Tokenized Debt Deep Dive

Tokenized Debt is the foundational financial instrument within the BizFi protocol. This document provides an overview of its structure, lifecycle, financial logic, liquidity model, and protocol guarantees.

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Product Definition & Rationale

Tokenized Debt BizShares are standardized, short-duration debt obligations issued to fund real-world businesses. Each BizShare represents a fixed principal exposure with a predefined return schedule and stablecoin (USDC) payouts. For businesses:

• Access to working capital without equity dilution
• Repayment schedules matched to short operating cycles

For investors:

• Predictable, stablecoin-denominated returns
• Short duration and defined exit pathway

For the protocol:

• Standardized design simplifies risk management and payout operations
• Short tenors reduce uncertainty
• Embedded fees and liquidity structure support protocol sustainability

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Target Issuers and Credit Profile

Tokenized Debt is designed for micro and small businesses with recurring cash flows, typically operating in trade, retail, or service sectors. These businesses require short-term working capital and can support weekly amortized repayments. The protocol targets issuers with existing revenue activity and transaction history, but who may lack access to formal credit markets.

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Instrument Terms

Each Tokenized Debt BizShare is standardized as follows: Each BizShare represents one $100 principal unit of exposure.

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Financial Mechanics & Examples

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Total Return

Principal (P): $$P = 100$$ Quarterly Yield (r): $$r = 4\% = 0.04$$ Total Interest (I): $$I = P \times r = 100 \times 0.04 = 4$$ Total Repayment Value (V): $$V = P + I = 100 + 4 = 104$$

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Weekly Amortized Payout

$$Duration = 12 weeks$$ $$Weekly Payout = 104 / 12 = 8.66$$ Investor receives: $8.66 USDC per week for 12 weeks This payout contains both principal and interest components.

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BizSwap Early Exit Example

Assume investor exits after Week 4, having already received: $$4 \times 8.66 = 34.64$$ Calculated Refund: $$100 \text{ (Principal)} - 34.64 \text{ (Collected)} = 65.36$$ BizSwap Exit Fee (10% of P): $$100 \times 0.10 = 10$$ Investor Exit Payout: $$65.36 - 10 = 55.36$$ Total realized value: $$34.64 + 55.36 = 90.00$$ Investor exits early at a discount relative to holding to maturity.

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Token Lifecycle

1. Issuance: BizShare is minted after primary purchase, representing $100 principal exposure.
2. Active Payout Phase: Weekly USDC distributions are made to investors; token remains active.
3. Transfer Rules: Debt BizShares are non-transferable between wallets and can only be exited via BizSwap.
4. Maturity: After the 12th weekly payout, the obligation is complete and the token is marked fulfilled.
5. Burning: Matured tokens are programmatically burned or marked inactive.

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Non-Transferability Rule

Debt BizShares cannot be freely traded between users. This prevents uncontrolled secondary speculation, ensures alignment between payout schedules and liquidity pools, and simplifies compliance and payout tracking. Enforcement is implemented at the smart contract level, with BizSwap as the only exit mechanism.

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BizSwap — Liquidity-Gated Exit Mechanism

BizSwap is the protocol’s controlled exit pathway for debt BizShares. Investors do not sell to other users; instead, they return tokens to protocol liquidity pools in exchange for discounted settlement.

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Acquisition Requirement

To receive new BizShares in primary markets, capital must enter protocol liquidity pools. Every purchase contributes USDC liquidity, which backs future exit requests.

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Buyer = Liquidity Provider

When a user buys BizShares, their USDC both funds business loans and supports exit liquidity. When a user exits, BizSwap draws from pooled liquidity, creating a liquidity event funded by prior deposits.

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Exit Fee Distribution

Exit Fee: 10% of the original principal amount. Distribution:

• 20% to Liquidity Providers
• 80% to Protocol Treasury

This structure incentivizes liquidity provision and funds protocol guarantees.

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Liquidity Provider Economics

Minimum contribution: 100 USDC Liquidity providers support BizSwap exit capacity, earn a share of exit fees, and participate in pooled exposure as defined by protocol rules. Returns depend on exit activity volume.

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BizSwap Vault

The BizSwap Vault manages protocol liquidity and settlement. It receives returned BizShares, pays exit USDC, and accounts for fee splits. Vault state management is handled by protocol smart contracts.

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Protocol Guarantees on Investor Payouts

Investor weekly payouts continue even if a business defaults. The protocol treasury acts as a payment continuity backstop, ensuring scheduled investor payouts are met.

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Default Coverage Policy

If a business fails to pay, the treasury covers scheduled investor payouts. Investors continue receiving weekly USDC with no interruption to the payout schedule.

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Recovery & Subrogation

After covering payments, Bitsave pursues recovery offchain. Recovered funds replenish the treasury. Investors are insulated from enforcement complexity.

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Risk Disclosures & System Limitations

Key modeled risks include:

• Business default
• Early exits increasing liquidity pressure
• Prepayment altering cash timing
• Treasury depletion risk under extreme scenarios

Short tenors and structured fees mitigate long-duration exposure. The protocol is subject to liquidity and credit risks inherent to real-world business lending.

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Operational Summary

The protocol operates as follows:

1. Businesses are underwritten offchain and capital is deployed.
2. Weekly repayments are made to the protocol.
3. Smart contracts handle investor distributions and liquidity management.