📜Academic Paper
The Xucre (XRE)
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Introduction
The Xucre (XRE) is a new platform on blockchain and smart contracts made for financial services and payment transactions between persons, groups of people, or organizations. It is built to facilitate a distributed finance platform, extendable to meet dynamic DeFi use cases. The XRE platform is intended to work as a lending network and provide Credit Union as a Service (CUaaS) to organizations in order to create structures for providing credit to individuals or other organizations. This will be done by creating a blockchain transaction system connected to online loan origination and lending management user experience. The XRE network will be cloud-integrated from day one and provide enterprise-level blockchain access.
One of the largest problems facing small businesses in Latin America is access to sustainable and renewable capital through financial institutions. While many banks offer commercial lending solutions, the slowness and high barriers to entry make micro and rural entrepreneurship very difficult to finance. Many NGOs and non profits also offer microloans, however, many times those are one-time loans. Lines of credit or long-term capital provisioning is hard to attain for the majority of small enterprises. However, there are large multi-national organizations and persons with high access to capital in Latin America. There is also a culture of community lending within pockets of people that can be used as starting points.
At the same time, ensuring the minimization of loss of capital lent will be supported through state-of-the-art loan origination processes. Loan origination has been successfully done in micro-communities, these processes are known and followed. The XRE network will leverage existing origination methodologies and APIs, where possible, to create a system of credit to minimize risk for lenders. The XRE lending network will be supported by a private blockchain of identity validation and credit history for each person acting on the XRE lending network.
The XRE lays the foundation for decentralized finance transactions and creates a platform for non-governmental organizations, non profits, corporations, or groups of individuals to establish their own group-based credit union. The ability for the Xucre to be multinational and nongovernmental gives it an immense advantage to fund loans throughout the region, not tied to any local currency or infrastructure. Creating a smart contract and blockchain infrastructure to support the network ensures security and transparency.
Security is fundamental to the XREs architecture, with KYC and AML standards built into the user onboarding process. The blockchain will have API access to best-in-class monitoring and anti-fraud detection in order to sustain legitimate operations. We will also visually verify ID and picture to take the process one step further, however, this information will not be stored on the public blockchain but rather on a verified block that is part of the Xucre network. The final pillar in our security architecture will be biometric information saving and scanning. Where supported, we will enable and store biometric information to validate a user's identity. Each user will have access to the information stored about them at any time through their wallet application.
Examples
One great example to think about would be the Catholic Church Credit Union, the ability for churches to lend to other churches in the network. In many instances, there are some churches that maintain healthy levels of donations while others struggle. The larger churches have the capacity to participate in lending programs to help smaller churches be the recipient of funds for architectural improvements and expansions.
Another example is the Hewlett-Packard Employee Credit Union, this group would be a value add provided by HR to company employees as part of their 401K programs. Employees can opt into the program and allocate funds to local communities. The project can have a user interface wherein employees can vote for organizations to receive a pooled set of funds, each staker receiving a vote. The funds can go to help fund a small bakery, a local barbershop, or other small business within the employee’s immediate communities.
A third example would be expatriates or foreign workers who send remittances back, these people may also have savings they may want to put to good use in their home countries, however, existing infrastructures for lending capital don’t exist. In many cases, there is a lack of trust and the money disappears without much accountability in informal networks. A foreign remittances vendor establishes the ability for its customers to also save their capital with them to work in their home countries. These organizations establish savings pools and create programs for their constituents to pool their savings and provide capital to businesses locally, stimulating the economy and creating jobs for their compatriots.
A fourth example is the traditional Tanda, an informal lending network of community members that work together to save and receive a payout at a scheduled time. The network will support public and private tandas made by users or organizations. Think of it like Kickstarter for the community, without the need for a marketing campaign.
Origin
Antonio Jose de Sucre y Alcala was a Venezuelan independence leader and liberator of Quito, Ecuador that believed that the Latin American people had the means and the capacity to fully reap the benefits of their immense natural resources. This vision of independence was once fought on a battlefield but was lost when he was assassinated on his way to a delegation. Since then his memory has lived on through many monuments and even many country treasury notes. The last country to use the note, the Sucre, was Ecuador before it became dollarized in 1999.
