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© 2017 LOND Company Pty Ltd, All Rights Reserved
DebtMarketDisintermediationAWhitepaperfortheLONDproject,aBlockchainandP2Psolutiontoissueandtradedebt
Roberto Papa
December 25, 2017.
L NDCOMPANY
Page 2 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
Exclusion and limitations of this Whitepaper
THIS WHITEPAPER IS NOT A PROSPECTUS
The sole purpose of this Whitepaper is to share information about an idea on how debt Markets can be
disintermediated. The concept, described as the LOND Solution and its implementation may need to
change in the future from the description provided in this whitepaper.
The information provided may not be exhaustive and does not imply any elements of a contractual
relationship or promise. The Whitepaper does not constitute an offer or invitation to any person to
subscribe for or purchase shares, rights or any other securities of LOND or any affiliated entity.
Any agreement in relation to the purchase and sale of LOND Tokens shall be governed by a separate
document setting out the terms and conditions (the “Terms and Conditions”) of such agreement, which
shall be made available at lond.company prior to the sale of any tokens. In the event of any inconsistencies
between the Terms and Conditions and this Whitepaper, the Terms and Conditions shall prevail.
All rights reserved LOND Company Pty. Ltd.
No reproduction, whole on in part without approval from LOND Company.
Page 3 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
Summary
Lending Disintermediation using Blockchain and P2P technology
Retail debts and loans made to individuals and small companies suffer from significant cost burden through
interest rate margins and fees that profit intermediaries like banks. BOND markets are dominated by over‐
the‐counter transactions which suffer lack of transparency and information. The LOND solution for Loans
and Bonds will use block chain and peer to peer technologies to create a person to person global debt
market allowing tradeable debt assets. An efficient, safe and trustworthy market place for loans and bonds
will save society hundreds of billions per annum in intermediary fees, provide true price discovery for debt
and reduce centralisation of political power in financial institutions. As transactions are done through
crypto currencies, this debt market will be global, transparent and low cost.
Page 4 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
CONTENTS
1 LENDING DISINTERMEDIATION USING BLOCKCHAIN AND P2P TECHNOLOGY ........................ 5
1.1 A Global Opportunity .................................................................................................................................. 5
1.2 Solution Overview ....................................................................................................................................... 7
1.2.1 Typical Process Flow .......................................................................................................................................... 7
1.2.2 Solution Components ........................................................................................................................................ 8
1.2.2.1 Ethereum Blockchain with Smart Contracts ............................................................................................. 9
1.2.2.2 Distributed LOND Trading Platform........................................................................................................ 10
1.2.2.3 Rich Content virtual cloud (RCVC) .......................................................................................................... 11
1.2.2.4 Facilitators .............................................................................................................................................. 11
1.2.2.5 Legal Framework .................................................................................................................................... 12
1.2.3 LOND Features and Functions ......................................................................................................................... 12
1.2.3.1 Currencies and LONDS ............................................................................................................................ 14
1.2.4 Solution Development Philosophy .................................................................................................................. 15
1.2.5 Solution Review ............................................................................................................................................... 16
1.2.5.1 Evolution of the LOND Solution .............................................................................................................. 16
1.2.5.2 Examples of LONDS in Action ................................................................................................................. 17
1.2.5.3 Future Opportunities and Options ......................................................................................................... 18
2 LOND BUSINESS MODEL ...................................................................................................... 20
3 IMPLEMENTATION AND ROADMAP..................................................................................... 22
3.1 Solution Roadmap ..................................................................................................................................... 22
3.2 Token Sales and Allocations ....................................................................................................................... 23
3.3 Use of Funds .............................................................................................................................................. 23
3.4 Issues and Challenges ................................................................................................................................ 24
4 GLOSSARY ........................................................................................................................... 27
Page 5 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
1 Lending Disintermediation using Blockchain and P2P technology
1.1 A Global Opportunity
Lending is necessary, and when undertaken authentically, good for society. It allows for financial capital to
be allocated to the need where it can be matched up to other forms of capital to fund activities undertaken
by individuals, organisations and communities.
Successful lending requires a match between capital and need, trusting the loan seeker and managing the
risk for repayment. In the current financial system, these elements are addressed by various intermediaries
such as banks, bond markets and various non‐bank lenders. The intermediaries have business models that
rely on fees, interest rate spreads and asymmetric information. In return, intermediaries provide a funding
channel and risk management. Intermediaries have been very profitable demonstrating the large value
they have been able to extract from the lenders and borrowers. Intermediaries have been able to develop
scale, market dominance and political power to avoid true price competition and maintain high
profitability.
The debt markets can be disrupted through disintermediation using decentralised technology that includes
blockchain payment, smart contracts and peer to peer data communications. This will reduce transaction
fees, empower individuals and remove interest rate spreads. This paper proposes a solution and approach
to create a crypto currency based debt origination and market named LONDS (Loans and BONDS). With
LONDS, debt is tokenised onto the blockchain and a decentralised online global marketplace is provided to
raise and trade debt.
Simple overview of how LONDS Work
Borrowers issue LONDS on a decentralised global exchange (LOND platform). Lenders are attracted to a
LOND due to its attributes such as purpose, currency, return, risk, etc. Lenders then purchase the LOND, or
part thereof, and consequently fund the borrower. LOND owners can trade their LONDs on the global
exchange to access their capital. Borrowers make repayments onto the exchange and smart contracts will
distribute the funds to the LOND holders.
