3.2 Protocol mechanics
On-chain CDOs & real-world origination
Last updated
On-chain CDOs & real-world origination
Last updated
The $BRICS token is a synthetic CDO backed by sovereign bonds (up to $500 million). It's an SPL token offering holders:
Pro-rata shares of protocol profits (crypto-native value accrual); and
Proportionate governance rights to participate in protocol decision-making.
Below are the key mechanics:
Direct Mint
Investors from permitted jurisdictions can deposit SOL or USDC into the “super senior” tranche through authorised exchanges.
In return, they receive proportional amounts of $BRICS.
Leverage with Capped Downside
The protocol achieves capital efficiency by leveraging each $1 investment in $BRICS to unlock up to $50 in bank credit origination — though it is worth noting that the size of the multiplier is driven by the extent of arbitrage enabled by the underlying risk at any given moment. The lower the predicted portfolio risk, the smaller the tranche (attachment and detachment points); which in turn increases the arbitrage effect.
This leverage is enabled by a Credit Default Swap facility that is fully funded by Underwriters, the "OM Facility". This initial CDS unlocks the full notional at originating banks in spite of token demand.
Moreover, investor deposits remain on-chain and $BRICS may be sold at will in free markets. This is because funds secured from the sale of $BRICS merely over-collateralize the sovereign note and trigger the Credit Default Swap. No off-ramping of investor funds is required as the sovereign facility and "mark to market" account are already locally domiciled. No “true sale” is required. This is unlike typical PayFi protocols, a la GoldFinch.
Token Mechanics
As seen in Figure 3, cumulative CDS spreads directly drive the $BRICS token value upward by means of token buy-backs and burning.
Participating banks on-ramp these spreads directly onto the protocol, or utilize US-based correspondent accounts to credit the relevant Circle addresses.
The protocol may also reward holders with air-drops drawn from Reserves
Bootstrapping market power
Underwriters ('the OM Facility') contractually forgo fees for 5 years in favour of Protocol re-investment. The result is that the Reserve self-collateralizes within 14-24 months, bootstrapping its capital multiplier (and governance power) over time. $BRICS holders benefit as the reserve amplifies its notional unlock dynamically.
Buy-backs, burning and air drops
If coverage tests are satisfied, the protocol may engage in activities that reward token holders. These are in the form of token burning, buy-backs and air-drops to the community as profit milestones are reached. In such cases the $BRICS exchange rate is calculated as: (Reserve’s Net Asset Value - 0.5% withdrawal fee)/Tokens in Circulation.