The Xucre was built as an evolution of an old idea in Latin American culture, the concept of the “Tanda” has long helped informally finance the purchases and expansion of a lot of Latino led households and small businesses. These informal lending networks provide support to the community by pooling the collective buying power of the group and creating payout schedules for members to deploy the capital when most strategic. We believe that by creating digital mechanisms for people to create their own Tandas, we can empower financing to get to where it will have the largest impact.
The XRE Platform will create an infrastructure for the support and expansion of access to capital for local businesses. This, we believe, is the primary driver of a middle-class economy, and middle-out approach to economic development. Working through a business use case, we can tap into the savers market. By utilizing existing systems of middle-class wealth creation, we will leverage excess capital in this section of society to fund the expansion of the same society through small business lending.
The initiative originated from a law in California that does not apply in Latin America but weighed on our minds. At a specific employee count, it is mandated that the company provide a 401k retirement plan. When we reached that size through our operations we realized that there was no provision in place, besides the public pension system we already paid into, to allocate funds for employees easily from a regional perspective. We decided in order to be fair to all of our employees if the US receives a 401k plan we would look for a retirement savings plan for our teams abroad. Operating in multiple countries means the company would have to hire multiple outside groups to manage the funds, and in some countries, we may only have employed a few people. A regional approach to retirement planning was needed and so we looked at the options and decided none was appropriate but were interested in the idea of distributed finance.
At the same time, while at a seminar at Stanford GSB, a colleague explained to me his small venture of lending to plantation mills to pay small farmers on time while awaiting payment from the already purchased agricultural product from the US upon receipt of goods. With the pandemic, those wait times elongated causing unnecessary hardship for local farmers. Unfortunately, little in the way of formal credit systems for small farmers existed. We saw an opportunity to bridge two needs in the market, one for quality retirement savings accessible at a regional level and the other with short-term revenue-based finance solutions for small businesses in the region.
Applications
Xucre Wallet
As with any market, there is a need for a rapidly localized wallet that works with currencies and integrates services that are available in Latin America. The Xucre Wallet will use open source technologies backed with custom APIs to work with the most relevant currencies for the people in our markets. The goal will be to develop a sustainable architecture that also integrates with current existing financial infrastructure wherever possible. The Xucre Wallet will be the first development step in this process, although the XRE network will integrate to all existing wallets where possible.
The wallet will be a mobile-first (Android/iOS) strategy to enable the broadest range of access within Latin America. It will be localized to the specific terms used in each country, where materially different. The main languages for the application will be Spanish, Portuguese, and English. A web version of the wallet will become available as well.
Xucre Network
In essence the Xucre Network is a loan marketplace, matching those who have savings, and lenders, to those who want to deploy the capital, borrowers. The lenders are members of the credit union who have saved funds to loan out as microloans. The expectation is that they will receive an interest rate back from the borrowers directly. Their money will grow at a rate better than any bank savings rate available. The more employees or individuals sign up to member networks, the more funds available to loan out. The Xucre Network will support these transactions. The borrowers are local small businesses, friends and family who they refer into the program, the local butcher or farmers market. The funds will be distributed locally to small businesses and individuals who have good credit and pay them back.
The goal of the Xucre Network will be to deploy within the medium size to large organizations, wherein employees of the organization will pool their excess capital to lend to others. The program’s goal is also to facilitate a way for network members to find means to get involved in their local community. For members who want to make a difference, they will be the first to find leads for the loans. Whether it’s a community they are familiar with or a relative starting out a small business, the organization deploying the XRE platform will be responsible for determining the impact of their financial power.
The transactions on the Xucre Network will all be powered by the XRE platform, making the transaction fees between parties on the network small compared to exchanging value via traditional means in the region.
Decentralized Lending
The Xucre Network is a genuine decentralized lending platform, wherein custody and transparency of funds are powered by the blockchain network. The network matches lenders to borrowers, it pools available funds to be distributed through fractional smart contracts. One or more individuals can fund a loan, much the way that crowdfunding platforms work, however, the loan does not have to be fully funded for the funds to be distributed. No interest rate is guaranteed by the network, the rate will be determined by the lender and borrower. Because of the transparency of the smart contract network, variable rates are visible to anyone and will be recommended to borrowers and lenders based on past loans of comparable characteristics.