The LOND fees would be for the:
‐ Borrower to pay for relevant setup services such as legal services and insurances.
‐ Users of the LOND platform to pay for trading: the buying and selling of LONDS.
Benefits for Borrowers
The main advantage for borrowers is lower costs and more flexible loan terms. Traditional borrower
options for loan products usually add 1‐5% on the cost of funds due to intermediary’s interest rate margins
plus fees. Comparatively, the target for the initial once off LOND setup fees would be 0.1‐0.5%.
Other benefits relate to broader access to funding, such as:
‐ Access to global market enabling more opportunity to match borrower and lenders.
‐ Multiple peer to peer lenders for same debt: higher chance of small loans from multiple lenders
compared large loan from one lender.
Page 6 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
‐ No counter party risk – lenders cannot call in debts that are not in default.
‐ Transparency for fees and debt pricing.
Benefits for Lenders
Lenders gain benefit through improved rates of return, pricing transparency, opportunity to support other
people directly anywhere in the world and ability to directly manage their own risk and setup their own
portfolio as it fits their circumstances.
Compared to other person to person or private lending the LOND solution allows supports lenders with the
ability to:
‐ Trade and sell LONDS,
‐ Partially fund a LOND ‐ LONDs are divisible and support multiple lenders,
‐ Focus lending on attributes (e.g. geography, purpose, collateral, ratings) to build portfolios, and
‐ Follow process for debt recourse as part of default management.
There are additional platform functions to aggregate LONDS and provide automation on LOND selection
and management.
The solution provides a standardisation for debt to support easy LOND trading and a range of other services
to manage safety and risk including real world contracts, independent review of borrower and collateral as
well as ratings using external sources and LOND market behaviour such as payment, defaults and feedback.
Benefits for Society
Annual retail lending and small commercial lending in the US (depending on specific classification and year)
is approx. $3T USD. Extending this globally, commercial lending could reasonably be estimated at $10T
USD. Assuming 2% interest rate margin1, financial institutions are annually profiting to the order of $200B
plus fees2. The LOND solution is targeting to reduce the cost of the retail debt market by 90% thereby
saving society $180B per annum of intermediary costs. This excludes losses through the various direct and
indirect costs such as government bail‐outs and bail‐ins of the larger intermediaries, which in the US alone
is in the trillions.
The LOND solution empowers the individual lender to make decisions on how, when and why to fund. This
is likely to result in funding more real‐world outcomes that will improve quality of life rather than
speculative financial instruments.
Additionally, the LOND solution allows for LONDs with negative returns allowing charities and other types
of organisations to source funding globally without requiring other types of intermediaries.
1 2% is a conservative figure – US banks had 3.1% net interest rate margin Q1 2017, Ref https://www.investopedia.com/ask/answers/061715/what‐net‐interest‐margin‐typical‐bank.asp 2 This is a conservative amount as just Bank profits are typically 1‐3% of GDP for the major economies.
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1.2 Solution Overview
The LOND solution is a combination of technology, legal framework and the facilitator network. The result
supports the tokenisation of debt to allow a range of globally accessible digital services for the creation,
trading and repayment of debt that is transparent, resilient and can, to an extent, act independently of
governments and geo politics. The ‘real‐world’ or non‐technical components are necessary to manage risk
through data verification and debt recourse and are designed to be low cost and scalable in line with
technology.
A detailed description and design of the LOND solution is beyond the scope of this whitepaper however the
process flow, high‐level architecture, major components and key functions are described in this section.
1.2.1 Typical Process Flow
The LOND solution provides a borrower a facility to issue a LOND (think BOND on the blockchain) with a
range of LOND attributes such as duration and interest rate. To support their LOND and make it more
attractive for lenders, the borrower can utilise services of facilitators (e.g. buying loan insurance) and
provide rich content related to the LOND (e.g. company profile, prospectus, picture of intended car, etc).
The borrower enters into a legally binding real‐world standard LOND contract to issue the LOND. The LOND
market would review and assess the LOND to buy it based on key attributes, borrower reputation and other
content provided by the borrower. The borrower would repay through the platform using a range of crypto
currencies. The LOND platform automatically manages the contract transactions such as adjust loan
amount, reputation, etc based on repayments and trigger default management actions.
The following diagrams summarise the actions and experiences for the borrowers, lenders and facilitators
over the life of a LOND.
Figure 1, Borrower Actions and Experience
Borrowerwants funds to…
Buy a house, car, holiday, expand business, etc
Create LOND
Defines LOND with
information
Enters LOND attributes & other content onto
platform
Requests Facilitator Support & Review
Pays for range of facilitator services as
required.
Signs Real World
Contract
Contract aligned with LOND platform and jurisdiction.
Liens, collateral and guarantees included.
Launch LOND
Pre‐conditions
met
Required information loaded
and vetted.
Initial sale period
commenced
Smart contract holds funds and returns them if minimum not reached within
sale period.
Makes Regular
Repayments
Deposits are distributed to LOND holders
by smart contract.
LOND and Borrower attributes and updated for
reputation and status
Delays and Defaults
Staged default management
process
Platform processes (reputation, LOND status) then real world actions.
LOND Completion
Final payment
System status updated, contract
terminated. Reputation updated.
