PazaLabs: The CeDeFAI & RWA Whitepaper
Executive Summary
PazaLabs introduces a revolutionary CeDeFAI (Centralized Decentralized Finance) platform that addresses critical inefficiencies in the mortgage ecosystem. By combining the strengths of centralized finance (CeFi) on permissioned chains with decentralized finance (DeFi) on public chains, enhanced by GenAI-RAG components, we create a comprehensive solution for real-world asset (RWA) tokenization and management.
Lower closing costs
15-30% reduction
Reduced end-to-end costs
10-15% reduction
Unlock cash flows
15-60 days faster
Reduce bond management costs
30-50% reduction
A New Future?
A chance discussion between partners of PazaLabs, while one of them was going through a cashflow squeeze, set in motion the creation of a platform not imagined could have been engineered. A lender-cum-correspondent bank (CB) operating successfully for the past 20 years, his company would normally fund loans they were originating via a warehouse line (WH) and take the home-loans on their books for a short while before selling it to an investor. But the time taken for an investor to buy (and pay for the loan) was extremely variable, anywhere between 5 days to 25 days. This particular experience led us to focus on the problem that Mortgage origination is highly inefficient.
The Problem Extends Beyond Origination
Not only does the Mortgage change hands from originator/broker to investors, but the same loan is sold from Investors to the agencies (Freddie/Fannie), Issuers and REITs and then finally to the Hedge Funds (HFs), Mutual funds and Pension funds in the form of mortgage backed securities (MBS). There are Servicers too, who manage the lifecycle of the loan, along with the document Custodians and Trusts; so are also the Due Diligence, Rating and Legal firms that add to the participant list.
The Opportunity
The Home mortgage and the related bond market is probably the biggest line item on the US GDP list, somewhere between 12-14 Tn USD and any savings therein can unlock valuable resources for the country and its citizens, make housing and loans in general more affordable, and make the financial ecosystem more efficient.
The Making of a CeDeFAI Solution
The obvious choice was a blockchain based solution, something that had been built and deployed successfully for creating Ecosystem Commerce for Agricultural input & output markets and Automotive aftermarkets. It was humbling when Philip Kotler & Christian Sarkar called out the platform as 'Country as a Platform' and later 'Community as a platform' because they simply believe that the future currency of platform would only be trust and blockchain was hugely capable of instilling trust in a trustless world.
The Solution Approach
The solutioning approach was not based on what purists contend – but on the merit of the solution components. In a casual discussion with one of the architects of CBDC (for a particular country) and some very senior global bankers, their stark observations were:
- No country or Bank would dare to keep all its assets and collateral on a public chain
- At the same time cost of minting tokens on a public chain is extremely low compared to the cost of printing fiat currency in a physical mint or managing collateral documentation in physical form.
The Hybrid Solution
And hence the decision was to use the strengths of both - CeFi on Permissioned Chain, DeFi on public chain with an additional layer of GenAI-RAG component that not only could convert physical pages into data for driving checks and validations, but also give insights into the likely bright future.
The CeFi Ecosystem
The mortgage ecosystem aka the CeFi ecosystem has two distinct parts, the Vertical Ecosystem, where the Asset and the money related to this Asset transaction moves, while the Horizontal Ecosystem is where validators help approve and move the transaction forward.
Vertical Ecosystem
The Vertical Ecosystem comprises of:
- Correspondent Lenders who originate the loans
- Investors who buy the loans usually one-at-a-time
- Aggregators who buy loans in volumes to in turn sell to Issuers
- Issuers & REITs who securitize the loans into MBS
- Hedge funds, mutual funds & pension funds who buy these bonds
Horizontal Ecosystem
The horizontal ecosystem participants include those who review and validate documents and data:
- Title companies, Appraisers, Underwriters
- Legal due diligence firms, Rating agencies
- Trust, Custodial service providers
- Transfer agents, Pay-in agents, and more
The DeFi Super-Charger
So why is a DeFi system so integral to generating a 10x (actually maybe a 100x) multiplier to the Ecosystem?
