Velo

Velo Labs is developing a federated credit exchange network. The network is powered by the Velo Protocol, a blockchain financial protocol that enables digital credit issuance, and borderless asset transfers for businesses utilizing a smart contract system.

Velo Protocol utilizes the Stellar Consensus Protocol to process and settle transactions. In its ecosystem, the protocol allows for various business use cases based on its major function collateral-backedfunction—collateral-backed digital creditscredit issuance, which correspondcorresponds to fiat currencies that can be used for transfers.

VELO tokens are the utility tokens created for the transference of value on the Velo network and for settlement stability. The VELO token’s utility lies in its dual feature as it serves as both collateral, as well as an entrance requirement to the Velo Ecosystem.

In 2022, Velo Labs and iRemit, a Filipino-owned, non-bank remittance service provider, partnered to provide individuals and businesses access to cross-border payments via blockchain technology and Velo Digital Credits.

Velo Labs is developing a federated credit exchange network. The network is powered by the Velo Protocol, a blockchain financial protocol that enables digital credit issuance, and borderless asset transfers for businesses utilizing a smart contract system.

Velo Protocol utilizes the Stellar Consensus Protocol to process and settle transactions. In its ecosystem, the protocol allows for various business use cases based on its major function collateral-backed digital credits issuance, which correspond to fiat currencies that can be used for transfers.

VELO tokens are the utility tokens created for the transference of value on the Velo network and for settlement stability. The VELO token’s utility lies in its dual feature as it serves as both collateral, as well as an entrance requirement to the Velo Ecosystem.

Velo Labs

1.1 Background

Velo intends to create a guaranteed decentralized settlement layer with a highly liquid value

exchange on a federated permissioned blockchain technology between Trusted Partners.

Initially, these partners may take the form of large remittance providers, banks, or e-wallets.

Each partner, in turn, would be connected to thousands of end users that would be able to

interact with any other partner in the network.

The remittance market is an exceptionally large addressable market that can immediately

benefit from Velo. Despite the recent advancements in financial infrastructure, it remains

difficult to do a cross-border money transfer between different types of institutions and service

providers. Velo’s technology allows trustless and secure digital credit transfers that will

remove friction and barriers from the current value transfer process. Velo will enable any one

Trusted Partner to transact with any other Trusted Partner at any time and any place once

they become part of the Velo Ecosystem. This would allow businesses, migrant workers, and

end- consumers to get better service at a lower cost than provided by current offerings.

In addition to remittance scenarios, the Velo Network will also include a wider range of

financial services which will require the use of smart contracts. As Stellar is one of the best

blockchain networks for digital asset transactions, the Velo Network will also expand blockchain

adoption of Stellar and will include smart contract functions on EvryNet, which will also enable

cross-chain solutions

At a high level, Velo is an open protocol that enables Trusted Partners to receive digital

credits on a distributed ledger. The digital credits are collateralized by VELO tokens that link

the credits to fiat deposits. Trusted Partners can use the digital credits in their day to day

operations through the blockchain. Currently, the primary components that form the Velo

Protocol are the Digital Credit Issuance mechanism and the Digital Reserve System (DRS). The

DRS ensures that digital credits will settle anywhere in the network and are always backed by

right amount of VELO token collateral.

More technically, Velo is a set of smart contracts that are used to issue credit linked to fiat deposits and backed by VELO tokens on EvryNet, a protocol that supports many smart contract

functionalities. The VELO token itself is issued on the Stellar blockchain network, which is used

for the VELO token’s transaction settlement and clearance.

Once Trusted Partners receive fiat deposits from business partners, they can instantly

receive an equivalent amount of digital credits by posting VELO tokens through the Velo

Protocol as collateral. The DRS is a key factor in keeping the digital credits backed by VELO fully

collateralized and representative of the original value of deposited fiat while the price of VELO

tokens fluctuate in the open market. The DRS is designed to ensure stability by managing the

number of VELO tokens held as collateral. The aim is to maintain the relationship between

token value and digital credit value as close to 1:1 as possible.

The quality of the business network and ecosystem will be the key and a primary focus of

commercial and technology development. Trusted Partners will bring their business networks

to the Velo Ecosystem and each of the networks will be able to connect to the other. We

envision remittance service providers, e-wallets, and other financial services to be able to

seamlessly utilize each other’s functionality, and this will drive quick adoption of the Velo

Protocol and distributed ledger technology in general.

