In ELYFI, cryptocurrencies can be loaned against real assets as collateral. Before collateral-based loan contracts are reflected on the blockchain, the value of the assets held as collateral must be evaluated and verified, and applied in the ecosystem based on the asset value after loans are created as NFTs.
The ‘Oracle Issue’ refers to the question of how to trust the data recorded on the blockchain for the first time, and this is the biggest issue arising in the process of linking real assets to the blockchain. Although the data may not be incorrect, there is a possibility that errors or malicious changes may occur in the process of it being reflected on the blockchain.
In order to address this and reduce errors, a large number of people are allowed to participate in the formation of a loan contract and the process of registering it on the blockchain.
Real asset owners can register their assets through the onboarding service. In this process, an accredited asset appraisal is required to prove the asset value, and when registering for the onboarding service, the appraisal report must be provided.
When a contract is concluded between the owner of real assets and the collateral service provider, information on the contract is registered in the Smart Contract upon issuance of the NFT. At this time, it is necessary to register the following contracts:
Loan Contract / Contract to Establish the Right to Collateral Security / Contract for Transfer
In the event of a ‘liquidation scenario’ due to loan repayment failure, the loan receivables must be transferred to the owner of the ABTokens, which act as the loan (bond). This structure is included in the content of the pre-contract, and if the transfer of the bond is carried out by means of ABTokens, the borrower must be clearly notified of the set date.
In order to build trust in the token issuance in the process of issuing ABTokens in ELYFI, final verification is carried out by a (third party) legal service provider. The legal service provider conducts a review of the following four items:
- Determination of the authenticity of collateral security details entered in real estate registration
- Determination of the authenticity of the contract between a real estate owner and a collateral service provider
- Determination of the value of principal and interest through certificates of seal impressions of real estate owners and lenders
- Determination of whether the important information entered in smart contracts match the contract content
Through this process it is possible to prevent errors or intentional data distortion by a collateral service provider during ABToken issuance. This allows ABTokens to be recognized as collateral on the blockchain.
Collateral service providers are contract parties to real asset-backed loans and entities that issue ABTokens within the ELYFI financial ecosystem. As they play an important role in ELYFI, they will be screened under more stringent and clearer evaluation criteria. First, collateral service providers must be lenders registered with the Financial Services Commission or the local government office (borough/district office). In addition, more than a certain amount of EL must be deposited in a collateral service provider’s security pool. The security deposits can be used in the event of a problem caused by a collateral service provider. The upper limit of the allowable loan amount is set according to the security deposited in the pool. In addition, we plan to establish a standard by which the insolvency rate must be below a certain number. Specific policies and standards will be established and verified by managing our own collateral service provider.
Even if a collateral service provider is selected based on strict criteria, there is still room for problems caused by error or intention of the collateral service provider. For example, there is a possibility that a collateral service provider deposits ABTokens in the Money Pool and does not lend them to borrowers after receiving cryptocurrency payments. To address this issue, Elysia Co., Ltd. enters into a damage compensation contract with a collateral service provider in advance. In accordance with this contract, the collateral service provider is incentivized not to cause problems in advance, and in the event of any problem, losses are covered by damage claims proceedings. After its establishment, the role of Elysia Co., Ltd. will be replaced by the Governance.
In addition, loans repaid by borrowers may not be repaid to the Money Pool by collateral service providers prior to maturity. In the event of a problem, the contract between the collateral service provider and the borrower who took out a real asset-backed loan is first closed out. In addition, the amount due to be paid out from the collateral service providers’ deposit pool is paid back within the liquidation grace period. The collateral service provider that caused the problem compensates the companies in the Collateral Service Provider Pool. The repayment is used for compensation payment according to the share of the security deposits. Such damage compensation is replaced by depositing additional security deposits in the deposit pool.