How it works

Sivo DeFi is designed to fund credit that originators deliver through various products, including cards, lines of credit, and cash advances. Repayment is facilitated through deductions from the borrower's revenue, rerouted via a protocol-provided bank account or wallet, with payments automatically applied to the outstanding balance.

Below is an overview of how the model operates, from loan origination to final outcome.

Onboarding: Originators sign up and are asked a series of questions by the protocol’s conversational AI ("Poe") to provide detailed information about their credit product, including their target borrowers. This process establishes a credit box, which sets the underwriting guidelines for the originator and the approval parameters for receivables purchased by capital pools.

Origination: Originators are responsible for acquiring and pre-qualifying borrowers. Upon the purchase of receivables by the capital pool, originators receive funds immediately. While the loan is active and in good standing, originators are incentivized to maintain a relationship with the borrower and provide support on behalf of the protocol, helping to resolve any issues.

Underwriting: Receivables are submitted by originators via API to the protocol for purchase. This process ensures compliance with the credit box, as well as verification and fraud checks. The protocol then either accepts, conditionally approves, or rejects the transaction based on these criteria.

Receivables: Upon approval, the receivable is purchased by a capital pool connected to the portfolio at a discounted face value of the future revenue being exchanged. The discount accounts for upfront withholdings for interest, fees, and risk mitigation, which include collateral and, in some cases, currency hedging.

Collateral: Collateral consists of cash, the receivable, and the protocol's governance token, which is locked as tokenized collateral equivalent to the future revenue exchanged, until the loan is repaid or closed. The cash collateral, typically in the form of USDC, provides liquidity to decentralized exchange (DEX) pools, facilitating market-driven pricing for the tokenized collateral.

Disbursement: The net proceeds, including the borrower’s funds, are disbursed to the originator. This amount includes capital allocated for marketing, which the originator uses to drive consumer traffic to the borrower. Increased traffic boosts revenue, accelerates loan repayment, and pre-qualifies the borrower for additional credit.

Servicing: As a condition of the loan, the borrower must reroute revenue—such as payment processor payouts—to a protocol-provided wallet or account. Funds are automatically deducted and applied to principal before being forwarded to the borrower. With real-time payment systems like FedNow, SEPA, and SPEI, this process incurs only a brief delay of a few minutes before the borrower receives their remaining funds.

Delinquency: If issues such as delayed payments arise, the protocol promptly notifies the originator. The originator is incentivized to intervene swiftly, as they continue to earn performance fees as long as the loan remains in good standing.

Default: Losses are managed at the loan level for more precise risk management than at the portfolio level. In the event of a default—typically after 90 days of delinquency—the originator can cover the loss to maintain their credit rating assigned by the protocol. If not, the waterfall mechanism is triggered, prioritizing payments to senior, mezzanine, and junior tranches, with any remaining losses covered by collateral.

Capital Pools: The cost of capital is agreed upon with the primary capital provider, typically an institution representing the senior tranche. For junior and mezzanine tranches, the protocol uses a dynamic interest rate model with a "kink" point, where rates rise sharply beyond a threshold to maintain liquidity. The rate is anchored by a floor that reflects the institution’s cost of capital but is designed to provide a higher return for junior tranches, reflecting the increased risk.

Unlike Compound, where interest accrues only upon interaction, Sivo DeFi compounds interest continuously. Capital providers also earn an arrangement fee for each loan acquired by the pool, which is automatically added to their balance. They receive sTokens representing their share of loan portfolios, which can be bundled and sold as high-yield, asset-backed securities.