Next Generation

Financial Protocol
Velo Team

13 July 2020
ABSTRACT
Velo’s core mission is to build a decentralized settlement network that allows partners to safely
and securely transfer value between each other in a timely and transparent way. The initial focus
is to serve partners in the remittance and money transfer markets of Southeast Asia. The imme-
diate effects of Velo’s partners using Velo technology will be felt by the large population of un-
derbanked and financially underserved in the region, as they enjoy lower fees, faster transactions,
and wider coverage; all without having to directly interact with Velo technology or VELO tokens.

As the use of digital assets increase, there is a need for tools designed to bridge the gap between
the physical and digital world. The barriers between various forms of digital payments must be
knocked down for competitiveness and productivity to increase for all financial institutions, both
large and small.

Velo’s objective is not to replace existing banking infrastructure or fiat money, but instead to
complement and connect them to a wide array of partners through a blockchain payment
system that also provides for trustless, guaranteed settlement. Velo’s technology basically
acts as a guarantor to all digital credit transfers in the network, fostering trust by providing a
collateral layer backing all transactions. The collateral value is representative of the value of
in the system. The Velo Network connects Trusted Partners, which are businesses that have
been vetted and approved to join the network, to each other through the blockchain. This allows
end users of each partner firm to access the benefits and services of other partner firms that are
part of the Velo Network.

Digital credits are the medium of exchange, and their settlement is guaranteed by Velo. The
VELO token is issued on the Stellar blockchain network, an open-source distributed ledger used
specifically for payments. As described on stellar.org, “Stellar has no owner; if anything it’s owned
by the public. The software runs across a decentralized, open network and handles millions of
transactions each day. Like Bitcoin and Ethereum, Stellar relies on blockchain to keep the network
in sync.” The VELO token is used by Trusted Partners as collateral for receiving digital credits and
represents a value link between fiat deposits and digital credits.

The Velo Network is a permissioned settlement layer that avoids direct transfers of fiat money
while still enabling participants to conduct efficient and secure cross-border transactions. As
an optimized liquidity management layer, Velo aims to develop a collection of systems that will
promote liquidity among partners and the ecosystem. One such system will take the form of a
decentralized exchange and yet another will intelligently search for cross-country balances that
offset the net payment flow, allowing expedient clearing, and minimizing risk. Trusted Partners
can exchange fiat money of one origin country for credits backed by VELO. Smart contracts will
be employed to link VELO collateral to digital credits and actual fiat deposits, allowing digital cred-
its to be used securely for intraday transactions with other Trusted Partners.

1
TABLE OF CONTENTS
Abstract 1

1. Introduction 3
1.1 Background 3
1.2 What is Velo? 3
1.2.1 Velo Tokens 4
1.2.2 Built on Stellar 4
1.2.3 Underlying Distributed Ledger Technology 6

2. How the Velo Protocol works 6

Phase 1
2.1 Digital Credit Issuance 7
2.2 Digital Reserve System 8
2.2.1 Reserve Pool 9
2.2.2 Maintaining Velo Collateral Pools’ Value Link with Digital Credit and Fiat Deposits 9
2.2.3 The Foundation and Third-Party Oversight of the Velo Protocol 9
Phase 2
2.3 Velo Decentralized Exchange and OTC 10
Phase 3 and 4
2.4 Decentralized Lending of Digital Credits 11
2.5 Voting on Changes to the Velo Protocol 11
2.6 Reputation System 12
2.7 A Network of Fiat to Digital Asset On/Off Ramps 12

3. Architecture 13
3.1 Overview 13
3.2 Move Stellar Asset to a Smart Contract Chain 13
3.3 Minting Digital Credits 15
Summary of operations 15
3.4 Getting Velo Token-Fiat Exchange Rates 16

4. Use Cases 17
4.1 Cross Border Remittance 18
4.2 Payments 20
4.3 Lending 20
4.4 Loyalty Points 21

Summary 23

Important Notice 24

Acknowledgements 25

Velo Lexicon 25
 1 INTRODUCTION

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.

VELO ECOSYSTEM
1.2 What is Velo? EXTENDED
NETWORK

ECOSYSTEM

Value Transfer

Lending Payments

Cross Border Digital Credit Digital Reserve

Remittance Issuance System Loyalty Points

Exhibit 1: Velo Ecosystem

3
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 de-
posits 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 require-
ment 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 man-
aged by the Digital Reserve System whose operation will facilitate the growth of the network
and the value of the VELO token in an orderly manner.

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 1.2.2 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.

