PLEASE READ THE ENTIRETY OF THIS "NOTICE AND DISCLAIMER" SECTION CAREFULLY. NOTHING HEREIN CONSTITUTES LEGAL, FINANCIAL, BUSINESS OR TAX ADVICE AND YOU SHOULD CONSULT YOUR OWN LEGAL, FINANCIAL, TAX OR OTHER PROFESSIONAL ADVISOR(S) BEFORE ENGAGING IN ANY ACTIVITY IN CONNECTION HEREWITH. NEITHER HORIZON LABS LIMITED (THE COMPANY), ANY OF THE PROJECT TEAM MEMBERS (THE HORIZON TEAM) WHO HAVE WORKED ON HORIZON (AS DEFINED HEREIN) OR PROJECT TO DEVELOP HORIZON IN ANY WAY WHATSOEVER, NOR ANY SERVICE PROVIDER SHALL BE LIABLE FOR ANY KIND OF DIRECT OR INDIRECT DAMAGE OR LOSS WHATSOEVER WHICH YOU MAY SUFFER IN CONNECTION WITH ACCESSING THIS WHITEPAPER, THE WEBSITE AT HTTPS://HORIZON.FINANCE/ (THE WEBSITE) OR ANY OTHER WEBSITES OR MATERIALS PUBLISHED BY THE COMPANY.
Project purpose: All contributions will be applied towards the advancing, promoting the research, design and development of, and advocacy for the Horizon protocol. The Company and its affiliates would develop, manage and operate Horizon. The Company is acting solely as an arms’ length third party in relation to the HRZ sale, and not in the capacity as a financial adviser or fiduciary of any person with regard to the sale of HRZ.
Nature of the Whitepaper: The Whitepaper and the Website are intended for general informational purposes only and do not constitute a prospectus, an offer document, an offer of securities, a solicitation for investment, or any offer to sell any product, item or asset (whether digital or otherwise). The information herein may not be exhaustive and does not imply any element of a contractual relationship. There is no assurance as to the accuracy or completeness of such information and no representation, warranty or undertaking is or purported to be provided as to the accuracy or completeness of such information. Where the Whitepaper or the Website includes information that has been obtained from third party sources, the Company, its affiliates and/or the Horizon team have not independently verified the accuracy or completion of such information. Further, you acknowledge that circumstances may change and that the Whitepaper or the Website may become outdated as a result; and the Company is not under any obligation to update or correct this document in connection therewith.
Token Documentation: Nothing in the Whitepaper or the Website constitutes any offer by the Company or the Horizon team to sell any HRZ (as defined herein) 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 contract or investment decision. Nothing contained in the Whitepaper or the Website is or may be relied upon as a promise, representation or undertaking as to the future performance of Horizon. The agreement between the Company (or any third party) and you, in relation to any sale, purchase, or other distribution or transfer of HRZ, is to be governed only by the separate terms and conditions of such agreement.
The information set out in the Whitepaper and the Website is for community discussion only and is not legally binding. No person is bound to enter into any contract or binding legal commitment in relation to the acquisition of HRZ, and no virtual currency or other form of payment is to be accepted on the basis of the Whitepaper or the Website. The agreement for sale and purchase of HRZ and/or continued holding of HRZ shall be governed by a separate set of Terms and Conditions or Token Purchase Agreement (as the case may be) setting out the terms of such purchase and/or continued holding of HRZ (the Terms and Conditions), which shall be separately provided to you or made available on the Website. The Terms and Conditions Documentation must be read together with the Whitepaper. In the event of any inconsistencies between the Terms and Conditions and the Whitepaper or the Website, the Terms and Conditions shall prevail.
Deemed Representations and Warranties: By accessing the Whitepaper or the Website (or any part thereof), you shall be deemed to represent and warrant to the Company, its affiliates, and the Horizon team as follows:
in any decision to purchase any HRZ, you have shall not rely on any statement set out in the Whitepaper or the Website;
you will and shall at your own expense ensure compliance with all laws, regulatory requirements and restrictions applicable to you (as the case may be);
you acknowledge, understand and agree that HRZ may have no value, there is no guarantee or representation of value or liquidity for HRZ, and HRZ is not an investment product including for any speculative investment;
none of the Company, its affiliates, and/or the Horizon team members shall be responsible for or liable for the value of HRZ, the transferability and/or liquidity of HRZ and/or the availability of any market for HRZ through third parties or otherwise; and
you acknowledge, understand and agree that you are not eligible to purchase any HRZ if you are a citizen, national, resident (tax or otherwise), domiciliary and/or green card holder of a geographic area or country (i) where it is likely that the sale of HRZ would be construed as the sale of a security (howsoever named), financial service or investment product and/or (ii) where participation in token sales is prohibited by applicable law, decree, regulation, treaty, or administrative act (including without limitation the United States of America, Canada, New Zealand, People's Republic of China (but not including the special administrative regions of Hong Kong and Macau, and the territory of Taiwan), Thailand, and the Socialist Republic of Vietnam); and to this effect you agree to provide all such identity verification document when requested in order for the relevant checks to be carried out.
The Company and the Horizon team do not and do not purport to make, and hereby disclaims, all representations, warranties or undertaking to any entity or person (including without limitation warranties as to the accuracy, completeness, timeliness or reliability of the contents of the Whitepaper or the Website, or any other materials published by the Company). To the maximum extent permitted by law, the Company, its affiliates and service providers shall not be liable for any indirect, special, incidental, consequential or other losses of any kind, in tort, contract or otherwise (including, without limitation, any liability arising from default or negligence on the part of any of them, or any loss of revenue, income or profits, and loss of use or data) arising from the use of the Whitepaper or the Website, or any other materials published, or its contents (including without limitation any errors or omissions) or otherwise arising in connection with the same. Prospective purchasers of HRZ should carefully consider and evaluate all risks and uncertainties (including financial and legal risks and uncertainties) associated with the HRZ sale, the Company and the Horizon team.
