Versara Trade Made Debut at Blockchain Center Tech & Invest Summit
During Blockchain Week in New York City week of May 14th, the Versara core team attended the Blockchain Center Tech & Invest Summit. The Summit gathered leaders from all over the blockchain space, including experts from Ripple, Consensys, IBM, Deloitte, amongst many others.
Versara founder & CEO Sean Liu presented Versara Trade to the public for the first time. He walked the audience through his story and Versara Trade’s inception. This article provides an annotated version of his inspiring talk.
Sean has over a decade’s worth of experience in the fintech industry, spending a majority of his time at Murex, a leading capital market platform vendor. He then went on to work at UBS as a US regional manager of their global capital market system. This experience gave him the practical skillsets and the deep understanding of finance that would eventually serve him as a pioneer innovating the trade finance space.
Sean broke down for the audience the unknown, but common practice that is known best as trade finance by sharing this story:
“But today I want to tell you a little about my friend, Jonathan. He is in the international trade business and he imports aluminum extrusions from South Asia to North America. His annual turnover is about 7 million dollars, which makes him a small business in that market. But his gross margin is impressively sitting at 20%. I would say it’s a really good business.
Now you all heard about this trade war happening between the US and China. As a result, aluminum buyers in the US have to reroute most of their orders from China to somewhere else. So suddenly Jonathan, whose suppliers are in Southeast Asia, got 15 million dollars of new orders in 3 weeks, which you would think like a dream comes true for him. But guess what, he had to reject most of them, because he doesn’t have the working capital to fulfill these orders!
The obvious next step would be to try and borrow money from banks. Alas, banks only work with their existing clients who have enough assets and a long history of banking relationships, because they remain risk-averse. Jonathan’s bank turned him down because his company has less than 2 years of history. Other banks won’t even consider working with him. Eventually he found an alternative lender who was willing to finance him based on his invoices, but they charge him a woeful 1.8% for 30-days advance, which translates to 24% interest a year. That’s highway robbery for a proven business!
I brought Jonathan’s case to one of our advisors, Ron, who was the CFO of Millennium Funding. I asked him, “Ron, do you know anybody who can help my friend?” Ron said, “Well, 1.8% for 30 days is quite typical for companies like Jonathan’s. And he’s even lucky for that because many other similarly good businesses can’t even get financed anywhere.”
And that’s when the wheels in Sean’s head began turning. He was determined to solve this issue and use the momentum catapulting the crypto community into the future with him throughout this process.
Now, the easy and obvious solution would be to talk about lending bitcoins and/or other types of cryptocurrencies. However, the volatility of bitcoin price is not the kind of risk a serious business can take. You can’t expect small and medium-sized enterprises to take loans against crypto holdings because 1.) if he owned that much in cryptos, he wouldn’t be in this pickle in the first place, and 2.) other serious investors likely wouldn’t lend the amount of capital required in cases like Jonathan’s against crypto assets anyway.
But what if the answer to the question wasn’t either/or?
What if we married the use cases of both fiat & crypto currencies?
Oftentimes in the crypto community, the fall back and assumption when discussing fiat currencies is to simply replace them. However, as the volatility this past year has shown us, an overhaul of the fiat currency is not easy and cryptocurrencies face much resistance and skepticism. If it’s survival of the fittest mode, in today’s environment — the winner remains fiat. So the question becomes — how can we come up with way to make cryptos and fiat currencies work together efficiently to solve real economic issues for people like Jonathan? Forget theory. Think practical.
And that’s how Versara Trade was born. Versara Trade is a first-of-its-kind solution that allows for Crypto Credit Enhancement, where the crypto community helps close the credit gap between traditional fiat lenders like banks and small and medium sized enterprises like Jonathan’s.
What in the world does that mean? Let’s go back to the Jonathan example:
In order for Jonathan to fulfill more orders, he sells his outstanding invoices to traditional fiat investors. Investors then give him the money he needs which will be paid back when the invoices are due.
However, since his credibility is not good enough to obtain favorable financing rates, our platform allows token holders to deposit their crypto assets as additional collateral to provide credit enhancement and act as guarantors to take the first loss in a default. The crypto collaterals required will be only a low percentage of the face value of his invoice. And these token holders could be anywhere in the world. In return, a large portion of the interest payment will be allocated to these crypto guarantors.
To smooth the risks for investors and guarantors, Versara Trade first pools a large number of invoices together, not only from Jonathan’s set of invoices but also from many other businesses with similar risk profiles. Then combined with crypto credit enhancement, the risk the fiat investors take on is significantly reduced, thus all these traditionally unfavorable deals now can be closed altogether easily with much better terms.
In addition, crypto-guarantors, by taking a higher risk as the first line defense, could get up to 20–30% adjusted returns on their collateral, which is probably on the upper echelon of returns rates their cryptos can get on the market. Traditional fiat lenders can get 6–8% return with very low risk, which will be very attractive to hedge funds or even banks.
Note that invoice financing is just one method of trade finance. Versara Trade is just beginning to dip its toes into this wide ocean. Our platform can easily be extended to higher-risk business like purchase order finance, or assets other than invoices. It can also go down the supply chain to finance 2nd level suppliers, 3rd level suppliers. Meanwhile, the fiat lenders don’t have to be institutions, they could also be individuals. The boundaries are unlimited.
Under our innovative business model, our open-source blockchain technology will keep both workflows and capital flows at the invoice level transparent to users, investors, auditors, and regulators, thus giving unprecedented confidence to all parties involved. Furthermore, we’ll make sure no unauthorized party can link an invoice to the real identity of its originating parties or any product or price information inside it.
We can’t wait to see where and how far Versara Trade takes its borrowers, lenders and guarantors. Follow us on any of the social media links on this page to join us for this exciting ride!