BITCOIN ETHEREUM STELLAR RIPPLE

Transaction
Up to 1 hour Up to 15 minutes 3 to 5 seconds 3 to 5 seconds
Confirmation Time

Average $5.45 per $0.30 per $0.01 for 300,000 $0.01 per 200,000
Transaction Fees transaction transaction transactions transactions

3,000+ 1,500
Transaction 3 transactions 7 transactions
transactions transactions
Per Second per second per second
per second per second

Consensus Stellar Consensus Proof of

Proof of Work Proof of Work
Mechanism Protocol (SCP) Correctness

Exhibit 2: Blockchain comparison table

5
 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.

2 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

6
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 com-
munity 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.

PHASE 1

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.

7
 Trusted Partner buys
A VELO Tokens from Exchange Exchange

Trusted Partner borrows

B VELO Tokens from The Foundation
Foundation
the Foundation grants VELO
C Tokens for Market Development

Trusted
Partners Trusted Partner posts VELO Tokens Velo Protocol
as collateral via Velo Protocol

Velo Protocol issues Digital Credit

to Trusted Partners

LEGEND

VELO Tokens acquisition processes Digital Credit Issuance processes

HOW TO ACQUIRE VELO

The Foundation grants VELO Tokens
A Buy from Exchange B Borrows from The Foundation C for Market Development (rare)

Exhibit 3 : Velo Protocol

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.

8
 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 de-
mand. In response, the DRS will automatically rebalance the amount of VELO tokens in the Col-
lateral 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. Contingency plans will be in place to account for severe market dislocations and
trading halts where a price is not available.

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 DRS REBALANCE MECHANISM

DRS Smart Contract

VELO
Token Token
Token price Reserve Pool Collateral Pool Trusted Partner

=
Collateral Pool Value
DAY 1 of USD 100 $100 of
Digital Credit 1 VELO Token : $1 10,000 VELO Tokens
Issuance 100 VELO Tokens X Digital Credit
$1 VELO Token price

To maintain a Collateral Pool value equal to the digital credit

+ $1

=
value, DRS will move 50 tokens to the Reserve Pool

DAY 2 +50 VELO

VELO Token’s price 1 VELO Token : $2
from 10,000 VELO Tokens
Tokens $100 of
50 VELO Tokens X
goes up to 2 USD 10,050 VELO Tokens $2 VELO Token price Digital Credit

To maintain a Collateral Pool value equal to the digital credit

=
- $1.50 value, DRS will move 150 tokens to the Collateral Pool

DAY 3 +150 VELO

VELO Token’s price
from 10,050 VELO Tokens
Tokens 200 $100 of
1 VELO Token : $0.50 VELO Tokens X
goes down to 0.5 USD 9,900 VELO Tokens $0.5 VELO Token price Digital Credit

Exhibit 4 : DRS Rebalance Mechanism

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.

10
 PHASE 2

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

11
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.

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 3 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 se-
mantics 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 de-
ploy and execute smart contracts in order to build the Digital Reserve System.

Exhibit 5 shows the overall process flow for the Warp Protocol

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.

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 Velo User Smart Contract
1 Interface 2 3
Chain*
Trusted Initiate Mint / burn
partners
initiate
Command cross-chain
transfer
tokens on a
smart contract
Digital Reserve
transaction via
user interface
Line transaction platform via
Evry Warp
System
Trusted Evry Warp protocol

Partners Protocol Reputation

Web Portal System

API Oracle

Lock / unlock Monitor asset

3 assets in a
custodian multi-
4 locking on DRS
event
signature address

Facilitator
Mint Digital
5 credits on
Stellar

*Velo Protocol is designed to support various smart contract platform including Evrynet smart contract platform

Exhibit 5: Process Flow for Warp Protocol

14
The ‘Warp’ protocol uses Stellar’s Hash Timelock Contract (HTLC) to implement cross chain
swaps between Stellar and a smart contract chain. On a smart contract chain, a smart contract
for managing the cross chain asset needs to be deployed in order to support moving the Stellar
asset to a smart contract chain. The smart contract for managing the cross chain asset needs
to implement the following interface:

Interface{

Mint(amount, hash(secret), timeout, targetAddr)

Claim(secret)

BalanceOf(addr)

Transfer(amount, destAddr)

Burn(secret)

After the ‘Warp’ protocol has locked VELO tokens on the Stellar chain, the ‘Warp’ protocol will
then mint VELO tokens on the smart contract chain and lock it with the hash(secret) given by a
Trusted Partner.