1.2.1 Velo Tokens

VELO tokens are utility tokens designed to ensure the settlement of digital credits issued in

the ecosystem by being used as smart contract locked collateral for value transfers. Value

for VELO token holders will increase as demand for digital credits grow and transfer volumes

increase with the addition of more business partners and end users.

The VELO token’s utility lies in its double feature as both collateral and as an entrance requirement to the Velo Ecosystem. Each use of the Velo Ecosystem starts with the deposit of fiat

and the issuance of a matching amount digital credits by engaging the Velo Protocol, which

requires VELO tokens. As more Trusted Partners join the Velo Ecosystem and as each of their

businesses grow, the demand for newly issued digital credits, and subsequently VELO tokens,

will also grow. The expansion of the Velo Ecosystem will create demand for VELO tokens in the

open market because Trusted Partners will need to purchase or borrow the tokens to receive

digital credits to meet their operational demands. Digital credit flow and settlement will be managed by the Digital Reserve System whose operation will facilitate the growth of the network

and the value of the VELO token in an orderly manner1.2.2 Built on Stellar

Many cryptocurrencies are limited for payments due to their latency and the time-consuming

consensus process which prevents the currency from being able to process high transaction

volumes. Due to these limitations, cryptocurrencies have yet to pose a real threat to the leading

incumbents in the payment space. When compared to the performance of the SWIFT network,

cryptocurrencies offer a viable means for much faster point-to-point transfer of money between

entities, be it businesses or individuals. Transactions of these types can commonly take up to

two to three business days to settle, whereas the leading blockchain technologies are able to

do this instantly depending on the platform deployed.

The reason Stellar was chosen as the technology for issuance of the VELO token is because

it is one of the fastest, cheapest, most efficient, and secure blockchains in the market. When

looking at the major blockchains, Bitcoin is only able to process 3-4 transactions per second

and Ethereum 20 transactions per second. From a transaction cost perspective, Ethereum

and Bitcoin are cost prohibitive for small payments due to high network activity. The Stellar

blockchain can complete 1000 transactions per second, which is especially suitable for

financial scenarios such as remittances and payments.

When compared with Ripple, which has a few technical similarities to Stellar, there are

several key differences worth highlighting. Stellar enjoys equally fast performance with a

slightly cheaper transaction costs. Additionally, Stellar it is more easily scalable, and is a

uniquely sustainable platform for decentralized financial products and services. Another major differ

ence between Stellar and Ripple, however, is in the business ethos of the two companies:

Ripple is focused on the improvement of traditional banking corridors with an aim to replace

SWIFT, whereas Stellar is directly aligned with the provision of broader financial services to the

unbanked/underbanked market segment. Stellar also has the lowest eco-footprint of any of the

blockchain providers which keeps operating and environmental costs at a minimum.

As a result, Stellar was the best for VELO token issuance, as the digital credits issued through

the Velo Protocol will be able to benefit from the high liquidity, high performance, minimal cost,

and security offered by the Stellar Network.

1.2.3 Underlying Distributed Ledger Technology

The Velo Protocol is the financial infrastructure that issues digital credits based on

distributed ledger technology (DLT). DLT creates a decentralized system for trust and

transaction validation using consensus, whereby multiple nodes agree on a proposed

transaction and then update the ledger held by each node. Transactions in the Velo Ecosystem

will be validated by implementing the proven Stellar Consensus Protocol.

COMPONENTS OF THE VELO PROTOCOL

AND HOW IT WORKS

Development of the Velo Protocol will be rolled out in phases. Each phase will add

critical functionality to meet the needs of the Velo Network and its partners as it grows. New

features will focus on improving liquidity of digital credits and VELO tokens and adding

structural flexibility to provide new types of services and improve the partner experience.

We believe this phased approach allows Velo to conduct real world testing and improvement to

the Velo Protocol while incorporating feedback from users in a transparent way. Over time, we

will continually make the Velo Ecosystem more robust and the Velo Network more usable and

secure.

In Phase 1, slated to be fully launched at the end of Q1 2021, the Velo Protocol will consist

of two main components: a Digital Credit Issuance mechanism and the basic version of the

Digital Reserve System. During Phase 1 operations, we envision having only a few Trusted

Partners operating in the remittance and money transfer space. During this phase, VELO

tokens will have already been listed on multiple exchanges and both the Digital Credit Issuance

mechanism and DRS and its algorithmic rebalancing operations will be fully tested under active

use. An independent foundation will be responsible will be responsible for overseeing the Velo

Protocol and they will hire a 3rd party to add another layer of oversight, so all participants are

confident in the Velo Protocol’s operation from the first day.