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Figure 2, Lender Actions and Experience
Figure 3, Facilitator Actions and Experience
The processes are supported through the solution components in the following section.
1.2.2 Solution Components
The main components of the solution are shown in the following conceptual architecture and expanded in
the following subsections.
Lenderwants interest return on funds and/or…
Help others in their needs
Review LOND
Find LOND
Automation support: search, notifications, bot filtering and LOND
aggregation
Investment Assessment
Review online information on borrower, LOND and facilitators.
Purchase LOND
Initial Sale
Accepts price and purchases desired qty. Receives LOND
token on sale completion.
Normal Trading
Accept open order or raise new order.
Automation through bots.
Receive Regular
Repayments
Payments distributed via
smart contracts
Repayment status and history console
Delays and Defaults
Console for Default
Management
Actions to wait, communicate with
borrower and escalation, etc
LOND Completion
LOND final payment
received and is closed.
LOND no longer tradeable
Facilitatorwants revenue through fees supporting LONDs
Create LOND
Provide Services for fees to borrower
Range of legal and commercial services.
Validate LOND Information
Facilitator reputation tied to services and LOND
data quality.
Purchase LOND
Initial Sale
Supports pre‐conditions
Normal Trading
LOND quality relatable to facilitator.
Delays and Defaults
Debt Management Support services for fees from LOND
owners
Issue warnings, debt collection, repossession of collateral, etc.
LOND Completion
Completion of services to borrower
System updates reputation.
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Figure 4, Solution Components
The LOND platform is a distributed application (DAPP) on the Ethereum blockchain and a bespoke
distributed content service to provide off‐blockchain information and rich content related to LONDs. The
platform links blockchain information with the LOND rich content to provide a seamless user experience.
There is no plan at this stage to relate the function of the smart contracts to rich content however that
content may be used by borrowers to provide more information about their LOND for lenders to review
and by facilitators throughout the lifecycle of the LOND. In the future, that content can be used for data
mining.
1.2.2.1 Ethereum Blockchain with Smart Contracts
Ethereum will be used to support all the structured data and smart contracts:
‐ Debt records. All key attributes of a LOND: duration, return, currency, recourse, collateral, debtor,
facilitator(s), summary, brief description, link to rich content, etc.
‐ Identity records, both debtor and facilitators.
‐ Feedback and ratings on LONDs, debtors and facilitators.
‐ LOND lifecycle from creation, launch to completion.
‐ Debt trading.
‐ Transfers and payments.
‐ Transaction records.
‐ Risk rating – generated risk rating based on LOND attributes. Machine learning will be applied to
the ratings algorithm to improve rating performance.
As Ethereum is a leading smart contract platform, this allows for interplay of LONDs with other Ethereum
based smart contracts. An example scenario is to use 3rd party predictive services and related smart
contracts to access LOND data to inform subscribed market participants of trends and future prices.
Another example is to access verified 3rd party Oracles (Ethereum based source of off‐blockchain external
data) as source of debtor credit rating.
Page 10 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
1.2.2.2 Distributed LOND Trading Platform
A Web based distributed application suite to facilitate access to all LONDS functions for borrowers, lenders
and facilitators.
The LOND platform is abstracted from the underlying Ethereum network to facilitate co‐working with or
migration to other platforms in the future as required. This design goal makes LOND flexible and
extendable across to other platforms ensuring platform risks are minimised and to support multi‐currency
exchange when 3rd party solutions are not available.
Functions of the LOND platform include:
LOND Trading
The trading functions support selling and buying LONDS. It also allows for searching and reviewing LONDS,
bidding, transfer of payments and exploration of rich content. Typical functions would include:
‐ Ability to find and search for LONDs both those for sale and others for analysis. Search is based on
text and/or by specific field values
‐ Submit bids on LONDs for sale.
‐ Buy and transfer a LOND.
‐ Review transaction history including repayment
‐ Buyers posting LOND requirement allows LOND buyers to place effectively a buy order for LONDs
based on required attribute values. This may be a nonbinding bid, effectively an expression of
interest, or a binding bid where a smart contract will take the funding to automatically match up
with new LOND that meet the requirements. Buyers can cancel or time limit such orders.
LOND Management
These functions related to initiating a LOND, receiving fund and repayments. Facilitators will also use these
functions to provide certain confirmations and information such as contracts, collateral, insurances,
identity, etc.
LOND Aggregation
Anyone can re‐package and aggregate LONDS into a new aggregated LOND with enhanced attributes. As a
LOND portfolio, an aggregated LOND may have a lower risk profile.
Reputation System, Ratings, Rankings and Social
The reputation function will be an important element to support trust in the LOND market. The reputation
system will be applied to borrowers and facilitators with anyone in the system being able to provide
feedback rating. The system itself will automatically assign positive and negative reputation points based
on LOND performance such as on time payments, defaults, etc.
Additional external sources of ratings will be used where technically and commercially practical.
For some LOND issuers, such as larger borrowers, they may want to provide the market with interactive
Q&A. The application will support messaging and during the sale period that would be recorded.
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1.2.2.3 Rich Content virtual cloud (RCVC)
The RCVC is a peer to peer synchronised decentralised service to support the storage and presentation of
rich content (e.g. websites with text, document and pictures). Such content has high storage requirements
and is not suitable or necessary to store on the blockchain itself. This content is intended to be public
viewable.
