Because the purchase of foreign currency is banned in Argentina, the purchase of cryptocurrency (which is legal in the country) is an attractive way of storing value.

The crypto landscape at the moment makes it increasingly difficult to discern between legitimate and rug-pull projects, furthermore: most of the DeFi projects exist in a globalized world, which also doesn’t help a country where 15% speak English at a basic level and only 1% speak it at a reasonably fluent level [1]. By delivering a highly localized message, Pluto Loans will be able to tap into a ~17.7 million customer base out of ~46 million total population when taking into consideration the working force (~64%) that is above the poverty line (~40% of Argentinians are poor, making them unlikely to be able to take out a loan due to having no disposable income) [2]

In terms of the desirability of Argentinians to preserve value in USD-pegged sablecoins, “... According to a report by economic daily El Economista, Argentines hold some US$130 billion within the financial system — estimated to represent about eight percent of the actual physical stock of dollars in the world — and another US$175 billion “under the mattress,” as Argentinians like to say.” [3]. That combined $305 billion market is what Pluto Loans wants to start capturing.

REVENUE MODEL
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Pluto Loans has a simple revenue model: The service fee is 10% of the APY generated by the locked in collateral. In our previous example, a 50 pUSD loan (100 yUSDC locked) would give Pluto Loans 5 yUSDC at loan maturity (or when the loan is paid off in advance).

With our targets of 100,00 and 1,000,000 loan books, would generate 500 and 5000 in income respectively for Pluto Loans at loan maturity, however: If loans are repaid in advance in an asset other than pUSD (which gets burnt), those assets are changed into yUSDC to generate more shared revenue, of which Pluto Loans also gets 10%.

Considering no other source of income for simplicity sake, in the next 2 years, Pluto Loans needs ~10,000,000 TVL in order to be profitable, which we believe is achievable considering Alchemix has USD 698,841,000 TVL, meaning Pluto Loans only needs to achieve ~1.43% in comparison, in order to succeed. Kinetic, a relatively new protocol on Terra has raised $71.40M since it’s inception, meaning Pluto Loans only needs ~14% in comparison.

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THREATS AND OPPORTUNITIES

Strengths:

• Straightforward proposal and attractive business model. No local competition so far. Proven business model (Alchemix).
• 90% of PlutoDao's team members are based in Argentina for day-to-day operations.
• Strong experience in Software development and launching successful products.
• Our design puts the system in a good place to be migrated to smart contracts later on.

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Weaknesses:

• While the project concept is simple (self-repaying loans), the mechanics of how it works will be challenging to explain in layman’s terms; It will require a delicate balance between not simplifying it too much as to be perceived as “too good to be true”, and not being too technical as to confuse our target market.
• The bureaucratic process in LATAM can be slower than desired at times.

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Opportunities:

• Medium term: Leverage other yield generating assets such as yETH, yBTC and yXLM and offer loans by issuing pETH, pBTC, pXLM, etc.
• Long term: Ultimately, at Pluto, we are aligned with Stellar in the vision of improving financial inclusion, and we see financial literacy as a key tool to achieve this. With a self-repaying loans product, we see an opportunity (with due diligence and proper licensing) to offer hands-on financial education where users could take out a very small loan and invest it to learn about the market dynamics, without losing their initial capital.

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Threats:

• With some countries banning cryptocurrencies all together or looking to heavily tax them, this is always going to be a threat to the adoption of this project. The crypto scene is fast moving and the government bodies are trying to catch up.
• Another threat is that a well established project launches a similar initiative with better funding and an operational know-how.

COMPETITION

Alchemix.fi, pioneers in this area. (Ethereum) [1]. They have already translated their website to multiple languages, including Spanish. While we don’t foresee this to be an immediate issue due to the high gas fees of the Ethereum network which makes it inaccessible for most Argentinians, they are certainly by far the strongest player in this market.

• Arkadiko.finance (Bringing Bitcoin to DeFi with a similar concept) [2] (https://www.forbes.com/sites/leeorshimron/2021/10/27/arkadiko-the-protocol-bringing-defi-to-bitcoin-through-self-repaying-loans/?sh=6ba28ce6dfb3)
• Kinetic.money is using Alchemix model on Terra [3] (https://alchemix.fi/)‍
  

MARKETING AND  SALES

We will minimize our marketing budget by tapping into existing communities, and creating our own. Our initial marketing strategy will aim towards freelance developers in Argentina. According to a Workana report (a freelance work marketplace) [4]

• There was a 42% increase in the amount of professionals registered as freelancers during the Covid-19 pandemic in Argentina.
• It’s estimated that 1.2 million argentinians have at least a partial income as a freelancer.
• The average income for freelance activities is 500 usd/mo usually paid in cryptocurrencies
• PlutoDao is 100% tech-focussed, besides the Argentinian market as a whole, we know the developers market intimately and we know how to communicate with them.
• Almost 35% of Argentinian freelancers are related with IT services, which represents ~420,000 potential users.
  

Pluto Loans aims to reach a TVL of USD 1,000,000, or 4,000 users @ USD 250 each on average; This represents only 1% of the aforementioned ~420,000 freelance developers in Argentina (and 0.022 of the ~17,700m workforce in Argentina). Finally, in order to bring more awareness in the region to the Stellar network, and therefore increasing our market share, we are developing haciendostellar.com which collates Stellar news and translates them into Spanish, as well as generating its own content.

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References

[1] https://www.washingtonpost.com/world/2022/01/27/argentina-inflation-strategy-tactics/

[2] https://blog.chainalysis.com/reports/2021-global-crypto-adoption-index/

[3] https://blog.ebanx.com/en/the-cryptocurrency-boom-in-latin-america/

[4] https://www.dossiernet.com.ar/articulo/crece-un-42-la-actividad-freelance-en-latinoamerica/23261

The project fits in the Medium project scope, < USD $50,000 bracket.

The current team is composed of a general manager/co-founder, a product manager/co-founder, a part-time lead engineer/technical co-founder, a senior UX designer, 5 full-time developers, a marketing strategist, a community manager & translator and a financial analyst.

We seek this funding to maintain our current product team developing pluto loans for another 6 months, and to add one full time senior software engineer.

• Senior Software Engineer x 1 - 1,750 USD/mo = 10,500 USD/6mo
• Software Engineer x 5 - 1,000 USD/mo = 30,000 USD/6mo
• Senior UX (Contractor, USD 13/hr) x 1 - 1,300 USD/mo = 3,900 USD/6mo
• Infrastructure - 680 USD/mo = 4,080 USD/6mo

TOTAL (USD/6mo): 48,480

• Github - https://github.com/PlutoDAO/
• Twitter - https://twitter.com/plutoDAOfinance
• Discord - https://discord.gg/9hkx2AVhpc
• Linkedin - https://www.linkedin.com/company/plutodao/