For the first time, EthicHub's innovative Compensation System has been put to the test. This event took place as a loan was unpaid by one of the communities of unbanked farmers who received working capital through the crowdlending platform. As wished for, the Compensation System successfully covered the funds of the affected investors.
For the first time, EthicHub's innovative Compensation System has been put to the test. This event took place as a loan was unpaid by one of the communities of unbanked farmers who received working capital through the crowdlending platform. As wished for, the Compensation System successfully covered the funds of the affected investors.
In June 2018, when crypto enthusiasts hadn't even heard the word “Defi”, EthicHub was making P2P loans to unbanked farmers. At that stage, repayment of loans was "only" guaranteed by the circles of trust involved. Meaning that loans were made to a collective after careful selection of possible communities. These collectives were selected by the Loan Originators based on their reputation and alignment with EthicHub’s mission, vision, and values.
Thanks to our Innovative Compensation System, today, we have provided our users with liquid collateral which protects their investment in case of eventual defaults. This reinforced their trust in our lending platform.
Indeed, through our system, the trust generated by the hundreds of farmers who have complied greatly outweighs those who have not. To such a degree, the unpaid loans do not affect the great good and work produced by our growing community of benefited producers. As of now, we already exceeded one million dollars in loans sent to more than 300 farmers. This success allows us to widely cover 1% of defaults by liquidating the corresponding amount of Ethix in the crypto market.
The Loan Originator:
The Loan Originator (also known as the Local Node) acts as a recruiter of farmers, a projects’ curator for the collaborative lending platform of EthicHub, and as a provider of services and/or inputs for farmers. Having said this, one can understand the instrumental part of our sustainable supply chain.
As you can imagine, crucial responsibilities are placed on their shoulders. They have to provide agricultural projects to the platform so that lenders can invest with the confidence and certainty of recovering the investment plus the interes
ts agreed upon in the Smart Contract of each respective project. In general, most agricultural projects request financing for the following steps: production, export, and commercialization. And as a rule of thumb, the Loan Originator’s main responsibility is that these projects are reliable and directly benefit the farmers who subscribe to them.
In short, through the help of the Loan Originator, small farmers are able to get access to loans easier and the investors who support those farmers financially become more secure through the use of our ecosystem.
To understand our ecosystem, it is essential to highlight the value of each link of our sustainable supply chain. The Loan Originator cannot only be an intermediary of financial services, it also has to be a provider of services that adds value to the chain (manufacturing, supply of supplies, technical advice, logistics) while keeping in mind EthicHub’s standards.
Now, as the Loan Originator, their activity earns them an intermediation margin on the money received through the loan platform. The terms of this margin are established through the use of variables according to the respective sector and country. Additionally, these loans enable them to cater for additional services needed to the farmers’ productive activity under conditions approved by EthicHub.
You can delve into more information about the Loan Originator in the following link and read the story of our first independent Loan Originator’s incorporation by the initial team here.
The Loan Originator must be directly involved in the correct alignment of incentives. To generate loan projects, they must deposit collateral in Ethix to cover any possible incidents of the communities they have financed.
This collateral is covered in different percentages by the three entities involved in the validation of a project. First, there is the Loan Originator him/herself, then the Auditor (for now, the only Auditor is EthicHub) who selects and validates the impact and economic capacity of the Originator, and lastly there is the group of Guarantors of the said project (aka stakers). The latter receives a reward in Ethix to encourage their participation in supporting the proposal of the Originator and its Auditor.
In this way, there are 3 Levels in the Compensation System which are used to cover eventual defaults.
Let us explain. Let's imagine the First Level deposits collateral for the loan in Ethix at the current price of 0.30$ Ethix token. Should the price of the Ethix token fall below the price of 0.30 then the default of the loan is not fully covered by the First Level anymore. In that event, the Compensation System’s Second Level would come into play. This Second Level represents 50% of Ethix’s total supply, in short, 50MM tokens. Furthermore, in the unlikely event that this reserve is not enough, then the Third Level would enter with the Ethix stake made by users in exchange for rewards (Ethix incentive).
Currently, the Compensation System more than covers the outstanding risk of the loans. That is why this non-payment has practically not affected its solvency. As of today, these are the system statistics and you can always access them at any time through the following link.
EthicHub’s Founding Team also known as the Originator “Genesis” of loans first gave funding to the Chanjalé community, Mexico. As such, the Originator Genesis had to freeze some Ethix in the system in order to face any potential defaults of the projects coming from Mexico’s Local Node. Having said this, an Ethix sale was made to obtain the dollar amount (XDAI) required to repay the loans of investors who financed this community.
The community Chanjale was part of the first projects which received funding from the platform by EthicHub’s Founding Team also known as the Originator "Genesis" of loans. All in all, thanks to our innovative system, we have less than 1% of farmers who have not complied with paying back the funds they received. The rest of them all successfully repaid their loans and for some who chose, had their coffee sold around the world.
The community that has not lived up to the trust placed in it, unfortunately, has been left out of the system. This decision stems from the fact that we believe they have not valued the opportunity they received nor our services. Whilst EthicHub would like to stay away from such outcomes, this case should act as an example to other communities that at EthicHub, we put a lot of value in the trust and respect of our policies.
Nevertheless, we trust that our Loan Originators are focused on choosing the right farmers with viable profitability conditions while minimizing risk. However, we also understand that there may be other factors that affect the ability to repay the loans and this is why we are immensely proud to see Ethix in action, fulfilling its mission. Indeed, the Ethix token was originally designed to provide security to the investors of the EthicHub impact ecosystem. To dive deeper into this topic, we invite you to read our TokenPaper where you will have a complete understanding of both the token and the loop incentives we designed.
The future looks bright and we are delighted to see this system flourish as we continue incorporating more Local Nodes (soon evolving to Originadores) in other countries. Our hopes are to achieve exponential scalability to fulfill our dream of bringing financing and opportunities to the millions of small farmers marginalized from the current financial system.
And you know what…? What brings us the most joy is that we are achieving it together; and that nothing would have been possible…. without your contributions.
EthicHub is a ReFi (Regenerative Finance) protocol that helps unbanked farmers access capital at low interest rates in a win/win model where all stakeholders benefit from the interaction. Its crowdlending platform was launched in June 2018, and to date it has brokered more than $4M in microcredits to more than 600 families in 6 countries.
