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Frequently Asked Questions:
→ What is Florence Finance?
The Florence Finance protocol connects real-world lending and decentralized finance (DeFi).
→ How risky is borrowing against virtual assets?
First off, from a borrower’s perspective, it makes little difference if funding comes from stablecoins or as fiat from a bank. And from a lender’s perspective, credit risk and yield are not changed through administration. Besides, the platform itself is antifragile – there is literally “no money in the bank” that can be stolen or hacked.
→ What kind of loans does Florence provide?
Florence Finance does not lend directly to SMEs. Our concept is based on lending to existing credit providers and lending platforms in an intermediate step. Generally, we provide funding on terms similar to or even slightly better than existing funding mechanisms. Competing with legacy funders (or banks) on price is not our goal. We want to create an alternative funding source to reduce dependence as a factor for both lenders and borrowers. We’re aiming to drive the adoption of crypto on the whole and to decentralize the process of credit creation.
→ Who are the lenders?
Florence Finance has full KYC and AML-compliant funding partners. All of the loans are underwritten and backed by them. Loan Vault tokens – we’re talking about tokenized lending-pool participation here – can be gained by third parties in the secondary market through the EURS/FLR Curve pool or other DEX and exchanging these FLR's for Loan Vault tokens.
→ I want to become a borrower. How do I get approved?
It’s as easy as pie. Apply online and share your necessary compliance information. Apart from that, we’ll only need to know about the size and nature of your credit request. Leave everything else to us – we look forward to your application!
→ Let’s assume I become a lender and fund a pool. What happens to my capital?
Your capital will be transferred to a borrower of the lending pool. The borrower will set up and redistribute your capital according to their business model and the loan agreement with the pool or, respectively, with Florence Finance. Upon maturity of the loan, Florence Finance will deposit the principle in the treasury for 1:1 redemption by FLR token holders and the interest-bearing portfolio of the Loan Vault will be naturally reduced thus incentivising redemption by Loan Vault token holders. There is however no guarantee of redemption as long as funds can still be utilized within the pool mandate. This basically means that if you wish to exit your position, you are primarily dependent on the secondary market – alternatively, you can wait for pool expiry or maturity.
→ Are there any risks involved in lending?
The main risk associated with lending on Florence Finance is credit risk. This basically refers to the uncertainty that arises through a borrower's default. However, determining the default risk of a borrower or a loan in a lending pool requires a trained/specialized credit officer and agency-approved credit models. So it's imperative to do this work on all of the pools' borrowers and their respective business models – which, at the outset, will be handled by Florence Finance and its partners. We aim to promote and simplify credit information transparency over time. In the meantime, we're building a default reserve that can absorb more minor default losses should they occur.
→ Is my money safe with Florence Finance?
Florence Finance is not a bank and has never been designed to be a bank. We explicitly don’t take custody of your digital assets. However, Florence Finance is a clever and future-forward alternative. It represents a decentralized platform that enables the transformation of digital assets (stablecoins, that is) into real-world loans or credit assets through its customers (SME lending platforms). The Florence Finance lending pools exchange stablecoins for credit exposure (LP tokens) with a yield – whether in stablecoin, FLR, or FFM token – proportional to the credit risk taken. Given this, all that happens on-chain, and all the yield is used to either reward funders or to grow and improve the platform. There is no safer, better, or more efficient way to create, administer and get access to this kind of credit exposure.
→ What about IT and hacking risks?
The Florence Finance protocol is in its Beta-testing phase right now. The next step will include code audits and decentralized governance – which should be relatively safe as there is “no money” in custody on the platform.
→ Under what kind of law or jurisdiction does Florence Finance operate?
The Florence Finance protocol is a limited liability company (LLC) registered in the DMCC (commodity-free trade zone and designated crypto sandbox) in Dubai, UAE. The lending operations are administered through a limited-liability sister company named Florence Finance Europe BV, registered in the Netherlands.
→ Is Florence Finance regulated?
As Florence Finance focuses on B2B-lending activity, which is unregulated in the EU, and funds its activities in crypto (which are not deemed deposits or money by the regulator), it is currently not subject to financial or banking regulation in either Dubai or the EU. Given the nature of our business and our customers, however, we aim to upkeep industry standards proactively concerning governance, ethics, KYC, and AML – should our company become regulated to comply with any of these regulations in the future.