In Phase 2, the plans are to add a Decentralized Velo Crypto Exchange that will help facilitate

deep cross asset liquidity for VELO tokens and digital credits. Eventually, the exchange may

open to trading other digital assets. The OTC service will be operated through through the Velo

Crypto Exchange, helping to add critical liquidity in the first year of operations. Other partners

may also be invited at this point to participate as liquidity providers on the exchange. Deep

liquidity will promote higher transaction volumes, tight spreads, and massive user adoption.

Phase 2 is planned to be completed and running by the end of Q3 2021, if not earlier.

In Phase 3, once the Velo Ecosystem is full of Trusted Partners, each with many actively

engaged users, Velo will look to offer decentralized lending solutions for those who want to

COMPONENTS OF THE VELO PROTOCOL

AND HOW IT WORKS

borrow digital credit. The prevalence of high digital credit flow at this stage will allow Velo to

build smart lending functionality that connects participants to each other in a reliable and safe

way. Additionally, Phase 3 will also include the introduction of a mechanism to let the community vote on certain parameters of the Velo Protocol, that will include (but is not limited to)

the addition of new functions, types of assets, and lending rates. The specific details of this

mechanism are still being discussed. Phase 3 is planned to be completed by Q1 2022.

In Phase 4, Velo will add in a Reputation System for partners that will evaluate historical use

of the Protocol and the Velo Ecosystem and allow favorable terms for digital credit issuance,

lending, and access to certain features. Phase 4 will involve the building of a worldwide network

of fiat, digital credit, and VELO token on and off ramps. This step will usher in real world liquidity

and interoperability for all Trusted Partners and end users. Phase 4 should be complete by Q3

2022.

Together, all these components will allow Trusted Partners to tap into the reach, operational

efficiency, and transparency of the Velo Protocol and its underlying distributed ledger

technology. The Velo Protocol enables multiple business use cases that are all based on its

core function: issuing digital credits that are tied to fiat deposits and backed by VELO token

collateral and that can be used for frictionless value transfer with guaranteed settlement.

2.1 Digital Credit Issuance

The Digital Credit Issuance mechanism allows any vetted business (i.e., Trusted Partner) on

the network to receive digital credits by posting VELO tokens to the Velo Protocol. The Trusted

Partner does this to enable trustless settlement of the digital credits in the system. The Velo

Protocol locks the VELO tokens in a smart contract that is tied to a fiat deposit held by the

Trusted Partner as well as the digital credits. This 3-leg contract ensures final settlement of

digital credits throughout the Velo Network and ties the VELO collateral to both the fiat deposit

and the digital credit.

The Velo Protocol diagram below show the way the Digital Credit Issuance will work. The

Foundation is the independent entity that holds all non-circulating VELO tokens and

oversees operation of the Velo Protocol. VELO tokens act as collateral to the digital credit and

are managed by the Digital Reserve System (DRS). The Trusted Partner buys the VELO tokens

from the market as needed or borrows the VELO tokens from the Foundation for a fee. These

methods for obtaining VELO tokens are demonstrated in exhibit 3.

2.2 Digital Reserve System

The other key component of the first version of the Velo Protocol is the Digital Reserve System,

which is an algorithmic rule set applied via smart contract that manages the Reserve Pool and

the individual Collateral Pools backing each issuance of digital credit. In later development, the

DRS will also manage the lending of VELO tokens to Trusted Partners.

The goal of the DRS is to achieve efficient token supply management while ensuring

digital credits are backed by the proper amount of collateral and are tied to the value on

initial fiat deposits. The DRS is comprised of a rebalance mechanism that works between the

Reserve Pool and Collateral Pools backing digital credit and fiat deposits by adjusting VELO

token numbers based on VELO token price so at any given time the locked VELO collateral is of

equivalent value to the digital credits.

2.2.1 Reserve Pool

Within the Digital Reserve System construct is a Reserve Pool of VELO tokens held

by the Foundation. The DRS can use the VELO tokens held in the Reserve Pool to

manage the value of the collateral backing digital credits and fiat deposits. This management will

ensure that settlement of credits in the Velo Network is guaranteed. The DRS will also track the

Reserve Pool to Collateral Pool ratio to ensure that the rebalancing mechanism operates in the

most efficient manner within prescribed risk limits. Initial stress testing of the system identified

the highest stress scenario as one where digital credit issuance increases greatly while VELO

price sharply declines. As the system is currently designed, this combination is highly unlikely

as a large spike in digital credit issuance should create market demand for the VELO token

and increase its price. In any event, the DRS will include risk parameters and limits around a

minimum Reserve Pool to Collateral Pool ratio coupled with actionable contingency plans that

secure the system’s operation.