Later on, the Trusted Partner must call the ‘Claim’ method with the secret in order to claim VELO
tokens on a smart contract chain. Subsequently, the Trusted Partner can lock their VELO tokens
in the smart contract chain with the DRS contract in order to mint

3.3 Minting Digital Credits

The Digital Reserve System provides the following interface:

Interface{

Mint(peggedValue, peggedCurrency, amount, abv)

Redeem(amount, abv)

Once a Trusted Partner has deposited VELO tokens to a smart contract chain, a Trusted Partner
can “lock” its VELO tokens up in exchange for digital credits by calling ‘Mint’ method on the
Digital Reserve System Smart Contract (DRSSC). The Digital Reserve System uses the digital
credit/fiat conversion rates in a smart contract in order to stabilize the price as a parameter.
Later on the DRSSC will log the event into a smart contract chain.

15
Trusted Partners with a longer transaction history and better reputation within the system can
have a larger credit line to mint a digital credit. The specific credit line computation is left for
future work.

Trusted Partners can also redeem their digital asset for VELO tokens using the ‘Redeem’
method. This method causes the Trusted Partner’s digital credit balance to decrease, and
release VELO tokens.

Finally, the Trusted Partners can move VELO tokens from a smart contract chain to Stellar chain
through the ‘Warp’ protocol.

Summary of operations
Method Effects

Digital Credit is minted, the Velo Tokens holds by

Mint Trusted Partner on a smart contract chain
decreased.

Digital Credit is decreased, the Velo Tokens holds

Redeem by Trusted Partner on a smart contract chain
increased.

3.4 Getting Velo Token-Fiat Exchange Rates

In order to accept credit creation and redemption, the DRSSC must track an accurate
estimate of the Velo Token-fiat exchange rates. The DRSSC will utilize the oracle protocol, such as
Provable, Chainlink, etc, on a smart contract chain to get Velo Token-fiat exchange rates once
there are credit creation, redemption, and rebalancing events.

16
 4 USE CASES
Trusted Partners can use a digital credit issued via the Velo Protocol in many ways, including
remittance, payments, lending, and loyalty points, or other forms of value transfer. The following
use cases present examples of the value transfer pathways digital credits will enable. Cross
border remittance will be the focus of the Velo Network in Phase 1 of development. The other
use cases will come into play later in the Velo story.

4.1 Cross Border Remittance

Global remittance flow is enormous. In 2018, global remittance flow was estimated at $700B
1
(The World Bank, 2019). Remittance in Southeast Asia (SEA) amounted to $63.9 billion in
2016, while transfer fees grew from 3% to 7.1% over the six years prior. The high transfer fees
are partly due to legacy technology in the formal remittance sector as well as limited access to
formal currency exchange markets.

Traditionally, a Money Transfer Operator (MTO) conducts cross-border transactions using a

single server to record transactions among its international subsidiaries, going through
traditional financial institutions or entering into a bilateral agreement with an MTO in
another country. This limits the number of partners MTOs have, creating a fragmented and
uncompetitive market, resulting in high transaction costs. The Velo Network allows
Trusted Partners to transact without intermediaries since Velo’s non-profit entity and the Velo
Network’s Digital Reserve System (DRS) operates under pre-set committed rules that
ensures VELO token collateral back every fiat deposit and digital credit. Velo, thus, creates more
efficient financial infrastructure that will help our partners and consumers send money using
digital assets cheaper and faster.

There are two ways MTOs can use the Velo Protocol to participate in the Velo Ecosystem
to conduct their business: either by being a Trusted Partner, or else by working through a
Trusted Partner. Initially, smaller MTOs can sign up with an existing Trusted Partner who is
already in the Velo Ecosystem. Using this gateway allows the MTO to enjoy the benefits of the Velo
Ecosystem, namely the expansion of their remittance corridor possibilities without the
corresponding increase of working capital that would be required in order to deposit fiat in
every country they want to transfer money.

Alternatively, an MTO applies to become a Trusted Partner by subjecting itself to a thorough

vetting process. Once approved, the MTO, now a Trusted Partner, then can accept smaller MTOs
fiat deposits and use VELO tokens through the Velo Protocol to get issued digital credits in the
form of their local fiat currency. The Trusted Partner MTO will then be issued an equivalent
value of digital credit that they can send to other Trusted Partners or other MTOs that are also
linked to the Velo Ecosystem.
1
"Record High Remittances Sent Globally in 2018 - World Bank ...."
https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-2018
Accessed 12 Jul. 2019.

