How it Works

Rundown of how Tradable works on-chain

Tradable is an application that allows institutions to compliantly list and manage yield generating assets and strategies built on top of zkSync Era.

Tradable deal lifecycle

Tradable deals typically follow a common lifecycle from initial deal listing to final principal repayment.

Deal listing & smart contract creation

Select institutions, called originators, can self-publish new investment opportunities on the Tradable application, detailing information about the deal, its investment terms and capital requirements.

When the deal is listed on the Tradable application, it is immediately made accessible / investible to permissioned investor types and an ERC-20 smart contract is spun up to represent the deal on-chain. Originators are able to configure compliance requirements on the deal's smart contract that define what investor types are able to access and invest in the deal. Tokens cannot be transferred to addresses that do not meet the deal's minimum compliance requirements (e.g., country, investor type. AML risk threshold).

In addition, select, anonymized information about the deal will be attached to the deal’s equivalent smart contract as metadata readable on IPFS. In private credit deals, for example, this information will include things like minimum cash interest rate, maturity date, and anonymized deal descriptions.

Investment process

After reviewing information about the deal, investors are able to make an offer to receive allocation in the deal. After the investment offer is made, the deal's originator will review the offer and either accept, reject or modify it. Upon offer approval, investors will be asked to finalize their commitment to legally to invest in the deal and sign the deal’s subscription agreement.

Funding & deal token minting

When making an offer, investors define how they would like to send or receive deal-related funds. Investors that would like to fund via wallet will be asked to pre-fund their commitment to the deal alongside their investment offer with USDC.

Investors that would like to fund via wire / bank account will be asked to fund their commitment post-finalization and are able to allocate their commitment across their different fund entities (when applicable). Depending on the deal, originators can request funds from committed investors either over time (drawdown) or immediately after an investor finalizes their commitment to the deal (rolling).

Once a deal has closed and the originator has confirmed receipt of an investor’s funds, deal tokens that represent ownership stakes will be minted and distributed to the investors’ preferred address. The transaction will fail if there’s been an event that has deemed the investor’s wallet “risky” to transact with, such as failing an OFAC screening.

Interest distributions

Depending on the deal type and terms, investors may be eligible to receive interest payments over the duration of a deal.

The amount of interest an on-chain investor is entitled to receive is determined by the deal's smart contract, which calculates how long an investor has owned an asset. If deal ownership has been transferred between two investors during any given period, both investors will have rights to receive interest payouts for the period of time that they had ownership of the deal.

For crypto-native investors, originators send USDC to the deal smart contract and interest will be programmatically allocated pro-rata relative to how long and what percentage an investor owned in the deal. For off-chain investors, originators wire funds directly to the investor's preferred bank account(s) and amounts are determined by the firm's fund admin software.

Principal repayments & token burn

As a deal approaches maturity and begins to wind down, originators will start repaying deal investors.

For crypto-native investors, originators send USDC to a deal smart contract which disburses funds to deal investors. For off-chain investors, originators wire funds directly to the investor's preferred bank account(s).

Upon the investor's receipt of funds, deal tokens will be burned and removed from circulation in such a manner where if only 10% of a deal is being paid back, only 10% of an investor's deal tokens will be burned and removed from circulation. Once a deal's principal has been fully repaid, all deal tokens will be burned and removed from circulation.

Redemptions

Depending on the deal and the availability of liquidity, investors may be able to redeem their funded ownership prior to maturity.

To initiate the redemption process, deal investors can request a redemption from the originator, which may be approved or denied. When a redemption request has been approved by the originator, the investor's deal tokens will be locked while awaiting redemption proceeds.

The originator, as a USDC liquidity provider, can deposit / remove liquidity from the deal pool at any time for the purpose of providing redemption liquidity. Assuming availability of USDC liquidity and the redemption request is accepted by the originator, the deal investor can redeem their deal tokens at par value. When deal tokens are deposited by such a redeeming investor, USDC will be exchanged for the investor's deal tokens and deal ownership will be transferred back to the originator.

In certain open-ended deals, the originator can purchase back deal tokens from investors and remove those tokens from circulation via token burn.

Secondary market (coming soon)

To enhance liquidity and facilitate investor flexibility, Tradable will offer access to secondary trading venues where investors can buy / sell their funded ownership in a deal. To prepare for this future feature, Tradable deal tokens have been embedded with transfer requirements to ensure that only permissioned investor types are able to receive deal tokens. Since deal tokens are ERC-20, Tradable tokens will be interoperable with external protocols as long as deal specified compliance requirements are met.