2.2.2 Maintaining Velo Collateral Pools’ Value Link with Digital

Credit and Fiat Deposits

The Digital Reserve System will algorithmically rebalance the VELO token Collateral Pools

backing the issued digital credit to maintain a 1:1 value link between the digital credit and the

VELO token and the original fiat deposit. When a Trusted Partner received a fiat deposit from a

end user, they then engage the Velo Protocol to generate a digital credit by posting and locking

an equivalent value of VELO tokens via the Velo Protocol. The DRS then tracks these pooled

tokens by assigning them to a collateral pool that is linked with the digital credit issued and

adjusting the amount of tokens in the pool at any given time to maintain the value at initial

issuance.

At the time of creation, the value of the digital credit equals the value of VELO tokens deposited

as well as the fiat original deposited with the Trusted Partner. After this period, however, the

price of VELO tokens will naturally fluctuate on the open market as a function of supply and demand. In response, the DRS will automatically rebalance the amount of VELO tokens in the Collateral Pool to maintain the 1:1 value link with the value of digital credits created. If the price of

VELO tokens goes up, then VELO tokens will be removed from the Collateral Pool and returned

to the Reserve Pool. This action reduces the number of tokens in the Collateral Pool to maintain

1:1 link between collateral value and digital credit value. If the price of Velo Token goes down

relative to the digital credit, then the DRS will add VELO tokens to the Collateral Pool from the

Reserve Pool, to maintain the value link of collateral value and digital credit value.

An Oracle system that intelligently filters specific pricing sources will determine Velo price for

rebalancing and its methodology will be published to the community prior to use to maintain

transparency.

2.2.3 The Foundation and Third-Party Oversight of the Velo Protocol

Once Velo Labs generates VELO tokens they will be transferred to an independent

Foundation to ensure transparency and proper governance. The Foundation will be

responsible for monitoring the function of the Velo Protocol. This will include the Digital

Credit Issuance mechanism, the Digital Reserve System, and the balances and flows of the

Reserve Pool, Collateral Pools, and other VELO token pools that relate to Community and

Strategic Development. In addition, the Foundation will hire a 3rd party to audit all

aspects of the Velo Protocol, from code function, token balances, and general operations.

The Velo Team hopes this level of disclosure will give confidence to market participants

and Trusted Partners as well. Details on the Foundation will be forthcoming later.

2.3 Velo Decentralized Crypto Exchange and OTC

To promote liquidity in VELO and involve more participation in the Velo Ecosystem from

both new and existing partners, Velo plans to build its own decentralized exchange

(DEX) for the exchange of Velo trading pairs only. The exchange will display an order book

for VELO tokens and digital credit pairs stacked with liquidity from a collection of

participants. All members will require being vetted by Velo to be reliable liquidity

providers before being allowed to join. Participants will be dedicated market making

firms, Trusted Partners that want to optimize the use of their digital credits and VELO

holdings, digital asset management firms, digital banks, and other exchanges that meet the

requirements of Velo. Velo will operate an OTC service through the Velo Crypto

Exchange, helping to add critical liquidity in the first year of operations. The purpose

of the DEX will be to provide a robust marketplace to exchange VELO for digital

credits and other digital assets. With more liquidity and trading volume, spreads between

digital credit pairs will narrow and the entire value transfer system will become more efficient.

Velo is currently exploring with its legal advisors the licences and regulatory approvals required

for it to conduct such services in different jurisdictions.

PHASE 3 and 4

2.4 Decentralized Lending of Digital Credits

The holy grail of traditional banking disintermediation is decentralized peer to peer lending.

Although this brings a host of regulatory challenges, Velo feels that creating a decentralized

lending operation between businesses is a more immediately viable goal. The very same

mechanisms used in money transfer can be adjusted to allow digital credits to be lent

between Trusted Partners. Again, digital credits would represent real world fiat deposits in the

network and also be backed by VELO token collateral.

The benefit of using Velo Network would be in receiving dynamic lending rates that adjust to

supply and demand for digital credit loans. Pricing would be transparent and representative

of real-world demand from business partners. In Phase 3, once the Velo Network has proven

itself as a safe, fast, and cheap method of value transfer, development will move to create a

democratic and fair decentralized business to business lending network as well.