‐ Virtual cloud made by decentralised p2p servers with auto synchronisation.
o Torrent based data distribution and synchronisation.
o Data distribution algorithms driven by redundancy and read demand. For example, data is
divided into data blocks, each block stored in multiple locations. Popular content, such as a
new LOND with high demand load for content viewing, would be stored in more locations
relevant to location where audience is.
o Virtual cloud servers would provide a web server function with an internal service to find,
obtain and collate data blocks into a cohesive response for request.
o All stored data is encrypted in local storage to eliminate opportunity for direct local editing;
content can only be changed through editing browser by authenticated access.
‐ Each content element would be controlled by a specific key to permit for update by the owner.
‐ As LOND content is commercially relevant, RCVC will only allow content to be added. Previously
loaded content cannot be removed or modified and will be retained for historical records. The
system would support full and transparent versioning to allow viewers to see any past
modifications.
o Moderation. Inappropriate content would be flagged and removed from display, but still
retained. Such content can be flagged by owner or by viewers. As no content would be
removable, it would still be viewable or obtainable however it will be made difficult to
access, for example: require several manual steps, pictures obfuscated (fuzzied), content
emailed to requestor instead of directly viewed through browser, application of small fees,
etc.
o Retention. By default, content will be deleted 7 years after LOND is completed or
terminated. Editors have the option of extending content lifespan to address local
retention requirements or for other reasons with additional fees.
‐ Content is viewable by any standard browser and the latest version of the content is presented by
default. Users can easily see previous versions, their timings and update comments.
‐ All content would be public viewable however link would be non‐human friendly driven from
blockchain data related to a LOND.
1.2.2.4 Facilitators
LONDS are made to people and organisations and to ensure the debt obligations are legally recognised in
the various jurisdictions and to undertake due diligence and risk management, several types of facilitators
are required. These may be advisors, solicitors/lawyers, insurance providers, asset assessors, escrow,
guarantors, etc.
Facilitators would play a key role and the LOND Company will identify and engage relevant people and
organisations. The incentive for facilitators to participate would be related to new revenue streams. The
Page 12 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
facilitator reputation system, combined with local in country contracts are used to safeguard against fraud
or collusion between facilitators and loan seekers.
LOND Company would engage, review and approve facilitators to provide various services. Depending on
specific jurisdictions, facilitators would be external partners rather than employees of LOND Company.
This is to minimise costs, increase the broader LOND network and hasten the speed of deployment to new
geographies.
1.2.2.5 Legal Framework
The interplay between paper and smart contracts is a key element of the solution. The physical contracts
will be kept by facilitating lawyers and LOND Company – depending on jurisdiction. The physical contracts
will be related and linked to the digital LONDS both on the contract and in the LOND data (on blockchain).
As this will include liens and rights on collateral, then the collateral, which would be physical world assets,
would also represented on blockchain through the LOND.
Depending on default rates for collateralised LONDs and the preferences of LOND holders, there is a
potential to digitise these assets specifically and allow these to be traded on the platform.
1.2.3 LOND Features and Functions
LONDS will be categorised and standardised for effective trading, automation, analysis etc. Therefore, bespoke loans, loans with data restrictions (private, confidential, commercial in confidence, etc), complex covenants or other attributes falling outside the standard types would need to be managed externally to LONDS until a suitable use case can be determined where LONDS can add value3. In simple terms, a LOND lifecycle would include the following major phases: 1. Definition and Issue. This is where a borrower, usually with the assistance of a facilitator would define and issue a bond. The initial sale of the LOND would be supported by a smart contract that collects deposits until the LOND value is realised. If that is not reached within a certain time, deposits will be returned to their sources. Potentially, the issuer may add a bounty (an amount of tokens) in the LOND issuance to attract lenders by providing an immediate return to lenders if a LOND is not successful (i.e. insufficient funds raised within certain time). 2. Initial LOND sale. The new LOND would be raised and depending on user preferences advertised to potential lenders/investors. Depending on LOND attributes, smart contracts may also find LONDs for automatic investment and/or aggregation functions. 3. LOND tradeable. When the LOND issuance requirements are met, the LOND will be live and tradeable. 4. LOND repayments. Repayments are made by the borrower through transfer into a smart contract that will distribute the amounts to the LOND holders (at specified time/frequency established at issuance). Repayments affecting principle would reduce the total LOND amount – in proportion to the current LOND holders – reducing the face value of the LOND. On time repayments would add to ratings; late and defaulted re‐payments would reduce ratings. 5. LOND Completion. Final repayments made to LOND holders would trigger completion of LOND, archival of LOND information, return of over payments, notice to LOND holders and improvement to rating.
3 When LONDs market place liquid then LONDs would be a competitive alternative to many bespoke loans.
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6. LOND Default. Triggers such as delayed repayment(s) would result in launch of the default process. This would be a staged process of escalation utilising standard set of practices such as described in the following table: Step Action
1. Rating reduction 2. Notice to borrower 3. Notice to guarantor 4. Insurance claim 5. Minor Legal engagement (e.g. letter of demand, etc) 6. Acquisition of Collateral 7. LOND Holder engagement/decision 8. Debt collection agency 9. Major legal engagement (e.g. court) LOND Attributes There will be various attributes for a LOND and this list is indicative and not comprehensive.
