Terms & Definitions
Promissory Note: A peer-to-peer contract between a Capital Borrower and a Note Originator that sets terms by which the Capital Borrower is able to use capital from the Note Originator over the Note Duration. The Promissory Note is itself represented as another NFT.
Example: Alice owns a CryptoPunk. Bob owns 30 ETH. Alice and Bob both sign a Promissory Note that gives Bob's 30 ETH to Alice for a period of 90 days, while simultaneously locking Alice's CryptoPunk into an escrow contract. If, after the 90 day period, Alice does not return Bob's 30 ETH (Principal) plus 1 ETH additional (Interest), Alice's CryptoPunk will be released into Bob's ownership.
Peer-to-Peer Promissory Note Marketplace (P2P Marketplace): A protocol that offers the infrastructure required for Note Originators and Capital Borrowers to create Promissory Notes.
Note Originator: A market participant that provides capital in return for a Promissory Note that gives rights to either escrowed collateral or principal plus interest upon Maturity of the Promissory Note. In the above example, Bob is a Note Originator.
Noteholder: Any market participant that holds the Promissory Note. Does not need to be the Note Originator.
Capital Borrower: A market participant that owns an NFT and agrees to contribute this Collateral into escrow in order to access capital (over a preset period of time) provided by a Note Originator. Upon maturity of the Promissory Note, the Capital Borrower must either return the Principal plus Interest, or the escrowed Collateral will pass to the ownership of the Noteholder.
Collateral: The asset that the Capital Borrower is putting into escrow in order to access capital from the Note Originator.
Note Duration: The length (in days) of the agreement represented by the Promissory Note.
Maturity: The date upon which the Promissory Note has expired.
Principal: The amount of capital provided to the Capital Borrower from the Note Originator.
Interest: The amount of capital (in excess of the Principal) paid to the Note Originator by the Capital Borrower upon Maturity.
Annualized Percentage Rate (APR): The implied interest rate of the Promissory Note, calculated as (Interest / Principal) * (365 / Note Duration).
Default: A scenario in which, upon Maturity, the Capital Borrower chooses not to pay the Noteholder the Principal plus Interest owed, causing the Collateral to be released to the Noteholder.
Loss Given Default: A scenario in which, upon Default, the Collateral is sold for an amount less than to the Principal plus Interest owed.
Profit Given Default: A scenario in which, upon Default, the Collateral is sold for an amount great than the Principal plus Interest owed.
Capital Vault: A pool of capital (initially, limited to DAI and WETH) that is used to acquire Promissory Notes of previously approved NFT types. The Capital Vault provides automatic prices for Promissory Notes based on the characteristics of both the note and the vault at the time. Any Noteholder can choose to sell their note into the Capital Vault at any point prior to Maturity.
Capital Depositor: Any market participant that deposits capital into the Capital Vault. The Capital Depositor can choose to deposit their capital into either the Senior Position, the Junior Position, or some combination of both.
Senior Position: A position within the Capital Vault that earns a fixed interest rate and benefits from seniority to the Junior Position. In the event of a Loss Given Default, the Junior Position will bear a loss of up to 100% before the Senior Position is impaired. For this reason, the Senior Position is viewed as a lower risk alternative to the Junior Position.
Junior Position: A position within the Capital Vault that earns all interest generated in excess of the Senior Position's fixed interest rate. In the event of a Loss Given Default, the Junior Position will bear a loss of up to 100% before the Senior Position is impaired. For this reason, the Junior Position is viewed as a higher risk alternative to the Junior Position.
Vault Governor: A market participant that acts on behalf of the vault to allocate capital across different NFT types as well as takes on other operational requirements on behalf of the Capital Depositor, earning a share of the interest earned from the Vault in the process. NOTE: THIS PARTICIPANT IS CURRENTLY PRIVATELY MANAGED BY METASTREET DAO, BUT WILL BE PUBLICLY DECENTRALIZED IN THE FUTURE.
Last modified 6mo ago