3.4 How ChinaAI makes money
Swap Premiums and Sovereign Yield
Last updated
Swap Premiums and Sovereign Yield
Last updated
The diagram above illustrates how money flows into the protocol. Revenue is generated through a monthly coupon paid by affiliate banks to protection sellers. Investors receive returns funded by the CDS premium payments from the banks. The premium can surge between 0.3% to 3%, depending on USD demand and risk parameters. If no credit events (defaults) occur, all investors profit from CDS premiums. If defaults occur, investors may lose principal if the sovereign protection simultaneously fails. Thus banks reduce their credit risk while investors seeking high-yield products can take on that risk.
Amplifying Returns
Protocol ROI is amplified by the regulatory leverage provided by the super senior tranche, which sits atop a fully funded repo structure that unlocks fiat capital at originating banks (without actually selling the loan asset to investors).
Business Model Mechanics
For a detailed view of the Operating Income mechanics, refer to our documentation. Please note however that the model focuses on only one form of bank-intermediate credit: trade receivables. Upside is capped by 'market opportunity', specifically the regional demand for incremental bank-intermediated trade finance in Southern Africa is identified as a beachhead. This limited geographical and product scope allows us to focus on core drivers of profits. Nevertheless ChinaAI is perfectly scalable across BRICS as a compliant FSP backed by a sovereign facility within BRICS.
