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Homogenizers

What is a homogenizer? A homogenizer is an ERC-20 fungible token that enables a set of digitized loans with similar (but not necessarily identical features) to be traded as a bundle. Since they are ERC-20s, they can be traded on Uniswap or any other AMM.

How does it work?#

A homogenizer is an ERC-20 with some special features:

  • Contains homogenize and dehomogenize methods that swap digitized loans for homogenizer tokens
  • The total balance of a homogenizer is always equal to the balance of the loans that are locked in that homogenizer
  • A USDC deposit is required to homogenize a digitized loan. This adjustment varies by loan in such a way that make each loan in the homogenizer essential fungible.
  • Like most ERC-20s, homogenizers are not entitled to any principal or interest collections from borrowers. Any cash flow received by a homogenized loan will be redirected to the PandiFi DAO Treasury.

What is a homogenization premium?#

A PandiFi homogenizer is an ERC-20 fungible token contract that represents a bundle of loans that can be considered relatively homogeneous. Relatively homogeneous isn't synonymous with fungible, however. For example, say a borrower owns two near-identical homes on the same block. Two loans collateralized by those two homes are almost identical, but they're still not totally fungible.

A homogenization premium is a dollar amount required to be paid by an EOA that wants to homogenize a PandiFi digitized loans that more-or-less accounts for such differences. In the above example, imagine one loan has an interest rate of 3.000% and the second loan has an interest rate of 2.875%. All else equal, the EOA should paid a higher homogenization premium on the loan with a 2.875% interest rate.

In the standard PandiFi V1 homogenizer contract, a loan's homogenization premium consists of two parts:

  1. Loan Level Price Adjustment. For conventional U.S. mortgage loans, the credit premium is generally equal to the loan level price adjustment as established by Fannie Mae and Freddie Mac.
  2. Coupon Rate Adjustment (or a Buydown Adjustment). A homogenizer is typically associated with a specific loan interest rate. Say a homogenizer is associated with a 3.000% interest rate. Then a 3.000% interest loan would have no rate adjustor, whereas a 2.875% interest loan would have a rate adjustor.

Why should I buy a homogenizer token?#

There are two reason you'd buy such a token:

  • You'd like to acquire one of the loans in a given homogenizer. To do so, you first buy a suitable quantity of the homogenizer and then you dehomogenize the loan on the PandiFi Interface. You can even swap the digitized loan for the actual loan for a small fee to cover costs associated with loan delivery.
  • You would like to earn a return by providing liquidity for homogenizer tokens.

Why should I invest in a homogenizer token?#

You should not invest in a Homogenizer. Full stop. A homogenizer is a utility token that empowers liquidity for NFTs on protocols that typically only support ERC-20s. It is not an investable asset in the long run and will lose money except in rare circumstances. Note that interest and principal cash flow associated with homogenized loans are retained by the PandiFi DAO Treasury. So, for example, if a borrower pays $1,000 in principal cash flow, the homogenizer's balance will declined by $1,000, but the holder of that homogenizer will not receive that cash flow. In other words, a homogenizer is a depreciating asset.

Why don't homogenizer tokens receive cash flow?#

  1. While ERC-20s (and cryptocurrencies in general) can be structured to receive cash flow, that's not the norm today. More importantly, AMMs like Uniswap don't have a natural way to support tokens that distribute cash flow.
  2. Homogenizer are utility tokens, not securities. PandiFi's philosophy is that loans should be unstructured as much as possible and that digitized loan investors should exercise control over the servicing of the underlying loan. By withholding cash flows, PandiFi is explicitly discouraging investors from holding homogenizers in lieu digitized loans.
  3. By keeping the homogenizer cash flows, PandiFi creates a revenue source to fund operations and growth.

PandiFi V1 Homogenizers#

Anyone can create a homogenizer, which are defined by six parameters:

  1. Eligibility Contract. This is another user-defined contract that specifies a general class of criteria. For example, an eligibility contract might screen U.S. 30-year mortgage loans that are originated to Fannie's Mae guidelines.
  2. Maximum Rate. This is the maximum coupon rate of a loan that is eligibile for a given homogenizer.
  3. Minimum Rate. This is the minimum coupon rate of a loan that is eligibile for a given homogenizer.
  4. Buydown Ratio. This is a multiplier to account for loans with a net coupon rate less than the maximum rate. For example, if the homogenizer's maximum rate is 3.000%, the loan's net coupon is 2.500%, and the buydown ratio is 5, then the coupon rate adjustment would be 2.500% of the current unpaid principal balance of the loan.
  5. useArmMargin. By default, maximum rate is the loan's original note rate. However, if useArmMargin is set to true, then the ARM margin would be used instead. This would generally be useful for defining homogenizers associated with post-reset adjustable rate mortgages.
  6. useCurrentRate. If useArmMargin is set to true, then the current coupon rate would be used instead. This would generally be useful for defining homogenizers associated with loan whose current coupon rate is materially different than the original rate e.g., modified loans.

The focus on PandiFi V1 is U.S. residential mortgages. While anyone can create a homogenizer, PandiFi has created the following homogenizers and will distribute PANDI tokens to liqudity provider for these homogenizers.

ERC-20 SymbolERC-20 Name
CF30-2500-1PandiFi 30-Year Conforming1 2.500% (BD to 2.000% at 5x)
CF30-3000-1PandiFi 30-Year Conforming1 3.000% (BD to 2.000% at 5x)
CF30-3500-1PandiFi 30-Year Conforming1 3.500% (BD to 2.000% at 5x)
CF30-4000-1PandiFi 30-Year Conforming1 4.000% (BD to 2.000% at 5x)

Reservations#

Digitized loans can be reserved by the admin address. A reservation means that only a designated Ethereum wallet can dehomogenize a loan. There are two cases where this feature would be employed:

  1. An investor may need time to perform due diligence in the context of purchasing a specific loan. For many traditional investors, a loan acquisition is contingent on data or documents that are not readily available on the blockchain. In such cases, PandiFi may reserve such loans to allow the buyer to perform their due diligence. Note that document-level due diligence is a mandatory step in acquiring loans for most regulated financial institutions.
  2. A loan seller may request that PandiFi sell a loan on its behalf prior to document delivery. Loan delivery and custody is time consuming and often involves physical documents that have to be secured in the PandiFi Loan Trust. Therefore, some sellers would prefer to have a sale price commitment prior to delivery. In such cases, PandiFi would mint a digitized loan and sell it (in its homogenized form) on Uniswap on behalf of the seller. When the loans are secured in the PandiFi Loan Trust, PandiFi would distribute USDC (or USD) to the seller. In the rare case that the seller fails to delivery the loan, PandiFi would dehomogenize and burn the digitized loan.

At face value, the procotol's reservation feature appears to be a form a centralization. Indeed, for PandiFi V1, only the admin address has such reservation rights. However, the rules pertaining to reservations are subject to PandiFi Governance. Therefore, if PDFI investors vote to restrict reservation rights in some way, PandiFi Inc. would comply with that and possibly even code the restriction in future versions of the protocol.

  1. Conforming balance U.S. mortgages originated to Fannie Mae or Freddie Mac Guidelines↩