FC Newsletter #1 - November 2023

Recent trends in early-stage Web3 investing

Introducing the Fight Club Newsletter

Welcome to the inaugural Fight Club newsletter, where we will be shining a spotlight on community-vetted Web3 projects. Each issue will delve into a specific theme or trend within early-stage Web3 investing and showcase a standout project that exemplifies that genre.

Theme: Real World Assets (RWA)

While real-world assets (RWAs) on the blockchain aren't a novel concept, the surge in interest rates has amplified enthusiasm for bringing U.S. Treasury assets and private credit onto the blockchain. RWA.xyz data reveals that there are currently $571 million in outstanding private credit loans and $780 million in U.S. treasuries on the blockchain. The average yield-to-maturity (YTM) for tokenized treasuries stands at 5.2%, while the average annual percentage yield (APY) for tokenized private credit investments is 9.4%.

Driving Forces

Several key trends are propelling the growth of RWAs in Web3 are:

• Fractionalization: Tokenization enables RWAs to be fractionalized, making them accessible to a broader range of investors with smaller capital commitments.

• Enhanced Liquidity: Tokenization facilitates the buying and selling of RWAs on the blockchain, resulting in faster settlement and increased liquidity.

• Expanded Investment Opportunities: RWAs that were previously illiquid and confined to specific geographical markets are now within reach of a global pool of investors.

• Programmability: RWAs can be seamlessly integrated into smart contracts, paving the way for automated trading strategies and improved liquidity management.

US Treasuries

Tokenizing U.S. Treasury securities unlocks fractional ownership, global accessibility, and 24/7 trading. Prominent financial institutions like Franklin Templeton, State Street Digital, BNY Mellon, and Fidelity Digital Assets are providing digital asset custody and settlement services for tokenized U.S. Treasuries.

RWA.xyz November 27, 2023

Private Credit

Consumer loans ($195 million), auto loans ($184 million), and fintech loans ($105 million) dominate the private credit landscape. Carbon, real estate, and crypto trading loans each account for less than $40 million in loan volume.

RWA.xyz November 27, 2023

Spotlight Project: Zoth Finance

Summary

Zoth Finance is a cross-border trade finance platform that leverages stablecoin infrastructure to solve challenges faced by lenders and borrowers in cross-border trade. Their first product is a credit marketplace that allows lenders to access short-term receivable financing and businesses to obtain short-term credit using crypto or fiat. Lenders can access high-quality companies and have end-to-end transparency, while borrowers get access to loans 3x faster at a significantly lower cost of capital than in their local markets.

Zoth is targeting invoice factoring, asset leasing, and trade financing loans. Assets are sourced from 1) fintech lending companies, 2) neo banks, and 3) global trade financing/invoice funding from emerging market countries - India, Singapore, Vietnam, Malaysia, the Philippines, and Thailand.

Advantages

Zoth has several advantages over traditional cross-border trade finance platforms:

• Stablecoin infrastructure: Zoth uses stablecoins to facilitate transactions, which reduces the risk of currency fluctuations.

• End-to-end transparency: Zoth provides lenders with real-time visibility into the status of their loans.

• Strong risk management: Zoth uses a variety of risk management tools to protect lenders from default.

• Access to emerging markets: Zoth focuses on emerging markets, where there is a high demand for trade finance.

Problems / Solutions

Zoth addresses the following problems faced by lenders and borrowers in cross-border trade:

• Lack of financial payment rails: Zoth uses stablecoins to facilitate transactions, which eliminates the need for intermediaries and reduces transaction costs.

• Transparency issues tracking and validating receivables and assets: Zoth provides lenders with real-time visibility into the status of their loans.

• High transaction costs and fees: Zoth uses stablecoins to facilitate transactions, which reduces the risk of currency fluctuations.

• Loan approvals can take several months: Zoth uses a streamlined process to approve loans, which can be completed in as little as 24 hours.

• Funds for invoice payments include several months of runway leading to accrual of account receivables: Zoth provides borrowers with access to short-term credit, which can help them manage their cash flow more effectively.

• Cross-border trade finance is a complex process requiring significant document processing: Zoth uses blockchain technology to automate the document processing process, which can save borrowers and lenders time and money.

Business Model

Zoth's business model is based on taking a spread between the borrowing and lending markets. For directly sourced loans, Zoth receives 33% of the invoice yield. For third-party-originated loans, Zoth receives 20% of the invoice yield. For each loan, regardless of source, Zoth pays for 1) an insurance fee, ~ 0.8% of invoice yield, and 2) a validator fee, ~0.5% of invoice yield.

Traction

Zoth has achieved significant traction since its launch in July 2023:

• Contracted/deployed over $5.6 million in capital.

• Over $136.5 million in loan demand is in the pipeline.

• Partnerships with mid-sized factoring companies, unicorns, hedge funds, and family offices across the Middle East, Europe, and Southeast Asia.

• Partnership with Chainlink to launch the world's first End-to-End tokenization life cycle management infrastructure for cross-border trade assets.

Team

Zoth's founders, Pritam and Koushik, have built a successful fintech venture with over $300 million in AUM. Pritam has a network of over 2,500 high-net-worth individuals. The team has been working with global unicorns and mid-size factoring companies to provide capital and loans.

Action Items

• Participate in our community on Discord.

• Follow us on Twitter.

• Join our Deal channel on Telegram.

• Mint an NFT to participate in deals and FC programs.

• Subscribe to our YouTube to see project demos.