Repayment interval
Repayment type (reducing principal or not)
Collateral
Issuer Rating
LOND rating
Facilitators
Currency
Category
Amount
Max issuance Level
Min issuance Level
Geography/Legal Jurisdiction
Insurer
Purpose
Issuer Name/Alias
Face value
Last trade Date, Qty and price/value.
Default Process
Guarantor
Collateral evaluation/Verification
Escrow
Risk Rating
LOND Categorisation To facilitate trading, LONDs are catagorised and the following table indicates the nature of the categories.
Type Amount Collateral Insurance/guarantor
1 <$1,000 No or Yes No
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2 <$10,000 No or Yes No
3 <$100,000 Yes No or Yes
4 <$1,000,000 Yes Yes
5 <$10,000,000 Yes Yes
6 >$10,000,000 Yes Yes
LOND Aggregation
The aggregation feature allows a market participant to pool LONDs and create new aggregated LONDs easily. This addresses the analysis effort to find loans that match investor needs while diversifying and creating a portfolio. For the LOND market, aggregated LONDS provide a way to simplify LOND search and to improve net risk/reward. LOND aggregation provides the capability for portfolio management of LONDS and simplification of LOND selection and evaluation. The creator of an aggregate LOND may charge fees for the value‐added service in the form of a new blended rate or participation fee. The market can decide if the rate of return or the fee of the aggregated LOND is of value, based on the performance of the aggregated LOND for quality, risk and return. An aggregated LOND would be owned and managed by a LOND portfolio manager (LPM). An aggregated LOND would be formed by the LPM manually adding LONDS to the portfolio or through bots that find and, optionally, buy LONDs matching the LPM’s criteria. Aggregated LONDS are traded like any other LOND. Aggregated LONDs have other features and functions including sub‐accounts which are maintained by smart contracts for specific purposes such as:
To hold funds for purchase of more underlying LONDS
To pool repayments coming in in different schedules prior to distributions of the aggregate LOND.
To buffer in case of defaults in some of the underlying LONDs. The LPM can also use trading bots to automatically sell underlying LONDs and swap to a new preferred LOND. This would allow an LPM to have a self‐optimising aggregated LOND. Where an LPM provides direct surety on repayments, those would be supported by real‐world contracts. LOND Company will also create aggregated LONDS, usually focusing on the simpler aggregations, to provide easy entry for new participants. These types of simple aggregated LONDS would be based on currency, geography, loan purpose, lender rating etc.
1.2.3.1 Currencies and LONDS
LONDs and the LOND platform will be able to support a broad range of crypto and fiat currencies4. Initially,
this means:
‐ The borrower determines the currency of their debt and repayments which will be used for pricing.
‐ Money transfers on the platform will be via crypto currencies, initially with Ether.
4 Fiat currency is currency that has been declared by a Government to be legal tender without backing of a physical commodity.
Page 15 of 27 © 2017 LOND Company Pty Ltd, All Rights Reserved
‐ The LOND token would be a fee applied to trade LONDs on the platform.
To support the multi‐currency, the LOND platform will use 3rd party sources for currency pricing as
appropriate. Over time, 3rd party crypto currency trading/swapping will be integrated into the platform to
allow users to directly pay or receive in the currency of their choice.
With fiat, the exchange process would be undertaken by users through exchanges. As the platform and
network grows, integration to external services such as banks, debit card and exchanges may be
implemented.
The roadmap includes broadening the network beyond the crypto community with a web façade for fiat
based use of the LOND system. It is still to be determined if LOND Company will use local exchanges to
support fiat to crypto exchange or undertake the exchange function itself. The approach may change by
geography.
1.2.4 Solution Development Philosophy
The core elements of LOND solution is trading standardised legally enforceable debt supported by
blockchain and a service eco system of facilitators.
Use of New Technology
The crypto world is rapidly growing, developing and evolving with new technologies and approaches that
will create new innovative services. For example, there are services in various stages of planning,
development and release for identity management, credit rating, data storage, web hosting and distributed
computing. Depending on specific features and functionality these technologies will be flexibly used by
LOND Company to support the core elements of the solution.
Security and Safety
Security and safety is a focus of all development efforts.
To support this, in addition to the usual development practices:
‐ Developed code will be professionally reviewed and penetration tested.
‐ Quality processes throughout the development lifecycle will ensure positive confirmation that all
code is reviewed, tested and configuration controlled.
‐ Solution monitoring will also be utilised to track system and data changes to identify unusual
events.
‐ In memory data related to people, accounts or wallets will be encrypted.
‐ The code base will be made open source.
Community Engagement
LOND Company will proactively engage user and market participants for input and feedback on the solution
and providing transparency. In addition to supporting a co‐design with users in the solution development,
the global community will be expanded through the creation of the facilitator network and engaging
development capability globally.
Ease of Use
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From a technical perspective, usability, effective UI and simplicity will be a focus of product design. This is
important when the solution will be at scale with large numbers of LONDs that can be traded.
From a commercial perspective, standardisation and automation will be used to create a low cost and high‐
quality service.
1.2.5 Solution Review
The LOND solution provides key features to create an effective market for LONDS including the provision of
different forms of information, standardisation of LONDS, Global 24x7 operation and usage of multiple
currencies. Many of these elements support effective development of trust necessary for person to person
loans. Additionally, to support trust,
‐ Participant Ratings
‐ Trusted and contractually engaged facilitators
‐ Public contracts
‐ Un‐mutable rich content
‐ Use of blockchain
‐ LONDs are tradeable and divisible
‐ Safe and secure trading system
‐ Facilitators with system managed reputations and ratings
The LOND solution removes costs related intermediaries and reduces sector costs related to debt
transactions, sales & marketing.
