TRIO for Collateral Deposits.

Accessing loans for the unbanked.

Accessing loans can be a significant challenge for "unbanked" individuals, meaning they don't have access to traditional banking services. Traditional loan collateral, like property, is often inaccessible to the unbanked. TRIO offers a streamlined, accessible alternative for loan collateral, even for the unbanked, using TRIO collateral deposits.

These deposits can be used for investment purposes: assume that you can get an ETH loan against a TRIO deposit and then use this ETH for staking investment, provided the reward offered is higher than the loan percentage to be paid.

If a system could guarantee a perfect, unbreakable peg between two assets, like 1 ETH = 1000 TRIO, with absolutely zero possibility of deviation, then it would significantly alter the risk profile of lending and borrowing, thus offering LTVs (Loan-to-Value) of 1.

Implications and Benefits:

• Reduced Liquidation Risk:

  • The primary reason for overcollateralization is to protect lenders from price volatility. If the price ratio is fixed, this major risk factor is eliminated.

  • In our scenario, the value of the collateral (1000 TRIO) would always precisely match the value of the borrowed asset (1 ETH).

• Increased Capital Efficiency:

  • Lenders could theoretically lend out more of their capital, and borrowers could access more funds, leading to greater capital efficiency within the DeFi ecosystem.

In the scenario of a perfectly pegged asset pair, where the risk of de-pegging is theoretically eliminated, CeFi platforms might indeed be better suited for offering LTV=1 loans than DeFi. Here's why:

CeFi Advantages in This Scenario:

• Centralized Control and Trust:

  • CeFi platforms operate with centralized control, meaning they can implement stricter rules and enforce agreements more effectively.

  • They rely on trust in the centralized entity, which can be leveraged to manage the risks associated with LTV=1 loans.

• Legal Frameworks:

  • CeFi platforms operate within established legal frameworks, providing recourse in case of disputes or defaults.

  • This legal backing can offer greater security to lenders and borrowers.

• Off-Chain Risk Management:

  • CeFi platforms can implement off-chain risk management strategies, such as credit checks and collateral assessments, which are difficult to replicate in DeFi.

  • They can also take legal action against people who default.

• Counterparty Risk Management:

  • CeFi platforms can enforce legal contracts and take actions against parties that do not follow the contract.

In summary:

CeFi platforms, with their centralized control, legal frameworks, and off-chain risk management capabilities, are better suited to manage LTV=1 loans for a perfectly pegged asset pair.

CeFi Lending - MultiBillion $ business.

CeFi lending can be divided into three categories: over the counter (OTC), prime brokerage, and on-chain private credit.

OTC Lending

The following highlights the high-level details of CeFi OTC lending: How does it work? Counterparties face each other in bilateral agreements. Each trade is negotiated and papered separately and is typically conducted via voice or chat (e.g., over phone or video call, or over email or messaging applications). Onchain borrower collateral is typically held in a multisig controlled by the lender. In some cases where tri-party agreements are arranged, borrowers, lenders, and custodians may control their own keys to the multisig. Who offers and uses it? Some of the main OTC lenders in the space include Galaxy and Coinbase in the US; other big exchanges globally offer similar services. Borrowers are typically hedge funds, high net worth individuals, family offices, miners, and other crypto or crypto-adjacent firms that meet Eligible Contract Participant (ECP) requirements.

What are the use cases for borrowed funds?

Once loans are executed, borrowers are typically free to do what they wish with the loan’s proceeds. Some common uses include leverage trading, financing operations, or refinancing other loans. Other details of OTC lending: Some OTC lenders use on-chain applications to supplement their businesses. This benefits the transparency and accounting of their books, their ability to operate at all hours of the day and week, liquidations, and any predetermined actions, and building products on free and open infrastructure. OTC loans to individuals and small businesses: While institutional-level activity is a major driver of the OTC lending market, individuals and small businesses are also active in the space. Some CeFi lenders, like Ledn, Unchained, and Arch, offer services to individuals looking to use their crypto as collateral for activities such as purchasing homes and starting businesses. These types of clients are often blocked out of financial services at traditional banks, which, up to this point, do not accept digital assets as forms of collateral. As a result, these lenders act as a lifeline for this class of borrowers who are often digital asset rich but not necessarily so in fiat terms.

Lending Risks.

The following section evaluates the risks of collateral loss in crypto-backed loans due to security breaches on lending platforms.

Crypto-Backed Loans Overview ​

Crypto-backed loans allow individuals and businesses to use their cryptocurrency as collateral to secure loans in fiat currency, providing liquidity without selling digital assets. ​ This financial instrument has gained popularity due to the increasing adoption of cryptocurrencies and the need for capital access. ​

• Borrowers pledge cryptocurrency as collateral to obtain fiat loans. ​

• Benefits include avoiding tax obligations and maintaining asset exposure.

• Users range from individual investors to businesses seeking operational capital. ​

Security Risks in Crypto Lending ​

The security of cryptocurrency collateral in lending platforms is a major concern due to potential breaches that can lead to asset loss or misuse. ​ Borrowers face risks from both external attacks and internal vulnerabilities within lending platforms. ​

• Security breaches can result in the theft of private keys and unauthorized transactions. ​

• Insider threats and operational errors can also compromise collateral safety.

