Letter of Credit

LOC

A Letter of Credit (LOC) is a contractual agreement that guarantees payment on time and in full from a buyer (creator) to a seller (beneficiary).

The AtomAI LOC comprises two elements: the collateral asset, which secures the LOC, and the credited asset, representing its redeemable value. The protocol supports LOC issuance irrespective of the collateral and credit asset types.

The critical aspect of every LOC is the redeemability of its full credited value. To mitigate potential market volatility all LOCs require sufficient overcollateralization. Liquidity must be available for collateral-asset-to-credited-asset conversion, guaranteeing beneficiaries invariably receive the credited asset.

Create

A user deposits collateral assets (e.g., WETH or USDT) into the AtomAI vault contract in order to create a LOC for a credited asset amount (i.e., the LOC value). The protocol supports LOCs issued by distinct accounts as well as multi-party stake pools.

Extend

Individual LOCs expire at a specified time but are extendable by the creator indefinitely; pool-based LOCs are designed for perpetual duration with time-delayed withdrawals.

Redeem or Cancel

A LOC can only be redeemed or canceled by the designated beneficiary address. Alternatively, the beneficiary may generate a cancel or redeem signature to allow a third party to expire the LOC or accept the credited assets at the specified recipient address. This account can be a smart contract solely responsible for generating gasless signatures, authorizing transfers to separate accounts.

Modify

The prevailing exchange rate between the collateral and credited assets can fluctuate significantly. The LOC creator may be inclined to supply additional collateral to mitigate conversion risk or withdraw collateral for more efficient asset utilization.

Convert

To provide the credited asset upon a redeem request, the protocol allows a LOC to be converted, whereby collateral assets are exchanged for proportionate credited assets. Conversions are implemented in a method consistent with liquidation processes of prevailing money market platforms.

A primary feature of the protocol is that beneficiaries never acquire or possess the underlying collateral; if a LOC is redeemed, credited assets are transferred directly to the recipient address.