LOND empowers individuals through global access to diverse funders and provides a sense of community
including the ability to support charities and micro loans.
A successful LOND solution will be characterised by:
‐ A LOND market with millions of LONDs traded daily.
‐ Technology that is resilient, safe and easy to use.
‐ Facilitator network that is globally available, trusted and inexpensive/high value.
1.2.5.1 Evolution of the LOND Solution
When the LOND market reaches appropriate liquidity, it is anticipated that aggregated LONDs can
substitute for classic bank accounts – without the bank thus yielding lower risk and better rates of return.
The services related to the LOND bank account can then be extended with the use of additional solutions
and services such as integrations to credit/debit cards.
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1.2.5.2 Examples of LONDS in Action
Adam needs a US$1000 loan to start a business importing plastic from China. As a “small” LOND, Adam can issue a LOND without collateral for 2 years. Adam needs his identity reviewed by one of the local facilitators and pays a fee $20 (determined by facilitator) who documents the loan on a standard contract. This specific facilitator is empowered to act as contract custodian and to confirm identity on LOND system. Once Adam’s identity has been confirmed, his contract is recorded and he and the facilitator create a LOND on the system completing all the necessary details such as duration, rate, etc. People see the request and some decide to loan Adam money. One person loans $100 worth of Ether, and several others provide the balance through bitcoin. Adam converts to $US and starts up business and repays loan back through the LOND system. When the loan is repaid the system acknowledges repayment and this adds to the credit rating for Adam. This would assist Adam for future loans, for instance to expand his business.
Judy, in Australia, is seeking a loan for a holiday to the UK and wants to borrow AUD$2000. This is a common holiday for many young adults in Australia and while she has little credit history, her mother will act as guarantor. Judy engages a facilitator and creates a LOND. Somewhere else in the world, Juan sees the LOND Judy created and notices there are many similar LONDs. Juan creates an aggregated LOND for “Aussies Holiday UK” and proposes his new aggregated LOND to UK tourist board to provide additional funding.
Henry wants to buy a new car for US$40k and issues a 5 year LOND to raise the funds with the car as collateral. He raises the US$40k, purchases the vehicle and makes repayments. A year later Henry has lost his job and is unable to make repayments and defaults. The default clause of the contract is exercised and the vehicle is reclaimed. The vehicle is sold and the LOND holders are repaid from the proceeds. Henry’s rating is reduced and the LOND is completed.
Kevin wants to help people, in particularly economically disadvantaged people in central Africa. Kevin searches for a LOND related to the location and finds an appropriate LOND. Unfortunately, the LOND is not currently for sale and so he makes an order offer for part of the LOND for $50, the amount he is willing to commit. To make it attractive, he is bidding above previous traded value which would provide an improved rate of return to the current owners. The current LOND owners will be notified as per their configuration. As Kevin waits to see if his bid is taken up, he thinks that it may be better to help on a new LOND rather than buy a previously funded one. He withdraws his bid and commissions a bot to publish his request and search the LOND market for new LONDs matching his criteria and then to fund the LOND automatically. Later an appropriate LOND is created by a small African business, the bot automatically purchases the LOND and Kevin is notified.
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Melissa wants a home loan for an extension to her house in Australia. Melissa can borrow from a Bank at 4% and is considered a low risk due to her government income. As Melissa earns in AUD, she wants to borrow in AUD. She sees around the world that home loan rates in other countries are much lower than Australia and was hoping to be able to borrow at 0.5% which she thinks would be a reasonable rate in Japan. Melissa creates a LOND and attempts to sell it. Unfortunately, only 25% of the LOND is sold and not having reached the minimum funding requirement within the sale period, the funds are returned. From the questions and feedback from the initial LOND, Melissa thinks that she did not offer enough return on the LOND. She adjusts the interest rate to 1% and initiates the sale period again. A consortium of commercial lenders in Japan work out that they can manage the Yen/AUD currency fluctuation and still make greater return than alternative loans so proceed to purchase the new re‐priced LOND. The lenders exchange their yen for Eth, transfer the Eth to Melissa’s LOND contract. Melissa extracts the Eth and exchanges for AUD to extend her property. Melissa makes regular payments in AUD by converting to Eth and depositing it her LOND contract. The smart contract distributes the payment to the LOND holders. Some of the LOND holders, like the Japanese consortium exchange their Eth to Yen. Other holders have decided to keep their payments in Eth to purchase new loans to just as part of their individual portfolio financial strategy.
The company, ACME PTY LTD, wants to borrow capital to fund market expansion. Adopting a standard LOND contract enabled them to readily and easily access the LOND market to issue their debt. Due to the standardisation of LONDs, the fee structure was lower than traditional methods and they were able to reach a global market to raise funds. They included information about ACME including products and plans as part of their debt issuance and this resulted in an increase in their web traffic and business opportunities.
1.2.5.3 Future Opportunities and Options
Corporate and Treasury bonds.
