Pool Mechanism
There are 3 types of pools.
- Fixed Rate Pool: This type of pool will not accept new capital inflow after the pool is successfully launched with the targeted amount of capital raised, and as a result, features a fixed interest rate. When using this pool, users will need to lock their capital for a certain period of time until it is redeemable. For example: Cytus launches a Fixed Rate Pool targeting a fundraising amount of $500k, and interest rate of 8%, with fundraising period Oct 1 to Oct 15, for a private real estate debt that lats 1 year. From Oct 1 onwards, investors can start to deposit USDC into the pool. Whenever the size of the pool reaches $500k, it will no longer accept new capital deposits. If on Oct 15 the amount raised is smaller than $500k, the capital will be returned to investors and the pool is canceled. If deployment was successful, it will be invested into the private debt as promised. If investors wanted to redeem before the end of the 1-year investment period, they face a penalty linear against time, e.g. 12% in month 0, 11% in month 1, etc. until 0% after 1 year. The advantage of this type is that investors can reach higher capital efficiency because the capital utilization rate is always 100%. The disadvantage is that investors have to lock their capital for a certain period. This type of pool is used for private credit products. Below are the parameters for this type of pool:
- Fundraising start date: the start date of fundraising. User can deposit fund after this date.
- Fundraising end date: the end date of fundraising. No more funds will be accepted after this date.
- Interest start date: user will receive interest after this date. Pool end date: user will receive the principal amount in full after this date.
- Early withdrawal penalty: users will be penalized by a certain percentage of their initial investment for withdrawing their investment before the pool end date.
- Size and APR of the underlying RWA debt: the amount of RWA debt this pool is able to invest into, and the interest rate generated by the underlying RWA debt.
- Dynamic Rate Pool: The second type of pool is the pool which accepts new capital inflow after initial deployment. To launch such a pool, there will be a fundraising period, and after which the raised amount has to be higher than a certain threshold. After the pool is launched, investors still have the opportunity to invest into the pool, but the amount invested in the off-chain debt will not increase; instead, the new inflow will dilute the interest distribution, but it will also serve as a liquidity buffer. As long as the capital in the pool is larger than the amount deployed in RWA debt, investors are able to withdraw their capital freely. For instance, an entity is trying to borrow 10M from Cytus by paying 10% APR. Cytus launches a dynamic pool for this purpose, with fundraising period Oct 1 to Oct 30, and minimum target 10m. Once the minimum goal is reached, the pool can be launched successfully. Imagine that after initial deployment, new investors invested a total of 10M more into the pool. Now the pool has 20M in total, but the total interest generated is still 10M * 10% = 1M. This brings the effective APR down from 10% to 5%. As interest goes down, some investors might want to leave the pool. Let's say 5M capital is withdrawn from the pool. Then the pool has 15M in total, which translates to a 6.6% APR. The advantage of this type of pool is that investors have liquidity most of the time. They can withdraw their investment as long as there are extra funds available. But the disadvantage is that the capital utilization rate is most likely below 100% most of the time, meaning some of the funds are not put into use and earning interest. This type of pool is used for private credit products. Below are the parameters for this type of pool:
- Fundraising start date: the start date of fundraising. User can deposit fund after this date.
- Fundraising end date: the end date of fundraising. No more funds will be accepted after this date.
- Interest start date: user will receive interest after this date Pool end date: user will receive the full investment at this date.
- Size and Baseline APR of the underlying RWA debt: the amount of RWA debt this pool is able to invest into, and the interest rate generated by the underlying RWA debt.
- Perpetual Dynamic Rate Pool: The third type of pool is similar to the second pool. Users can still invest into the pool after the pool is launched, but the pool will maintain a target utilization rate, i.e. invest the additional inflow of capital into new RWA debt. If the utilization rate falls below the target rate, the fund in the pool will be withdrawn off-chain to purchase more RWA debt to generate yield. This type of pool is used for publicly traded debt like US treasury. When the purchased assets expire, cash is obtained, and will be reinvested into the same asset based on the difference between the current utilization rate and the target utilization rate. If the current utilization rate is above the target, cash (stablecoins) will be brought back to the pool so that users have liquidity to withdraw. Otherwise, cash will be invested back to the asset to maintain the utilization rate same as the target one. Note that this kind of pool has no end date. It will continue to roll-over as long as there are still funds in the pool. Below are the parameters for this type of pool:
- Pool start date: user can deposit fund after this date.
- Pool target utilization rate: it is defined as the ratio between the fund invested in the RWA and the fund in the pool.
- Baseline APR of the underlying RWA debt: the interest rate generated by the underlying RWA debt US Treasury Pool Mechanism.
Last modified 5mo ago