The XRE network will originate loans and provide them to the Network Members, each a private cooperative of deployable capital. Each Network Member will determine which loans to fund, and multiple members can fund one loan on the XRE Network. Network Members can also originate their own loans and work independently of the XRE Network.
Tandas
The concept of the Tanda is not new to Latin American culture, these types of informal loan networks in a lot of places are the primary source of debt capital. One example of this is within the undocumented immigrant community in the United States, historically alienated from traditional banking and finance institutions, the community finds a way to finance itself. These loans are never for very large amounts, and each member of the tanda can either put the money up front or make payments into the Tanda as they go.
The point of the Tanda is to receive the payout when your turn comes up on the schedule. This is a hybrid model of a loan-to-borrower relationship. In the tanda model, all participants are lenders and borrowers simultaneously. Each member is a contributor to the group. With the Tanda, the interest rate will be even lower given the nature of the lending group, and should only be used to compensate the administrator of the Tanda for putting it together. As with any loan on the network, the rate is agreed upon and decided by the participating parties.
Public Tandas
Public tandas will be groups of people on the XRE Network, who may or may not know each other, but have a common interest or goal in the direction of their lending. They can be created and administered only by verified members. Public Tandas are not unlike GoFundMe or Kickstarter, and could be used to group like-minded individuals to create impact-driven lending groups.
Private Tandas
Private Tandas are as the name suggests, groups of people who do not want non invitees to join their lending club. They would follow the same rules as public tandas with the exception of privacy. The Tanda may also decide whether or not they want to show the members of the tanda with the other members. Privacy is the key to private tandas.
Treasury Management
Tokens and Blocks
Xucre (XRE)
The XRE token was designed as a structured supply token wherein the network size and production determine the inflation rate of the token. Token inflation should grow in accordance with market conditions. The rate of inflation will be determined by the Xucre Network board but should stick to the natural rate as seen with other currencies of between 2% and 7%, guided by economic indicators and set by the foundation or designated committee. This process will have to be automated as the technology to manage the supply of cryptocurrencies is better developed through artificial intelligence.
There will be an initial supply of one billion circulating XRE. Token inflation is split between infrastructure (45%), Community(40%) and Foundation (15%). The minting of new tokens for use in transactions will happen at every point at which the reserve is increased through a new block producer and/or by a vote and approval of the board of directors. The minting of new coins will only be necessary to support the growth of the market and network.
A percentage of all of the minted XREs that go to the Xucre Foundation will be used to fund the intergovernmental operations advancing transparency and education on blockchain to local governments and educational institutions. This fund will be monitored closely to ensure all funds are being used to support education and encourage the transparency of government.
IdentityChain LatAm (IDCL)
IdentityChain Transparency is the key to running successful financial operations but the validation of information is just as important. The nature of distributed assets has created known issues with the use of funds for nonlegal activities. The Identity Chain block will host a user-based profile with KYC and AML validations built into its infrastructure. Because it will be integrated into the XRE blockchain, it will be the identifier to collect a historical credit rating, allowing organizations with good track records to qualify and renew their financing for larger amounts. Hosting this process on a blockchain will make the block lending practices fully auditable.
The XRE block will be integrated into the Identity Chain which will be a source of valid person-to-financial information block. This will be a private blockchain that will be collected and stored for audit or reference purposes. This block will form part of the XRE network but will be privately encrypted and used to validate and store identity credentials. Other members of the XRE lending network will be able to utilize the data on IdentityChain, including the KYC & AML integration, for their own credit-providing services.
This block will also be used to store the automated validation process for credit history. The IdentityChain block will be supported by additional API services from leading global KYC and AML vendors to ensure full compliance and surveillance for potentially fraudulent transactions.
DeFi Security
Know Your Customer Global Verification
In order to meet KYC standards we will use a global identity verification solution with an API that will allow us to operate from our own application. The platform should be able to validate both the identification as valid and the identity of the person via an image taken on the application with their identification. This will validate the identity of the person who is creating the account on the network.