Most of the language for the LOND solution has been focused on retail loans where the interest rates
spreads are high. The LOND can be used to replace corporate and treasury bonds as well even if these
types of bonds benefit from large bond markets because they still attract significant costs in fees (e.g. agent
fees 1‐5%, matching fees 0.2‐0.06%), charges and hidden mark ups. When the LOND network develops and
has enough liquidity, the solution would be better placed to support larger capital requirements.
Tokenisation of Assets
Liquidation of assets on defaulted loans can be undertaken through the LOND Market and thus creating a
path for asset tokenisation.
Charities
LONDs can be issued as a loan without repayments or interest to be a gift. Facilitation of such gifts will help
donations reach on the ground organisations without the intermediaries. Tax deductions for such gifts
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could also be supported. Technical elements would be supported in early stages with the legal and
facilitation support to be developed in response to demand.
Crowd‐funding
The LOND platform could support crowd‐funding with options for consideration such as right to purchase,
access to content or other.
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2 LOND Business Model
Like all elements of the new crypto world, success will be under‐pinned by user adoption and audience
growth to drive the network benefits. As such the solution and business model are designed to support
and benefit from scale and the network growth.
The business model is related to both the LOND Company which builds, extends and supports the LOND
solution and LOND tokens.
LOND tokens are required, as fees, to use the platform to create, buy or sell LONDs. These fees would be
scaled to trade size, and for the borrower will also be related to data usage such as that required for the
rich content. LOND tokens will be divisible.
All LOND tokens supplied as platform fees will be collected by LOND Company. The LOND Company would
use the LOND tokens to pay for functions such as development, marketing, management, hosting (some
RACV nodes), equipment, office expenses, other technology etc. Until token cashflow is positive, these
expenses would be funded from token sales and may require conversion to relevant fiat currencies. Where
possible, costs will be funded by LOND tokens directly without exchange to intermediary currencies.
Figure 5, LOND Token Flow
The increasing usage of the system will drive demand for the LOND token. The total number of tokens
available will be limited so the increasing demand for the platform and its usage will increase the demand
for the token and appreciate its value. The prices charged for platform usage would need to remain
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relevant and competitive so an increasing token value would result in a reduction in LOND platform fees (as
represented in LOND tokens) thereby providing further support for the token value: a token will pay for
more trades as it appreciates. With scale, cost per trade in other currencies will also reduce. These
relationships are highlighted in the following figure.
Figure 6, Token Value to increase with trading volume
LOND tokens held in reserve by LOND Company or by token holders will further reduce the supply of
available tokens promoting more price appreciation.
The LOND Company mission is to build support for the LOND solution to appreciate the value of the LOND
tokens. This includes setting up the legal framework, the facilitator network and the technology. LOND
company will need to be sustainable, develop its staff and promote the platform globally.
The LOND company will not act as an intermediary for LONDs and not take on debt liability on behalf of
LOND issuers.
LOND Platform Trade Volume
Cost Per trade in $US
Cost Per trade (LOND Tokens)
Price of LOND Token
Value
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3 Implementation and Roadmap
The implementation will be undertaken in 3 major streams: Technology, Legal & Process and Geography &
Facilitators. The streams are inter‐related and each release would be undertaken as a sub‐project. Each
release incrementally builds the solution and expands the geographies and jurisdictions where debt
contracts can be established and enforced.
The Solution Roadmap (in following section) would commence shortly after the completion of the initial
token sale. The first release is planned for end of 2018 and Releases 2 and 3 at end of Q2 and Q4 2019
respectively. Schedule and scope for Releases 4 and 5 will be determined during Release 3.
The team will be extended globally to attract the capability and to support the solution roadmap.
Coordination functions and leadership for Release 1 will be undertaken in Australia and this may change for
future releases.
3.1 Solution Roadmap
The roadmap covers the development of the LOND solution in the three dimensions: technology, legal &
process and Geography & Facilitators. The dimensions of development are inter‐dependent; for example,
the legal framework will support the technology functions and the growth of the deployment across the
multiple geographies.
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3.2 Token Sales and Allocations
A total supply of LOND would be fixed at 1,111,141,110 tokens. The allocation of the LOND tokens will be
as follows:
‐ 45% for the initial token sale. Pricing and other elements for the token sales will be provided in
the sale Terms and Conditions and the lond.company website.
‐ 10% reserved for founders.
‐ 10% reserve for staff. It is anticipated that tokens will be distributed over a 5 year period.
‐ The remaining tokens, including unsold tokens, would be retained and, if required, used to fund
development, RCVC and network expansion while the ‘token cashflow’ from the platform is still
developing. After Release 3, access to the remaining tokens would be limited by smart contract to
10% per annum of the amount remaining at the start of each calendar year. In the scenario where
the ‘token cashflow’ is higher than required to meet needs of LOND Company, tokens retained in
reserve may never enter the broader crypto asset markets.
3.3 Use of Funds
Usage of funds from initial token sale or from platform fees will pay for development and support of the
technical products, the legal and process framework and building the facilitator network. Additional
expenses for marketing to build awareness of the solution and management & admin costs are also
considered. The first 3 Releases will be technology focused while later release will be more focused on
building the geographic footprint. After the major build releases, an ‘ongoing’ state is planned to be
sustainable with ongoing token cashflow. The ongoing state will be replaced by future roadmaps to
consider changing technical, economic and political landscape.