17
In all cases, the MTO improves speed and transparency for all their transactions because the
digital credits are sent using distributed ledger technology and validated using the Stellar
Consensus Protocol.

Velo Protocol allows Agents and partners to connect directly and digitally instead of through
the multiple layers of the current financial system, saving costs and creating massive
efficiencies, speeding up the entire process.

MTO Onboarding And Guaranteed Cross Border

Settlement Walkthough:
An MTO in Thailand has decided to sign up with a Trusted Partner already connected to the
Velo Network because they want to enjoy the speed, security, and low cost of blockchain based
value transfers. They deposit a small amount of fiat in the Trusted Partners trust bank account.
The deposit amount is usually a few days’ worth of their average money transfer volume. The
Trusted Partner instantly engages the Velo Protocol by posting VELO tokens of the equivalent
value as MTO’s fiat deposit. In return, the Trusted Partner receives the same value of digital
credits that will be assigned on the blockchain to the MTO’s sub account.

The VELO tokens are now locked in a smart contract that links to the settlement of the digital
credit in the system. As a result:

1. The MTO is credited a digital representation of their fiat deposit that they can use
to facilitate transactions in the network

2. The MTO can now send and receive money to and from any other MTOs in the Velo
Network regardless of location

3. VELO tokens now guarantee the MTO settlement of funds, via smart contract,
should the Trusted Partner fail to meet their obligation for end of period settlement

4. The fiat deposit now guarantees the Trusted Partner settlement of funds, via smart
contract, should the MTO fail to meet their obligation for end of period settlement

An end user of the MTO will not see the VELO tokens, the smart contract, the blockchain, or
even the digita credit. For example, if a migrant worker employed in Thailand wants to send
money home to Cambodia, he or she will approach an MTO, hand over the fiat, put in the
destination details and pay the fees. Whether the MTO is connected to the Velo Network
or not, the migrant worker goes through the same steps. For the migrant worker, the only
difference they will experience by using a MTO connected to the Velo Network is less fees,
faster transaction times, and broader coverage for send and receive destinations.

18
 MTO ONBOARDING PROCESS
MTO ONBOARDING PROCESS

1
1 2
2
Deposit THB with
Deposit THB Send
with command to Velo Send command to Velo
Trusted Partner Trusted Partner
Protocol to mint vTHB Protocol to mint vTHB

MTO MTOTRUSTED
Distribute vTHB
Distribute vTHB TRUSTED
Issue vTHB to
Issue vTHB to
to MTO PARTNERS Trusted Partner
to MTO PARTNERS Trusted Partner
4 3
4 3

Exhibit 6: MTO onboarding process

NEW CROSS-BORDER TRANSFER PROCESS

Liquidity Provider
Providing liquidity between vTHB and vKHR

THAILAND CAMBODIA

Deposit Withdraw
Thai Baht vTHB vKHR Cambodian
Riel
TRUSTED
PARTNERS
MTO A MTO B
TOM Accounting &
Settlement Layer
MARY
+ THB + vKHR
- vTHB (Backend) - KHR

Orderbook Matching
among MTOs

Decentralized Exchange & Global Transparent Ledger

Exhibit 7: Trusted Partner using the digital credits received via th Velo Protocol

19
 4.2 Payments

Currently, payments are scattered throughout a vast expanse of mediums and systems, with
myriad endpoints and start points, creating an endless number of permutations for consumers
and businesses, and these options only continue to grow. The amount of digital payments in
Southeast Asia was estimated at USD $500B in 2016 2(World Payments Report 2018), while
the options for sending payment to a business are too numerous to count. The process of
coordinating and integrating all these methods from payment confirmation to settlement
can take days due to the friction experienced at each of the various counterparties along the
journey, even for the most widespread global payment service providers.

The Velo Ecosystem has the potential to consolidate the market in Southeast Asia into a
widespread payment gateway with digital and physical payment points. This means digital
credits can be used for payment and directly sent, received, and settled through Velo’s
network of Trusted Partners. This also represents an enormous opportunity and use case
focused on the unbanked population. The unbanked worker can utilize the virtual or
physical agent or e-wallet to make a payment using digital credits outside of the traditional
banking system. Velo’s Network of Trusted Partners represents a way to capture this massive
flow by allowing customers to make payments with any retailer or partner via their last mile
endpoints, creating a massive network of payment points that can be settled directly with payment
partners.

