Deals

Deal structure:

Borrower Pool:

A Borrower Pool is the smart contract through which Borrowers borrow and repay capital. Any Borrower can create a Borrower Pool and define the terms they want:

• Interest Rate: Fixed interest rate APR, e.g. 15%.

• Limit: Total capital that can be borrowed, e.g. $1M.

• Payment Period: Frequency of interest payments, e.g. every 30 days.

• Term: When the full principal is due, e.g. 365 days.

• Late Fee: Additional interest owed when payments are late, e.g. 5%.

Junior and Senior Tranches:

A deal is split up into tranches, creating investment opportunities for investors with different risk/return profiles. Most often a senior/junior tranche setup is used. In this setup, the senior tranche has the lowest risk, with the lowest return because it is protected by more junior tranches in case of defaults. If a default happens, the junior investors will lose (part of) their invested principal and gained interest as it flows to the senior tranche.

Origination Fee:

There may be certain participants who work with Borrowers to establish terms and bring them to the protocol. To compensate them for these efforts, Borrower Pools support an origination fee that is paid to the pool's originator. The origination fee is defined as a percentage of the interest. For example, for a $1M Borrower Pool with 15% interest paid monthly and a 10% origination fee, the Borrower would pay monthly interest of $12.5K and the originator would receive a monthly fee of $1.25K. To align incentives with capital providers, the originator fee is treated as the most junior tranche, so every payment first goes toward what is owed to the senior pool and backers before it goes toward the originator fee.

Repayment schedules:

When a deal repayment hits our smart contract, it automatically calculates how much should go to every tranche’s principal and interest (based on the repayment schedule and tranche structure).

The repayment schedule defines how much interest/principal is expected per repayment period (e.g. 30 days). When a borrower does not repay on time, late fees are charged. Our technology allows arbitrary interest/principal schedules such as bullet, amortization, amortization with grace period, or any other exotic structure.

Shares transfer via AMM:

Shares of the Water Finance' products can be transferred in the secondary market, and users (both liquidity provider and backers) can transfer their shares via AMM (Automatic market maker) for liquidity needs before the maturity of the product.