Revenue-Based Lending FAQ
FAQ for the Lines of Credit secured by a Spigot
This is a three step process:
- A Borrower and Lender agree on some fundamental parameters
- The Borrower then creates the Line which deploys the Spigot
- The Lender will then make a deposit into the Line
During the deployment of a Spigot, ownership of the Revenue Contract is transferred to the Spigot Owner (representing Lenders) During the lifetime of the Line the Spigot Owner can call a function to receive Revenue Tokens. The Borrower can still operate necessary ('whitelisted') functions on the Revenue Contract to carry out the business as usual activities that actually generate the Revenue Tokens securing the Line.
No changes are required to a Revenue Contract. The Borrower just changes ownership of the Revenue Contract to the Spigot Owner.
There is no loss of security, functionality or control and the Borrower can continue maintaining the Revenue Contracts using whitelisted functions.
A test to claim Revenue Tokens can be conducted. If all is good, this should transfer Revenue Tokens from the Borrower’s Revenue Contract into the Spigot escrow. The address of the Revenue Contract will appear in the transaction confirmation.
How is a Spigot configured to escrow Revenue Tokens from a Revenue Contract acting as security for the loan?
When setting up a Spigot, a 'default revenue split' parameter is set. This determines the initial % of Revenue Tokens that a Spigot escrows for Lenders (represented by the Spigot Owner) if a Line of Credit is healthy.
The Spigot Owner manages a Spigot for the benefit of one or more Lenders based upon programmable events.
In practice, the Owner can be (i) Borrower in order to deploy the Line, then (ii) the Line itself (representing Lender(s)) and governing the overall agreement) and also (iii) an Arbiter if the Line status becomes liquidatable.
Ownership is transferred during the lifetime of a Line according to programmed rules.
The Spigot Operator is an address through which an obliging party in an agreement (e.g. a Borrower) is still able to execute whitelisted functions to carry on business as usual related to a Revenue Contract controlled by the Spigot Owner for the benefit of one or more Lenders. It's also the address which receives all remaining Revenue Tokens that are not escrowed in the Spigot for the benefit of the Lenders to repay debt.
What limitations are there on a Borrower with respect to a Revenue Contract to which the Spigot is attached?
When setting up a Spigot, 'whitelisted' functions are identified which a Borrower is allowed to perform on a Revenue Contract whilst the Spigot is attached.
This enables a Borrower to carry on business as usual for what concerns the activity generating the revenue.
It's governed via an Operator address through which the Borrower must call the whitelisted functions whilst the Spigot controls the Revenue Contract and until the debt is fully repaid.
Can the Spigot's revenue sharing parameters be changed after being set at the initiation of a Line of Credit?
Yes, changes to the revenue split between the Spigot Operator (Borrower) and the Spigot Owner (representing Lenders) are possible based upon programmed conditions or otherwise if the Owner and Borrower wish to change the split.
How are Revenue Tokens captured by the Spigot converted to Credit Tokens that a Lender initially deposited?
Revenue Tokens claimed from the Spigot can be exchanged for Credit Tokens via the dex router (Ox) configured in the app. There are various options for when this happens. See here for an overview of repayment options in the app alongside the names of the respective external functions.
Revenue Tokens can be claimed from a Revenue Contract by a Spigot, converted into Credit Tokens and withdrawn.
A Lender can also at any time withdraw any Revenue Tokens or Credit Tokens that have already been claimed from a Revenue Contract into escrow by a Spigot.
See here for an overview of repayment options in the app alongside the names of the respective external functions.
The Arbiter will instruct the the Spigot to direct 100% of Revenue Tokens from the Borrower's Revenue Contract(s) to the Line of Credit to make payments. The Arbiter can call a function that 'sweeps' the Spigot for this purpose.
How can a Borrower be sure to regain control of a Revenue Contract once a Line of Credit has been fully repaid?
Once the status of the Line changes to repaid, the app automatically releases Spigot ownership back to the Borrower. This gives Borrowers the confidence to attach and use the Spigot because they MUST get it back if they repay their Line according to the agreed terms.
Can a Borrower re-use a Spigot on another Line of Credit later once a first Line of Credit has been fully repaid?
Because continuity is an important feature for future products to be built on top of the Spigot, we've implemented a rollover function that makes it easier to continue reusing a Spigot and its Revenue Contracts as security for a new Line of Credit.