The LOND solution will scale technically and operationally with the minimum viable product achievable
with a small percentage of the initial token sale. Most costs will be made variable or independent of the
LOND company; for instance, the facilitators will be partners that derive their revenue as fees from
borrowers. The core costs to be borne by LOND company on an ongoing state will be maintenance for the
solution including technology, adjustments for legal changes, administration of facilitator network and
marketing.
Ongoing
Release 5
Release 4
Release 3
Release 2
Release 1
LOND Company Expenses per Release
Technology Legal & Process Facilitators & Geography Marketing Management & Admin
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It is expected that after the initial 3 releases, further solution enhancements will be identified to extend or
expand the service offerings beyond geographical expansion.
3.4 Issues and Challenges
Every project has risks and issues and for the LOND Solution, some of the key issues are identified below.
Low participation affecting Market liquidity
Initially the LOND environment will have low numbers of users and hence lower liquidity.
To accelerate the speed of the network growth, the plan, besides marketing, is:
‐ Non‐crypto website as a facia to the LOND system to expand the audience of lenders and
borrowers beyond the crypto community.
‐ Engage small specialised lenders such as charities and not‐for‐profits to provide them with a
broader distribution mechanism.
‐ If available, use excess funds from LOND token sales to provide loan liquidity.
‐ Partner with in country P2P lenders to provide underlying technology and broader market
exposure.
Holders of Crypto assets may not lend in Fiat currencies
Crypto speculators and hoddlers who are expecting significant appreciation in their crypto assets may not
see significant financial benefit in funding fiat currency loans. This view would be dependent on individual
circumstances. LONDs could provide opportunity to those seeking to:
‐ Diversify
‐ Minimise their exposure to legacy financial institutions
‐ Support other people
‐ Obtain an improved return compared to alternatives
‐ Or a combination of the above
The LOND solution will a Web Façade and facilitator network to obtain non‐crypto world funding and LOND
company is pursuing partners for other funding sources.
Competing loan providers with cheap funding
In some geographies, there are loan providers with cheap sources of funding, for example: house loans and
some P2P lenders.
To manage this price based competition:
‐ Market differentiators: Global, based on blockchain, anonymous for lenders, tradable debt
commodities and contracts for the borrower without counter party risk e.g. bad banks calling in
debt.
‐ Trading fees would be repriced as required to remain competitive. The incentive for LOND
Company would be to increase trading volume.
Time to build LOND Solution
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To improve time to build and deploy, LOND development will utilise available technologies where practical
and engage developers from multiple countries.
To provide the fastest path to build the solution, the initial LOND token sale will seek funds to build the
whole platform and deploy it to most geographies globally.
LOND Company will foster the community to support and extend the LOND solution including support for
open‐source code base and coordination of community developers.
Issues with Securities regulations
The LOND solution will be a challenge for a few jurisdictions however as there are already established P2P
lenders and Bond Markets in most Western countries securities compliance in those regions is expected to
be achievable. The plan is to commence in Australia initially as it is a stable smaller market, local to the core
team, crypto friendly and similar legal framework to other countries. Lessons there will support geographic
expansion to Commonwealth nations and other Western countries prior to South America, Asia and Africa.
LOND tokens, which are effectively ‘tickets’ to use the platform are not securities. The LONDs themselves
may be considered securities, depending on the jurisdiction. A significant component of the funding and
effort to implement the solution will be for LOND company and facilitator network to address and comply
with regulations.
LOND Company Ceases Operation (e.g. Bankruptcy or other)
LOND Company is intended to provide support to the LOND solution and expected to be a long‐lived
organisation however as risk mitigation, software be provided on public github and a community based
governance function is planned to be implemented so that the LOND solution can progress as a DAO
(Decentralized autonomous organization) beyond LOND Company.
After the planned build phase funded by token sales, the LOND Company is planned to enter a solution
sustainment mode of operation. In both phases, LOND Company would not be seeking to make a profit.
Scalability of Ethereum
Current scalability of Ethereum is not expected to support a full LOND implementation and planned usage.
The Ethereum roadmap includes performance improvements and if that is not sufficient, LOND
development will utilise its abstraction to utilise other platforms. In that situation, LOND Company will take
steps to maintain the value of LOND token created on the Ethereum network – for example by collecting
fees on the Ethereum network while executing trades on other platforms.
Currencies pricing and exchange fees
Borrowers and lenders needs to consider currency exchange fees when issuing or purchasing a LOND. The
LOND platform will provide pricing from LOND currency to transaction currency at time of transactions for
LOND sales and repayments. Conversion from transaction currency to LOND currency would be
undertaken by borrowers or lenders on exchanges external to LOND with separate fee structures.
For example, a LOND repayment in USD would be transacted in Eth with pricing at point in time of the
transaction. The borrower would deposit the Eth which would be sent to the lenders in that repayment
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transaction with the USD value retained within the LOND transaction. The lender would decide on how to
manage their received Eth – e.g. convert to USD, convert to another or retain in Eth.
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4 Glossary
LOND LOND means a loan/bond or tradeable debt obligation LOND Platform The distributed technology and environment to support LOND trading LOND System Another name for LOND Platform LOND Solution LOND Platform plus network of real world facilitators and legal framework
(contracts). LOND Token Crypto asset used as a fee paid by users to perform actions on the LOND
platform LOND Network The user and facilitator community – all the people involved. LOND Company The organisation charged with maintaining the LOND Solution.
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