Tamper-Proof Global Document & Data Vault
The first function of the CeFi system is to be a universal document and data vault that everyone can trust. By storing all documents in a centralized CeFi system and additionally with the hash keys of each of these documents stored in the DeFi system, ensures not only default immutability of the document and data, but imposes an additional security of a near zero chance of tampering.
RWA Tokenization & Fractionalization
The CeFi system mimics traditional boundaries. Thus, a loan pool can be securitized into multiple CUSIPs/bonds that then follows traditional management of bonds and bond holders. But the DeFi extension of Real-World Assets (RWA) can deliver another humungous multiplier.
Scalability
If retail accredited investors were to invest in such MBS pools, a centralized system would need large scale compute power. By converting the traditions bonds into RWA on the DeFi side, scalability is very easy to achieve.
Reduced Pool Sizes
Traditional securitization is usually for very large loan pools. With DeFi these pools sizes can be significantly reduced thereby reducing the time, risk and cost to securitize.
Cost Efficiency
The process of securitization needs a Trust, a legal due diligence company and rating agencies that is approximately the same when an asset is tokenized into a RWA and fractionalized for fractional ownership or an MBS ownership.
Regulatory Compliance
The ERC 3643 tokens are the latest addition to decentralized protocol that brings the wild-west under rules keeping investors safe and participants honest.
PAZA Pools
The PazaLabs DeFi Liquidity Pools are yet another potent mechanism for injection of liquidity.
Pool Creation Process
The LPs (Liquidity Pools) on the DeFi platform are not yet open and are governed by PazaLabs. While depositors are always cautioned to complete their due-diligence before placing depositing in any pools, PazaLabs does check for lenders credentials and licenses to raise money from such pools.
Types of Pools
Warehouse Pool
Risk Level: Least risk for a depositor
Purpose: Warehouse line is used to fund loans by an originator that is presold to an investor
Benefit: The platform ensures that the turnaround is extremely fast thus driving more margins
Haircut Line of Credit Pool
Risk Level: Higher risk
Purpose: Investors use lines of credit to buy Closed loans
Structure: The haircut money is a small percentage (usually 5-10%) needed to receive a large line of credit
Evergreen Bond Pool
Risk Level: Mixed risk profile
Duration: SPV holds pools for 3-5 years with increasing interest payouts beyond 3 years
Purpose: Deployed for underbanked and/or subprime borrowers with fixed payout guarantee
The PAZA Utility Token
The PAZA utility token is a key component creating stickiness for the ecosystem participants via incentives, rewards and retention mechanisms. PAZA is also used for platform transaction fees paid by the business users.
Token Functions
- Platform Transaction Fee: Functions as a platform transaction fee
- Staking Mechanism: PAZA staking between borrower and the lender on DeFi for rewards and/or services
- Anti-Speculation Controls: Penalty for selling beyond reasonable volume or before reasonable holding time via bonding curve tax
- Home Improvement Services: Future use for Home Improvements tied with vendors
Minting PAZAs via Bonding Curve
PAZA tokens are being minted via a bonding curve which is a S curve. The sell-curve too is a similar S curve but with a tax component such that there is a high incidence of taxation while within the rapid-growth ascension region.
The PAZA Bonding Curve: The Sigmoid Equation
Why Use Bonding Curves?