4.3 Lending
Since the credit crunch in 2008, the lending market is undergoing a massive shift as the
banking industry faces competition and innovation from digital banking, finance startups and
disruptors. In addition, there are greater challenges to access financial loans via conventional
banking institutions due to added regulation and tighter credit requirements.

Traditional bank lending, credit scoring models, know-your-customer policies, as well as

disbursement, repayment and collection procedures are all changing rapidly as old models are
being replaced in the digital world. A blockchain lending, disbursement, and repayment solution
streamlined by stable digital credits would remove the steep barriers for small and medium
borrowers. By issuing a digital credit balance using the Velo Protocol, peer-to-peer and small
businesses would be able to borrow to digital credits more efficiently without the barriers of the
traditional banking model.

Lending using the Velo Protocol allows for a Trusted partner to receive customer credit and
KYC data, then process those inputs in their own systems to make a lending decision. After
the Trusted Partner decides to lend, they can immediately disburse funds through the Velo
Ecosystem, all outside the time consuming restrictions of the existing banking industry.

2
“World Payments Report 2018 – World Payments Report.”
https://worldpaymentsreport.com/resources/world-payments-report-2018.
Accessed 12 Jul. 2019.

20
The use of a digital credit system makes disbursements, repayments, and collection
immediate in terms of acceptance and verification. The speed of disbursement and verification
also means the capital becomes more efficient and, therefore, cheaper, providing an advantage
for a lender using the Velo Protocol.

Across the Asia Pacific region (excluding China), the volume of consumer lending in 2017 was
US$824.55m 3(Asia-Pacific Alternative Finance Industry Report 2018) with most of the inves-
tor activity being derived from individual investors (57%) rather than institu- tional investors
(43%). According to Lending Global Market Report 2019, the total market capitalization of
cryptocurrency lending platforms is estimated nearly US$8,200B by 2022, illustrating the
vast market opportunity. Through the Velo Protocol and Velo Ecosystem, lending for Trusted
Partners has a chance to be transformed, streamlined, digitized and made more efficient and
cheaper by bypassing traditional banking infrastructure.

4.4 Loyalty Points

Gift cards or cash cards are an alternative form of cash that retailers sell as part of their
marketing strategy. Generally, this cash card is bought as a gift, hence the name “gift card”.
The gift card can be used as cash at the store responsible for issuing the card or at its
business partners. Another alternative form of cash, Loyalty points, cannot be bought, but can be
earned through promotions or purchasing activity at the store. Loyalty points are used to retain
existing customers by encouraging them to come back and spend points in exchange for some
products or services at the store.

Both gift cards and loyalty points cannot be cashed out and, in most cases, have an expiry date.
Consumers often do not end up using the card, resulting in a waste for the purchaser, as well
as a potential lost opportunity for the retailer, as the average gift card holder spent 38% beyond
the value of the card.

Velo Ecosystem can address this issue by enabling a digital credit exchange on a secondary
market for gift card and loyalty points that are issued on Velo Protocol. This allows consumers
to freely trade their unspent points to others who want them, creating a more efficient market
for points.

3
“ASPAC Alternative Finance Industry Report 2018 - KPMG Australia.” 3 Dec. 2018,
https://home.kpmg/au/en/home/insights/2018/12/diversifying-growth-asia-pacific-alternative-finance-report.html.
Accessed 12 Jul. 2019.

21
 LOYALTY POINTS

LOYALTY NETWORK MARKET SIZE

$9.3B by 2024

The global loyalty management market was valued at $2.617B in

2018 and is expected to reach a value of $9.3B by 2024

CASH/GIFT CARD MARKET SIZE

$1.6T by 2023

The global gift cards market size was valued at $585,311M in

2016, and is projected to reach $1,591,461M by 2023, growing at
a CAGR of 15.7% from 2017 to 2023

Exhibit 9: Loyalty Points

22
SUMMARY
Velo aims to create a decentralized settlement network that allows partners to transfer
value safely and securely between each other in a timely and transparent way. It uses Stellar to
increase liquidity and transaction volume, and it has a robust feature set that enables
Trusted Partners to interact effortlessly with each other and offer services across physical and
digital barriers. The VELO token acts as collateral to ensure settlement, representing the value of
digital credits and fiat deposits in the network.

The many phases of development are designed to test, improve, and perfect the functionality
of the Velo Network while adapting to the changing marketplace and needs of our business
partners. Phase 1 will focus on deploying a bullet proof core system that stands against the
test of active, high volume money transfer transactions among a limited number of partners.
Phase 2 will introduce a decentralized crypto exchange that will promote liquidity for all digital
credits and VELO token pairs and allow the community to confidently grow. Phase 3 and 4
will focus on adding new financial products that can serve the underserved and underbanked
community, like decentralized lending. This stage of development will also seek to decentralize
the governance of the Velo Protocol as well as build out cash in and cash out points for digital
credits and VELO tokens.

