Circle Factor

Especially after COVID-19, contractionary monetary policies have increased the cash flow problems of SMEs. Their decreased liquidity disables most of the SMEs to sustain their operations, invest, and expand. To decrease their burden, invoice financing and other various credit methods have been highly popular for the past few years. However, these centralized and inefficient ways of traditional finance couldn't find a sustainable solution regarding the low cash flow of smes.

At this point, Circle Factor proposes a model of decentralized invoice financing to enhance the cash flow of smes by tokenizing their invoices and connecting them with investors. Sme's enter Circle Factor by setting up their user-controlled wallets and start by minting their invoice NFTs, carrying the metadata of invoice value, due date, and credit score for now. Thanks to the SCA functionality of Circle's user-controlled wallets, SMEs benefit from the Gas Station policy in Circle and are not concerned about gas prices while minting their Invoice.

The credit scores in these invoices are verified from off-chain KYC and protected with a Special Purpose Vehicle (SPV), which is an independent legal entity. Credit scores are taken from PAYDEX scores of SMEs, giving them ratings of A, B, and C accordingly.

After the creation of NFT Invoices, Circle Factor creates NFT liquidity pools, acting just like CDOs in traditional finance. These NFT liquidity pools can be seen as Tranches, which have 3 types via credit scores (A,B, and C). Different average Tranche rates create different interest rates and default risks.

The investors in Circle Factor have the opportunity to invest in these tranches and earn APY as the invoices are collected. The investment process starts with supplying liquidity to tranches in return for a share, which will be stored as kUSDCs, and these kUSDCs will be burned and enable the collection of revenue when maturity comes.

Circle Factor enables SMEs to get instant return after minting the invoice NFT with a discount that changes according to credit scores. The revenue that comes from the discounted buying price of these invoices is distributed to investors, liquidity providers, and protocol.

The project has smart contracts of Tokenized Invoice's, Tranche's, and kUSDC. Circle's user controlled wallet is being used in the project in order to benefit from the features of Gas Station and easier on-boarding. In the future, these wallets can be implemented to automate payments as well. Using Circle SDK, functions in the original contracts are planned to be executed by Smart Contract Platform of Circle.