- Automated Market Maker (AMM): Continuous buy-sell transactions without third-party involvement
- Deep Liquidity Support: Sufficient liquidity pairing PAZA and USDC
- Dynamic Pricing: Consistent price for each level of supply
- Price Stabilization: Helps control speculative price swings on centralized exchanges
The PAZA Token Buy Curve
P = a(((x-b))/√(c+(x-b)²)+1)
- P = the buying price of the xth token
- a = the height of the curve (or maximum Price/2)
- b = the token supply at the inflection or midway point
- c = the steepness of the curve
The Sell Curve
P' = a(((x-k-b))/√(c+(x-k-b)²)+1)
- P' = the selling price of the xth token
- k = the sell-tax
- a, b and c are the same constants from the buy equation
PazaLabs Supported Real-world Assets
PazaLabs tokenizes three categories of real-world assets:
- Mortgage-Backed Loan Pools (Traditional Securitization via Tokenization)
- Hard Asset Tokenization (Real Estate, Ships, Machinery)
- Evergreen Short-Term Asset Pools (Auto Loans, Invoices, BNPL, MSME Financing)
1) Mortgage-Backed Loan Pools
This involves converting pools of secured, medium to long-term loans such as mortgages into tokenized instruments. This model mirrors traditional securitization while enhancing them with Blockchain-enabled transparency, automation, and liquidity.
Applicability
Suitable for mortgage originators and aggregators seeking to unlock balance sheet liquidity.
Process
A Trust or SPV acquires the mortgage pool and issues digital tokens backed by cash flows.
- Loan-level data ingestion (performing/written-off flags)
- Legal assignment to Trust/SPV and documentation
- Smart contract deployment for pool NFT and cashflow waterfall
- KYC/KYB on-boarding and whitelisting for investors
Features
- Defined amortization schedules and mortgage performance data
- Senior/junior tranches with cash-flow waterfalls
- Regulatory-grade documentation embedded in token contracts
2) Hard Asset Tokenization
Hard Asset Tokenization enables fractionalization of ownership and monetization of income streams from tangible, income-generating assets such as commercial real estate, maritime vessels, and industrial machinery.
Legal Classification of Hard Assets
Fully Owned — Assets with no outstanding liens can be directly tokenized.
Under Lien — Subordinated Tokenization or Refinance and Release approaches apply.
Applicability
Suitable for commercial real estate, maritime fleets, and industrial equipment owners.
3) Evergreen Short-Term Asset Pools
Evergreen pools combine short-tenure lending products into dynamic, continuously replenished portfolios that generate steady income for investors.
Applicability
- Auto and mobility loans (3 – 18 months)
- Trade Receivables and Invoice Financing (30 – 90 days)
- BNPL receivables from eCommerce platforms
- MSME financing
Features
- Evergreen structure with constant replenishment of assets
- Overcollateralization (100 - 120%) to protect investors
- Automatic replacement of defaulted or non-performing assets
- Yield tranching, with junior investors absorbing first losses
Legal Disclaimers
Software Development
It is important to understand that neither we nor any affiliated entity is a party to any transaction on the blockchain networks underlying the Platform; we do not have possession, custody or control over any assets the borrowers or lenders access; and we do not have possession, custody, or control over any user's funds.
Additional Legal Disclaimers
This PazaLabs RWA Litepaper is published by PazaLabs (the "Company") and contains information of an experimental proof-of-concept ecosystem through the use of a new decentralized finance protocol and governance token (PAZA). The PAZA token is not an investment product and has no intrinsic value.
Strict Compliance Notice
PAZAs should be obtained from the PazaLabs DeFi Platform only to make any use of it and anyone obtaining PAZAs off-platform will not be a compliant user of the platform and will not be able to engage on the platform until going through the standard processes required by platform users.
References
- Token Bonding Curves Demystified: Introduction to Real-World Applications
- Bonding Curves - The What, Why, and Shapes Behind It, Paula Pettit
- More price functions for Token-Bonding Curves, Alexandre Pinto, Aventus Network
- Token Bonding Curve Design Parameters, Paul Kohlaas, Molecules Protocol
- Advancing Decentralised Funding Mechanisms, Titan Steiger, Molecule Protocol
- Intro to cadCAD Workshop: Token Engineering and Robot & Marbles Tutorial Walk through
- A Gentle Introduction to Sigmoid Function, Mehreen Saeed
- Achieving Successful Business Outcomes: Driving High Performance & Effective Transformations in a Continuously Evolving Business Environment, Alok K Sinha, CRC Press, 16 Mar 2020