Florence Finance Medici

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Their Official site text:

The Basic

Concept

2

The Story

Of Finding,

Founding and

Funding

How about a brief

interlude on how

our brand got its

name to lighten up

on the engineering

talk? We’ll let you

in on what (or

rather: who) lead us

to our noble aim of

pioneering the

market with

something truly

new.

What most people know is that during the

Renaissance period, Florence was the hub of

immense cultural change and great innovation in Europe. And the name that immediately

pops up in that context is Medici. Over time,

the Medici family actually collected so many

prominent representatives that it’s not easy

to tell them apart. Here’s one: Giovanni de’

Medici. He opened the first of the family’s

banks more than 600 years ago.

So, we’re talking money. Handling it, saving

it, lending it. Ground-breaking innovations

such as double-entry bookkeeping or the

issuing of letters of credit were pioneered by

the Medici dynasty and are still present in

our modern financial system. Lower-classborn, they first had to make their way up the

social ladder, find the right friends and get

married strategically in order to finally become

influential beyond legendary.

Why are you reading this again?

Interestingly enough, trial and error must

have been their constant companion. And we

thought: who needs noble blood if you can

be an esteemed pioneer?

(Modesty is not our forte.) So, if we set up

a team of topic experts, smart thinkers and

diligent executives, we can contribute

our inventiveness to a growing, truly futureforward market. There had to be some

wisdom we could derive from the peculiar

kind of Medici business acumen.

Did the Medici invent the banking?

Of course not. But did they run the most

popular bank of their time? Most definitely.

Bottom-line? The Medici pioneered in

rewriting the rules – and we’re here to do the

same.

With brave new endeavours, it always comes down to the essentials.

Drive. Leadership. Goals. And the necessary proof to know you’re on the right track.

“Italians were eating with a knife and fork when the French were still eating each other. The Medici

family had to bring their Tuscan cooks up there so they could make something edible.”

– Mario Batali

Just like it has always been a driving force, innovation is imperative

to our business:

“Almost a decade after Lehman Brothers collapsed

and the financial crisis took hold, small firms are

still struggling to access credit in many industrialised countries. Business surveys repeatedly point

to relatively high bank loan rejection rates for

SMEs, as well as financing shortfalls for those small

firms whose applications are accepted. Lending

data and credit condition surveys suggest banks

have treated larger corporate customers more

 favourably in the volumes they lend, and the

terms and conditions they impose, since 2007/08.

However, technology and other factors have

triggered growth in a number of other providers

of credit, offering small businesses an alternative

to their traditional dependence on bank loans.”

(Oxford Economics, 2018)

SME Lending:

The “Real Deal”

3

4

Here come some exciting facts that will

help you wrap your head around the

immense potential there actually is in

DeFi. Right now, it’s going through the

proverbial roof.

The amount currently locked in DeFi has grown

to a 3-digit billion Dollar amount over the last few

years. This amount is called TVL, total value

locked. The sheer incredibility of this fact can

only be displayed by drawing a comparison: in

early 2020 there was “merely” one digit in its place.

This rapid growth is likely attributed to the high

DeFi returns on offer. Over the past year, we’ve

witnessed yields ranging anywhere from less than

5% to more than 2,500%.

Such yields are of course highly dependent on positive

momentum within the cryptocurrency market,

intelligent yield-farming strategies and a pretty

large appetite for risk. Therefore, they are unlikely

to be sustained indefinitely. But that’s a different

story.

A lot of the DeFi borrowing to date was geared at

increasing leverage to fuel the trading in cryptocurrencies even further. At first, the value of loans

actually being used to fund transactions outside

of the cryptocurrency space was estimated to be

relatively insignificant. That however, is “so last

year” – due to the advent of stablecoins. They’ve

become real game-changer as they’re being used

increasingly for real-world transactions.

Currently, the market is registering a significant

decrease in lending rates. Annual Percentage

Yields (APYs) tend to fall, too, whenever the

cryptocurrency market turns bearish.

The State of

Things

$300 b

$200 b

$100 b

$0 b

1 Jan 2019 1 Jan 2020 1 Jan 2021 1 Jan 2022

DeFi has grown from nearly zero

to over $100 billion in less than two years.