Anti Money Laundering
Existing AML solutions integrate into Interpol and other international watch lists for fraudulent accounts and activities. This generally works with bank accounts so our AML watch capabilities must be integrated into our onboarding and monitoring services in IdentityChain via API integration utilizing our orchestration ETL. This is a periodic review of existing bank accounts and identities linked to the network for activity on watch lists. Once it has been determined that an account is potentially engaging in delinquent or may become delinquent in its activities, we will take the necessary steps to ensure the integrity of the network. Safeguards Since we do not control the interest rate at which each of the loans provided on the network will be structured, we have very little say in market activity. Nonetheless, the XRE Network will have its own reserved capital to provide loans and will control the interest it will lend to individuals. This rate will be the prime rate for preferred network members. The XRE Reserve can also lend to Tandas or other CUs to establish liquidity, however, should never be used as a lender of last resort.
Asset Values
The biggest issue with currencies is the fear of devaluation that forces a spiral into a total depletion of the value in a value network. Due to the nature of the Xucre being tied to amortizing loans, each individual will have to understand that the only point at which they can withdraw their funds is when they are not being loaned out. Knowing that a cryptocurrency the token may at one point be traded on open exchanges. A too strong reduction in the XRE Network price due to external trading may have negative effects on the network. This is why it is proposed that a buy-back program exists for non-used capital. If non-used or non-staked funds remain in the network for too long, they will automatically be bought back at the market price within n years of nonuse. This is to prevent any one person from holding a lot of unused Xucre and creating whale or pump-and-dump movements.
Research & Development
A tertiary premise of the XRE network is to create treasury management infrastructure for organizations needing to operate within a multi-regional or multi-national paradigm. This new form of financial management will enable organizations to produce, mint, and exchange digital assets through decentralized blockchain networks.
Definitions
Xucre (XRE) - crypto token used to power transactions on the XRE blockchain.
XRE Blockchain - Purpose-driven smart contract blockchain for distributed finance of micro loans through independent network membership.
XRE Platform - Credit Union as a Service software, installable and connectable to provide loan funding and origination software.
XRE Network - Network of borrowers throughout Latin America, each private lending cooperative can opt to receive loans originating from the Xucre Network unless they chose to keep their lending private.
XRE Network Member - Credit pool member, could be a Tanda or could be an organization deploying the lending capabilities as a software service.
IdentityChain - Private blockchain built to house the credit rating, histories and identity verification of all borrowers and lenders in the XRE Network.
Xucre GOV (XGOV) - crypto token used as a governnace voting mechanism for the Xucre
Tanda - a group of people, organizations, or entities that agree to work together as a private lending cooperative to either lend themselves or external parties capital.
DAO - Decentralized Autonomous Organization
ETL - Extract, transform and load
SaaS - Software as a service
Whale movements - An individual or organization that holds a large amount of a particular cryptocurrency. There is no exact cutoff threshold for this definition, but some say a Bitcoin whale should hold at least 1,000 BTC. A whale may also be defined as a person that has enough coins or tokens to cause a significant impact on the market prices, either by buying or selling large amounts.
Pump-and-dump movements - Is a manipulative scheme that attempts to boost the price of a stock or security through fake recommendations. These recommendations are based on false, misleading, or greatly exaggerated statements. The perpetrators of a pump-and-dump scheme already have an established position in the company's stock and will sell their positions after the hype has led to a higher share price.
References
Tanda (Informal Loan Club) - Wikipedia.org https://en.wikipedia.org/wiki/Tanda_(informal_loan_club)
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Coindesk - Crypto Lending Service Celsius Pauses Withdrawals, Citing 'Extreme Market Conditions' https://www.coindesk.com/policy/2022/06/13/crypto-lending-service-celsius-pauses-withdrawals-citing-extreme-market-conditions/
Consultative Group to Assist the Poor. “Making Money Transfers Work for Microfinance Institutions: A Technical Guide to Developing and Delivering Money Transfers” https://www.cgap.org/sites/default/files/CGAP-Technical-Guide-Making-Money-Transfers-Work-for-Microfinance-Institutions-A-Technical-Guide-to-Developing-and-Delivering-Money-Transfers-Mar-2008.pdf
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“Proton Chain White Paper.” ProtonChain https://www.protonchain.com/proton-white-paper-en.pdf Binance Academy. https://academy.binance.com/en/glossary/whale SSRN.
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