Velo will build real world use cases for the VELO tokens and digital credits. Through its
network of partners Velo has the physical and digital reach to improve the lives of millions
of underbanked and underserviced people by providing fast, affordable financial services,
powered by innovative technology, connecting nontraditional and traditional financial
institutions together into a seamless web. In the end, Velo seeks to create a global
decentralized settlement value transfer system that can be used as the backbone of a new
paradigm for delivering financial services to the world.

23
IMPORTANT NOTICE
This Document is not a Prospectus
This document does not constitute nor imply a prospectus of any sort. No wording contained herein
should be construed as a solicitation for investment. Accordingly, this Whitepaper does not pertain in
any way to an offering of securities in any jurisdiction worldwide whatsoever. No regulatory authority
has examined or approved any of the information in this Whitepaper. Rather, this Whitepaper constitutes
a technical description of the Velo Protocol, Velo technology or VELO tokens only.

This Document is not Advice or an Offer

This Whitepaper does not constitute or form part of any opinion on any advice to sell, or any solicitation
of any offer by the distributor/issuer of the VELO tokens to purchase any VELO tokens nor shall it or any
part of it nor the fact of its presentation form the basis of, or be relied upon in connection with, any con-
tract or investment decision. No person is bound to enter into any contract or binding legal commitment
in relation to the sale and purchase of the VELO tokens and no cryptocurrency or other form of payment
is to be accepted on the basis of this Whitepaper.
Any agreement as between the Distributor and you as a purchaser, and in relation to any sale and pur-
chase, of VELO tokens is to be governed by only a separate document setting out the terms and con-
ditions (the “T&Cs”) of such agreement. In the event of any inconsistencies between the T&Cs and this
Whitepaper, the former shall prevail.

This Document is not a final technical specification

This document does not constitute nor imply a final technical specification of the Velo Protocol, Velo
technology or VELO tokens. Information presented on this whitepaper, technical or otherwise, is meant to
outline the general idea of Velo Protocol, Velo technology or VELO tokens, their design and its use-cases
and is subject to change with or without notice. For the latest up-to-date technical specification, check
out the updates and documentations on the official website: [insert link]

No Distribution where Restricted

This Whitepaper, any part thereof and any copy thereof must not be taken or transmitted to any country
where distribution or dissemination of this Whitepaper is prohibited or restricted.
You are not eligible to purchase VELO tokens if you are a citizen, resident (tax or otherwise) or green card
holder of the United States of America, are a sanctioned person, or a citizen in a state which is subject
to OFAC sanctions or the FATF High Risk and Other Monitored Jurisdictions List.

Disclaimer of Liability
To the maximum extent permitted by the applicable laws, regulations and rules, Velo and/or its affiliates
and business partners shall not be liable for any indirect, special, incidental, consequential or other
losses of any kind, in tort, contract or otherwise (including but not limited to loss of revenue, income or
profits, and loss of use or data), arising out of or in connection with any acceptance of or reliance on this
Whitepaper or any part thereof by you.

No representations and warranties

Velo and its affiliates do not make or purport to make, and hereby disclaims, any representation, warran-
ty or undertaking in any form whatsoever to any entity or person, including any representation, warranty
or undertaking in relation to the truth, accuracy and completeness of any of the information set out in
this Whitepaper.

24
ACKNOWLEDGEMENTS
Thanks to Jed McCaleb, David Mazières, and Professor Robert Townsend
for input and feedback to this paper.

VELO LEXICON

Term Definition

VELO Token Cryptocurrency used in the Velo Protocol

Entity that holds VELO tokens (Velo Reserve Pool, Velo Collateral
Foundation
Pools, Velo Deposits)

Digital Credits Digital value units created by posting VELO tokens

Core Engine of Velo Labs which is comprised of the following:

Digital Credit Issuance = Protocol that issues Digital Credit

Velo Protocol
Digital Reserve System = Protocol that manages Velo collateral in
order to maintain Digital Credit value

Pre-vetted business entities that post Velo Tokens in return for

Trusted Partners
Digital Credit

Central Bank, Security and Exchange Commission, Ministry of

Regulators
Finance

Network of Trusted Partners and their secondary business/

Velo Ecosystem
banking/market connections

25