Total Value

Locked (TVL)

in DeFi

©2022 Andreessen Horowitz. All rights reserved worldwirde.

Source: DeFi Llama data is as of 05/12/2022

5

How about an easier, ready-made liquidity transformation between crypto and real-world loans?

Wouldn’t this be attractive to crypto holders –

having real-world yields brought to them?

We think it’s a viable incentive to either hold on or

switch to crypto altogether. Diversifying away

from crypto-specific risk and market volatility,

and towards more stable yield potential.

Our protocol creates an opportunity for lenders

and borrowers to engage with one another in a

way that’s mutually beneficial. In terms of concerns and goals, lenders seek to earn yield on the

capital they’ve invested. Borrowers, on the other

hand, want to receive funding for their enterprise.

So far so good. In order to get said funding from

the protocol, however, a borrower needs to submit a credit proposal which includes information

about the type of credit, collateralisation, yield,

intended purpose and other relevant information.

In other words: we need to know the whys, hows

and whats.

And after the credit proposal is submitted, it will

be evaluated and voted on by the governance of

the protocol. If all goes well, the credit proposal

will be turned into a loan or an entire lending

pool.

The Protocol:

Transparent by

Design

6

But what is a lending pool?

A lending pool is essentially an on-chain

manifestation of a credit agreement. The

lending pool’s parameters have been derived

directly from the credit agreement.

Like this, the borrower is able to mint lendingpool tokens within that pool’s particular rule

set. Those tokens are actually pretty special:

each lending pool has its own unique lendingpool token. Besides, with it come its specific

means of exchange. The next step consists of

either selling, buying or holding.

How do I get there?

And what’s in it for me?

First off, here’s how the selling part works:

In order to receive the desired funding, the

borrower has to sell the lending-pool tokens

to what would be (whitelisted) lenders. Ergo,

the buying part works the other way around:

A lender who wants to be part of a particular

lending pool must buy the designated tokens.

And here comes the result: By holding and

staking pool tokens, you can build up rewards

for yourself. And of course, you can go and

claim those rewards from the corresponding

staking pool.

Now, here’s a little extra – the Florence protocol distributes two kinds of rewards:

the first kind is based on the real-world yield

(yes, the amount generated by the borrower)

and is paid out in EURS. The second kind

is an additional option which we’ve come

up with and it’s contributed by the protocol

itself. Give it up for the MDC, our very own

Medici token!

Did you know

that the Medici

arranged for people

who contributed to

building St. Peter’s

Basilica to be

absolved of their

sins in exchange

for money. Sounds

quite like our

rewards, right?

7

The lending-pool tokens are justifiably

the centrepiece of the Florence protocol.

Lending, borrowing, principal repayment

and reward distribution are all taken

care of through the exchange or holding

of lending pool tokens.

The most important factor here is transparency:

lending-pool tokens are traded against EURS in a

normal “order book”. This has one major advantage:

lenders and borrowers can follow and react to each

other’s funding needs and capabilities transparently.

To understand our approach better, the following

FAQ cases have to be considered:

• If you want to enter a lending pool, you have

to exchange EURS for lending-pool tokens.

• If you want to increase your existing position

in a lending pool, you also exchange EURS for

tokens. Decreasing your position, by the way,

works exactly the same, only you exchange

tokens for EURS.

• Whenever you want to opt out, you swap

lending-pool tokens for EURS, too.

• If you are a borrower and want to borrow

funds, however, you need to sell lending-pool

tokens. In order to be able to do that, you

mint them from the lending pool first – for

EURS. Those EURS you can use to fund your

enterprise.

• If you have received funding and want to start

paying back the amount you borrowed, just buy

lending-pool tokens with EURS.

To sum up, tokens are basically like a

gateway between real-world and crypto

entities.

Another important rule: real-world loans are illiquid

(not readily available). A lender can’t prematurely

exit a lending pool – unless there is another

lender willing to take their position and buy their

lending-pool tokens from them. Of course, our

concept seeks to provide as much flexibility as

possible to lenders. This is where the MDC token

comes into play.

No hands-on liquidity, no working system.

That’s a fact. Hence, in order to keep the show on

the road, our protocol incentivises the provision

of EURS liquidity – the incentive being the MDC

token. But how do we avoid excess liquidity?