2.5 Voting on Changes to the Velo Protocol

Initially, the rules of the DRS will be set by Velo Lab’s developers to ensure smooth

operation of the nascent Velo Protocol as the network gathers users and liquidity. As the Velo

Ecosystem grows and the distribution of Velo Token holders becomes more decentralized, a

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voting mechanism run by an independent Foundation, will be responsible for adjusting

the rules implemented by the DRS. Perhaps all Velo Token holders, who will be

impacted under any applied changes to the DRS, will be asked to vote on rules

and policies. The policy changes could include caps on digital credit issuance, setting of

lending rates, setting of borrowing rates, adding functionality to the DRS, and the

specifics of Velo collateral pool rebalance operations. The specific voting mechanism

for the governing council has yet to be determined.

2.6 Reputation System

Leveraging proprietary data gathered over time, the Velo Protocol aims to provide data

analytics in real time, and to tailor its operations to deliver credit scoring tools to rate Trusted

Partners. After an extensive history of being a “good actor” and a valued part of the Velo

Ecosystem, a Trusted Partner would obtain a High Reputation Score. Obtaining this status

would unlock the ability to borrow VELO tokens from Velo Labs as part of the process to obtain

digital credits. Negative effects associated with defaulting on payment of fees on borrowed

tokens would be reflected in a Low Reputation Score, resulting in limited access to the Velo

Ecosystem. Penalties and fines could also apply.

2.7 A Network of Fiat to Digital Asset On/Off Ramps

In order to fully realize the vision of Velo as a decentralized settlement network that

allows partners to safely and securely transfer value between each other in a timely and

transparent way, Velo will seek out partners that allow for exchange between fiat and digital assets,

including the VELO token. By building an extensive global network of digital banks and

regulated cryptocurrency brokers and exchanges, the Velo Network can ensure that the VELO

token is collateral that has real world value and guarantees cash settlement, should the need

arise. The Velo team is in the process of actively engaging with potential partners to make the

goal of decentralized settlement network with fiat off ramp capability a reality.

ARCHITECTURE

Velo consists of a collection of protocols and software objects that make up the components

described so far in this paper. It pulls inspiration from various blockchains and software systems

to achieve its goals.

3.1 Overview

Velo is a set of smart contracts which are used to issue digital credit on an extension of the

Stellar network called EvryNet that supports smart contract functionality. The VELO token is

issued on the Stellar blockchain network, which is used for VELO token’s transaction settlement

and clearance.

VELO tokens and the digital credits are ordinary Stellar assets, subjected to all the rules and semantics of all Stellar assets. Stellar provides a solid foundation for maintaining a robust ledger

of account balances. However, Stellar does not support the complex smart contract semantics

necessary to build the entire Velo Protocol on top of it, hence, the smart contracts can be built

using any smart contract platform such as Ethereum, Tendermint, or Evrynet - an intelligent

financial service platform.

Velo Protocol will utilize a cross-chain protocol called ‘Warp’, co-developed with Evrynet, to

provide a bridge between two different blockchains, Stellar Blockchain, designed for real-time,

reliable digital assets movement and a Smart Contract Chain, which provides the ability to deploy and execute smart contracts in order to build the Digital Reserve System.

Exhibit 5 shows the overall process flow for the Warp Protoco

3.2 Moving the Stellar Asset to a Smart Contract Chain

To mint digital credits through the Velo Protocol, Velo Token as an ordinary Stellar asset must

first be transferred to a smart contract chain in order to lock VELO tokens on DRS as collateral

for the digital credit.

Velo uses ‘Warp’ protocol to move VELO tokens from the Stellar chain to a smart contract chain.

Trusted Partners will interact with ‘Warp’ through a command line-tool, API, or web portal. While

frontends will be connected to the ‘Warp’ protocol, they are also connected to a smart contract

chain to facilitate Trusted Partner interaction with the DRS smart contract

Velo Labs is building a unique federated credit exchange network. This network is powered by the Velo Protocol, which is a blockchain financial protocol enabling digital credit issuance and borderless asset transfers for businesses using a smart contract system. The project's core mission is to enable partners to safely and securely transfer value between each other in a timely and transparent way. To do this, the Velo Protocol enables its partners to issue digital credits via a smart contract layer, using the Stellar Consensus Protocol to process and settle transactions. Within its ecosystem, the Velo Protocol enables multiple business use cases that are all based on its core function: issuing collateral-backed digital credits, which correspond to any fiat currency that can be used for frictionless value transfer.