• Historical breaches highlight the risks, with significant losses reported, such as Bybit's $1.5 billion theft. ​

Loan Process and Over-Collateralization

Obtaining a crypto-backed loan involves a structured process where borrowers must over-collateralize to mitigate lender risk. ​ The loan-to-value (LTV) ratio is crucial in determining the amount of collateral required. ​

• Borrowers select a lending platform and submit a loan application. ​

• LTV ratios typically range from 40% to 90%, requiring more collateral than the loan amount. ​

• Over-collateralization protects lenders against cryptocurrency price volatility. ​

Types of Security Threats in Crypto Lending ​

Crypto lending platforms face various security threats, including hacking, insider fraud, and smart contract vulnerabilities. ​ These threats can lead to significant financial losses for both platforms and their users. ​

• Hacking attempts exploit weaknesses in platform infrastructure. ​

• Insider fraud can occur from employees misusing their access.

• Smart contract vulnerabilities in DeFi platforms can lead to unauthorized fund withdrawals. ​

Historical Breaches and Their Impact

Numerous significant security breaches in the cryptocurrency lending industry have resulted in substantial financial losses, underscoring the risks associated with third-party custodians. ​ These incidents serve as cautionary tales for potential borrowers.

• Notable breaches include Bybit ($1.5 billion), Ronin Network ($625 million), and FTX ($477 million).

• Breaches often lead to loss of funds and can result in platform insolvency. ​

• The involvement of state-sponsored hackers, such as North Korean groups, poses an ongoing threat. ​

Legal and Regulatory Considerations

The legal landscape surrounding crypto-backed loans is evolving. Varying regulations affect lenders' liability in the event of security breaches. ​ Borrowers must navigate complex legal frameworks to understand their rights and protections. ​

• Legal treatment of cryptocurrency as collateral is still developing. ​

• In the U.S., cryptocurrency is classified as a "general intangible" under the UCC. ​

• Regulatory bodies are increasingly scrutinizing crypto lending platforms for security compliance. ​

Risks of Crypto-Backed Loans ​

Utilizing cryptocurrency as collateral for fiat loans carries significant risks that borrowers must assess. ​ Key concerns include security breaches on lending platforms and the volatility of cryptocurrency markets. ​

• Security breaches can lead to substantial financial losses, especially with over-collateralization. ​

• Market volatility poses a risk to the value of the collateralized assets.

• Regulatory environments are still evolving, adding uncertainty to crypto-backed loans.

• Borrowers should conduct thorough due diligence on lending platforms and understand loan terms. ​

• Proactive risk management strategies are essential for informed decision-making. ​

Benefits of Crypto-Backed Loans

Crypto-backed loans offer potential advantages for borrowers seeking liquidity without selling their digital assets. This financing method can help avoid triggering taxable events.

• Access to liquidity without the need to sell appreciating assets.

• Potential to leverage digital assets for immediate financial needs.

• Can provide a means to diversify financial strategies while retaining ownership of crypto assets.

Example: Secured Credit Card Deposit:

* Individuals with no credit history, often unbanked, face significant hurdles in obtaining credit cards.

* Secured credit cards, requiring upfront deposits, are a common solution.

* However, traditional deposit methods like money orders are costly (around 3%) and inconvenient, especially for large deposits.

* Returning the deposit incurs the same fees.

Unbanked Customers are required to deposit funds for secured credit card issuance.

Solution: TRIO as a digitally secured Collateral Deposit.

* TRIO offers a streamlined, accessible alternative for secured credit card deposits, even for the unbanked.

* Users create a TRIO account and deposit the equivalent value in TRIO tokens.

* This account address and token balance serve as the secured deposit for the credit card company.

* A traditional, legally binding contract is established between the cardholder and the credit card company, with TRIO acting as a trusted intermediary.

* If the cardholder defaults, the credit card company, through TRIO, claims the equivalent value of the deposit in TRIO tokens based on the prevailing exchange rate at the time of default.

* For example, a $1000 deposit at an exchange rate of 1 ETH = $2000 would equate to 500 TRIO tokens.

* The credit card company can then convert these tokens to ETH and ultimately to USD.

* Upon successful credit card usage and termination of the secured deposit, the TRIO account is returned to the user, free of the fees associated with money orders.

**Key Advantages of TRIO**

* **Accessibility:** open to everyone, including the unbanked.

* **Cost-Effective:** Eliminates the high fees associated with traditional money orders.

* **Efficiency:** Streamlines the deposit and return process.

* **Trusted Intermediary** TRIO enforces the terms of the traditional contract, bridging the gap between traditional finance and blockchain.

* **Transparency:** The exchange rate for token conversion is based on the prevailing market rate at the time of default.

* **Traditional Contract Compliance:** Ensures legal enforceability through a traditional contract, addressing the limitations of solely relying on smart contracts for these types of financial interactions.

The TRIO Breakthrough: Using TRIO for crypto collateral.

·        Get on board TRIO ecosystem / KYC.

·        Swap ETH to TRIO tokens . 1 ETH = 1000 TRIO.

·        Create a Collateral Account for these TRIO tokens.

·        Lock the Collateral Account. No breaches. Guaranteed by TRIO.

·        Sign the legally-binding contract between TRIO service, Lender, and Borrower, regarding the Collateral terms. If the Borrower fails the terms of the contract, the Collateral will be awarded to the Lender.

·        Receive a fiat loan or any other Business Transaction guaranteed by the Collateral.