Velo Protocol powering the world’s first federated credit exchange network


Imagine a network where partners – from traditional finance, CeFi and DeFi sectors – are all created equal. This network has no central nodes and all data is sent from node to node via the shortest and most efficient route available. In this network, all participants agree on a set of fundamental ideas – be it policies, algorithms, a hierarchy of governance or otherwise – for the benefit of the network as a whole. Beyond these fundamental concepts, network participants retain their autonomy.

This is the vision that Velo Labs pursues with its Federated Credit Exchange network. This network, powered by the Velo protocol, allows network participants to freely issue digital credits indexed to any stable currency by staking VELO tokens. Network participants can then use these digital credits in their day-to-day business operations.

To participate in the Velo Labs federated credit trading network, there are several conditions that all network participants must comply with. These include:

  • VELO tokens serve as a universal network guarantee;
  • VELO token transactions are confirmed using a federated Byzantine agreement – the Stellar Consensus Protocol;
  • The main function of the network is based on the Velo protocol.

Behaviors outside these stipulations are left to the network participants.

The Velo protocol

The Velo protocol is a financial protocol that issues digital credits attached to any fiat currency. It ensures that these digital credits are always properly secured to maintain a 1: 1 digital credit to fiat value ratio. The Velo protocol has two main components. A digital credit issuance mechanism and a digital reserve system.

The digital credit issuance mechanism is the part of the Velo protocol that issues digital credits pegged to any fiat currency. The digital reserve system automatically rebalances these collateral pools to maintain a 1: 1 value ratio between digital credits and their associated fiat currency. In other words, as the price of guaranteed tokens increases in the open market, the digital reserve system automatically removes said tokens from individual collateral pools and adds them to the system reserve pool. Likewise, when the price of guaranteed tokens drops in the open market, said tokens will automatically be removed from the reserve pool of the system and added to each individual guarantee pool.

Issuing digital credits and balancing collateral pools in this way requires full Turing smart contracts, which the Stellar network does not support. As VELO is based on Stellar, a bit of cross-chain magic is needed. Enter the Hermes Warp protocol.

The Hermes Warp protocol

The Hermes Warp Protocol is an inter-chain protocol that links Stellar and other chains such as Evrynet.

When smart contract functions are required, the relevant Stellar-based tokens are locked into a multi-signature custodian address and the Evrynet-based tokens – corresponding to each individual Stellar-based token – are released. When a network participant needs to convert their digital credits back to Stellar-based tokens, the Evrynet-based tokens are withdrawn from circulation. The original Stellar-based tokens are then unlocked from their custody accounts. On a related note, Velo Labs recently announced a partnership with Matrixport Cactus to provide cutting edge childcare services.

The Hermes Warp protocol also allows converting Ethereum based tokens to and from Evrynet and Stellar based tokens. This paves the way for all Ethereum-based projects to connect to the Velo Labs federated credit trading network.

Velo Labs Federated Credit Exchange Network

Supported by the Stellar network and the CP Group – one of the largest conglomerates in the world – Velo Labs currently serves business partners in South East Asia. By connecting the legacy financial sectors, CeFi and DeFi, Velo Labs’ federated credit trading network positions Velo Labs as one of the few blockchain projects with a clear path to mass adoption.

Learn more about Vélo.

© 2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.


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