Trilobyte is an uncollateralised lending protocol on Soroban, the Stellar Development Foundation’s new native smart contracts platform. The focus of Trilobyte will be on facilitating trade, working capital and other cash flow finance transactions (Cash Flow Financing) for Latin America and the Caribbean (LATAM+C). These loans are expected to be executed between parties experiencing difficulties contracting the finance they wish to contract for reasons relating to trust, shortcomings of the financial markets they operate in, local currency convertibility issues, geographic bias or global regulation limiting their activity, among others. Trilobyte will provide the necessary infrastructure to connect whitelisted borrowers with investors, allowing the former to borrow digital assets against expected future cash flows, as a simpler and more cost-effective alternative to what is available in local or international financial markets.

Trilobyte’s ecosystem will consist of five key entities (for illustration, please refer to the Trilobyte Protocol Overview diagram):

- Borrowers: Reputable organisations searching for working capital to finance their operations.

- Borrower’s Vault: The equivalent to a loan in traditional finance, the Vault is a special-purpose receptacle for receiving the agreed cash flows. It is represented by a smart contract on the Stellar Soroban platform. Vaults can be permissioned or permissionlessThe equivalent to a loan in traditional finance, the Vault is a special-purpose receptacle for receiving the agreed cash flows. It is represented by a smart contract on the Stellar Soroban platform. Vaults can be permissioned or permissionless.

- The Payment Actors: Payment Actors are third party vehicles through which the cash flows that serve as source of repayment are channelled in a Cash Flow Financing lending scheme.

Payment Actors can be independent persons or entities who regularly pay funds to the Borrower in the normal course of the Borrower’s business activities. These are generally the clients or customers of the Borrower’s business or other parties, such as management entities or electronic payment platforms, who owe regular payments to the Borrower in the normal course.

These regular payments constitute the cash flows that can be captured in a cash flow finance scheme by directing the Payment Actors to make all future payments to the Vault for subsequent redistribution between the Investors and the Borrower in accordance with the agreed terms of the transaction

- The Investors: Private individuals or entities who will transfer digital assets into one or multiple Borrower Vaults in exchange for future yields.

- The Treasury: Initially managed by the Trilobyte team, the Treasury will whitelist Borrowers, create Vaults and ensure that Payment Actors meet their agreed payment obligations. A DAO is expected to manage the Treasury in the future as the project scales.

We have now completed the POI which is now available at https://app-futurenet.trilobyte.finance/

Problem & Solution

A number of companies located in or focusing on LATAM+C that wish to borrow funds face a unique set of difficulties in taking out loans, as do the investors who wish to provide the funds. Often these difficulties result from inherent flaws or relative under-development of the local financial markets within the countries these entities operate in, including factors such as liquidity crunches, weak local currencies, corruption or simply a lack of financial infrastructure, among others. Similarly, these same issues have an impact on the ability of these borrowers to seek funding outside their country of operations, or if they work closely with one of these countries (geographic bias). Entities acting internationally can also face strict global regulations that can severely limit the scope of their activities. Finally, issues of mistrust arise between debtors and creditors when the selection pool of potential partners is small, as is often the case, delaying or preventing the completion of a loan agreement.

A common way to overcome these issues is through the use of a Cash Flow Financing Scheme (CFFS), the use of a company’s future income, minus operating expenses, to secure debt. In emerging markets, this is sometimes carried out through an SPV acting as a third-party intermediary. As the funds used to pay back the investors often do not enter the country where the borrower is located, this avoids many of the problems associated with the borrower’s country, such as a liquidity crunch. The use of an SPV, usually developed by a large and trusted financial institution, also appeases regulatory concerns, and resolves issues of mistrust amongst entities. If the flow of funds is of high quality, a strong credit rating can be awarded, which can also help reduce geographic bias as well as regulatory concerns. The use of CFFSs in emerging markets may allow borrowers to break through their local debt ceilings, allowing them to attract a much larger variety of investors compared to other types of unsecured debt available in emerging markets.

Despite their relative success, processing billions of dollars in LATAM+C alone, CFFSs remain a niche solution reserved to a small number of use-cases. Widespread adoption is primarily limited due to the extensive administrative resources required to be deployed, with agents often needed on the ground to navigate local lending and international regulations. Finding a reputable financial institution to act as a third-party intermediary is also extremely difficult, especially for smaller amounts, due to the high costs associated with administering this kind of transaction as well as the high levels of risks these deals pose. In the end, current CFFSs are often too expensive for small-to-medium-sized enterprises (SMEs) and are only used by larger, more reputable institutions who have stable and predictable cash flows, can afford the CFFSs’ high costs, and who can convince banks to administer these deals.

Since 2020 there have been major developments in the cryptocurrency and blockchain space that are changing the status quo in this segment of finance. The development of collateralised lending protocols on DeFi over the last 3 years, an important initial step to help investors monetise their digital assets and create new sources of yield, has paved the way for the parallel development of uncollateralised lending protocols to also take place, a far more attractive offer for SMEs in emerging markets to access working capital compared to traditional collateralised lending. The proliferation of stablecoins and digital exchanges around the world also provide a growing number of bridges between the traditional financial world and the cryptographic one, significantly easing the difficulties of conversion of digital assets to fiat and vice versa. These developments, coupled with technical innovations such as smart contracts, are setting the groundwork for exciting and innovative opportunities for SMEs in emerging markets to raise working capital with greater ease.

The Trilobyte protocol hopes to build on these recent cryptocurrency developments and offer a product tailored to the needs of investors and borrowers who face difficulties giving or taking loans, due to working in LATAM+C, through the use of CFFSs. The protocol will significantly reduce the entry cost for participation in a CFFS by removing the significant administrative and monetary burden associated with using a third-party intermediary and replacing it with a smart contract. Furthermore, by automating the KYC and AML onboarding process, the protocol will save considerable time to become accepted into the platform.

Finally, we think that facilitating the borrowing capabilities of whitelisted borrowers helps improve their credit histories, enhancing their ability to access capital and finance markets at lower cost, thereby creating a virtuous cycle that will benefit the local economy in the long run.

Create the first version of the Trilobyte Dapp where Investors can deposit and withdraw digital assets using the Freighter wallet

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How can a reviewer check you completed your first deliverable?

Via the Trilobyte Dapp that is available at (https://app-futurenet.trilobyte.finance). Instructions of how to test can be found here (https://docs.trilobyte.finance/stellar-futurenet-tests/).

Additionally, we have created a demo video of the POI available here (https://youtu.be/8dVWAwieLwA).