Here comes a part of the system that’s as vital as

it’s clever: the amount of EURS liquidity is limited.

In other words, the value of MDC is directly

coupled to the protocol’s success and growth.

Our idea comes down to one specific mechanism:

the more value is being lent through the protocol,

the more buy pressure there will be for MDC on

the open market. The supply of MDC is capped

from the get-go – the growth of our protocol is

not. Bottom line: The limit is set by our ambition

only.

The Heart of

Florence

11

The protocol – the way it is set up right

now – is merely the first step and can

virtually be expanded in any direction.

Possible changes depend on factors

such as the regulatory climate in the

EU, the overall adoption of blockchain

technology or a fluctuation of our available resources. In terms of expansion,

we’ve been thinking about the following

possible future scenarios. We’re listing

the points considered according to their

feasibility from medium- to long-term

approaches.

Governance

First off, MDC token holders will be able to vote

on governance proposals and also make their

own. But what does governance mean in a DeFi

context? As any and all transactions are recorded

on the blockchain, they’re shared with all of the

participants. Decentralisation is key here because

each user is allowed to vote on the proposed

change and can read about or discuss its benefits

and drawbacks. The governance is decentralised

because it always relies on the community for

collective decision-making and an extraordinarily

quick turnaround time (compared to TradFi or

any operations in the “traditional” sense) when

changes are supposed to happen.

Our seamless protocol integration

We think that in the way we want to work and

succeed, it’s key to maximise the transparency

between lenders and borrowers. So, in order to

do so, the protocol needs to be extended in a way

that allows borrowers to automatically publish

information that concerns their collateral.

Our legal structure

Sounds like a major step – but what is a DAO

anyway? It may sound like a term from 1992’s

Mortal Kombat, but it’s actually just short for

“Decentralised Autonomous Organisation”, which

basically means a software that runs on-chain

and offers its users a built-in model for the collective management of its code. It mainly differs

from TradFi structures in that it isn’t managed by

boards, committees or executives.

With our protocol, we want to straddle DeFi and

real-world asset financing – that’s a given. But

it’s unclear whether a DAO metamorphosis will

ultimately serve our purpose in the best way. Our

main argument regarding the decentralisation

and democratisation of finance is to make it less

fragile. So, being able to structure the entity as a

DAO in the future would be a most pragmatic and

transparent step. While we’re still in the process

of growing and establishing the company, it

would serve as the most beneficial legal structure

and regulatory framework for us.

Our international expansion

We started in north-western Europe as it’s the

established play area of most founding-team

members. We’re also most comfortable with the

regulatory framework there. However, we see no

inherent reason to limit ourselves to the European

Union going forward: our geographic expansion

into international regions and jurisdictions may

well be an important driver of growth in the future.

The Future

12

Our own EUR-denominated stablecoin

USD stablecoins have been really successful over

the past years. Be that as it may, their European

counterparts – various EUR-denominated stablecoins – have neither been as prevalent nor as

successful regarding the markets. We believe that

there’s a number of factors to the why. The ruling

negative-interest-rate environment seems to be

the most dominant argument while there are

regulatory and jurisdictional hurdles, too.

In order to tackle the issue of negative sovereign

rates, we would have to build a lending business

to issue a EUR-denominated stablecoin. And this

is exactly what we’re aiming at: issuing a Florence

Finance stablecoin through becoming a lending

business ourselves. While there’s plenty of competition, there’s also plenty of room in the European market for new players.

Our DeFi ecosystem integration

Innovation-driven intentions and future-forward

theories should always have their place. And so,

composability is an approach we strongly believe in

at Florence Finance. After its launch, our protocol is

open to integration into existing spheres. We’re

exploring potential alliances with established

 projects such as MakerDAO, Compound or AAVE.

Cutting up the pie would be even more fun,

wouldn’t it?

Besides, it also leads to an increase in diversity, so

here’s what we’re going for:

• Lending-pool tokens: We’d like to see them

available on secondary markets or with

aggregators.

• Other protocols: If fellow protocols started

accepting our lending-pool tokens as collateral, it would mean the proverbial giant leap

for us. If other protocols integrated access

to our lending pools in order to network

efficiently, we’d grow much faster. In turn,

Florence Finance could start setting up the

necessary facilities to accept currencies from

other protocols.