Informational purposes only: The information set out herein is only conceptual, and describes the future development goals for Horizon to be developed. In particular, the project roadmap in the Whitepaper is being shared in order to outline some of the plans of the Horizon team, and is provided solely for INFORMATIONAL PURPOSES and does not constitute any binding commitment. Please do not rely on this information in making purchasing decisions because ultimately, the development, release, and timing of any products, features or functionality remains at the sole discretion of the Company or its affiliates, and is subject to change. Further, the Whitepaper or the Website may be amended or replaced from time to time. There are no obligations to update the Whitepaper or the Website, or to provide recipients with access to any information beyond what is provided herein.
Regulatory approval: No regulatory authority has examined or approved, whether formally or informally, of any of the information set out in the Whitepaper or the Website. No such action or assurance has been or will be taken under the laws, regulatory requirements or rules of any jurisdiction. The publication, distribution or dissemination of the Whitepaper or the Website does not imply that the applicable laws, regulatory requirements or rules have been complied with.
Cautionary Note on forward-looking statements: All statements contained herein, statements made in press releases or in any place accessible by the public and oral statements that may be made by the Company and/or the Horizon team, may constitute forward-looking statements (including statements regarding intent, belief or current expectations with respect to market conditions, business strategy and plans, financial condition, specific provisions and risk management practices). You are cautioned not to place undue reliance on these forward-looking statements given that these statements involve known and unknown risks, uncertainties and other factors that may cause the actual future results to be materially different from that described by such forward-looking statements, and no independent third party has reviewed the reasonableness of any such statements or assumptions. These forward-looking statements are applicable only as of the date indicated in the Whitepaper, and the Company as well as the Horizon team expressly disclaim any responsibility (whether express or implied) to release any revisions to these forward-looking statements to reflect events after such date.
References to companies and platforms: The use of any company and/or platform names or trademarks herein (save for those which relate to the Company or its affiliates) does not imply any affiliation with, or endorsement by, any third party. References in the Whitepaper or the Website to specific companies and platforms are for illustrative purposes only.
English language: The Whitepaper and the Website may be translated into a language other than English for reference purpose only and in the event of conflict or ambiguity between the English language version and translated versions of the Whitepaper or the Website, the English language versions shall prevail. You acknowledge that you have read and understood the English language version of the Whitepaper and the Website.
No Distribution: No part of the Whitepaper or the Website is to be copied, reproduced, distributed or disseminated in any way without the prior written consent of the Company. By attending any presentation on this Whitepaper or by accepting any hard or soft copy of the Whitepaper, you agree to be bound by the foregoing limitations.
In recent months we’ve seen an explosion of interest in DeFi projects accompanied by a surge in value locked in the space. In particular, automated market makers (AMMs) and overcollateralized borrowing/lending platforms have proven quite popular due to:
Their permissionless nature
Their ability to generate strong USD (stablecoin) yields for liquidity providers
The movement is particularly exciting because these new protocols effectively transform counterparty risk into code/protocol risk. Arguably you can never fully eradicate liquidity/liquidation risk, but we note that the popular defi protocols are quite well overcollateralized.
At any rate, the breakthrough is that a digital asset owner can now generate yield on her assets without losing custody of her funds. Interest bearing tokens can now be mobilized for use elsewhere in other applications, ushering in a new era of financial composability and layering. We believe this will prove to be a watershed moment in the history of financial innovation.
In the not so distant future, it’s not hard to envisage market participants shunning trust-based lending in the traditional markets for onchain (overcollateralized) platforms, as they become more digitally acclimatized and the protocols themselves battle tested.
Existing platforms such as Aave and Compound have proven extremely popular due to their permissionless nature and easy to use interfaces. For both, a pair of interest rates are determined algorithmically for each token as a function of supply and demand staked on the platform. Permissionless entry and exit from the platform imply a block by block resolution for transactions.
Aave does offer a stable borrowing interest rate for many tokens, however it is currently set at a significant premium above a recent variable rate average to minimize systemic risk. Notably, neither protocol can offer stable rates to depositors. This is to be expected, as one cannot reliably forecast how the imbalance of supply and demand for a token on the platform will evolve, and hence the associated time series for each pair of interest rates. If a fixed interest seeker were able to lock in an IR for a longer tenor, and realized income turned out to be quite low thereafter for whatever reason, it is not clear who would fund the shortfall. In other words, fixed interest deposits create income risk for the system which can’t be hedged without relying on CeFi markets.
Naturally, this results in the lion’s share of borrowing activity occurring on a floating basis, and as such, an inability to form a term structure for interest rates. One approach may be to create a DEX for interest rate swaps, however this method faces issues around illiquidity. In order for a trader to get ‘set’ on an interest rate swap at an interest rate of Y and tenor T, the trader must effectively find another participant in the market who is willing to take the other side of the swap, at the desired price (Y) and tenor (T). Moreover, even if we imagine that said trader had indeed been successful in finding a match on an illiquid IRS at Y for T, mechanisms would then need to be in place to ensure that sufficient margin is held by both participants to cover any potential payment shortfalls, creating more complications and risks.
Cognizant of the challenges surrounding the formation of fixed interest rate markets without utilizing a DEX / orderbooks, we propose a novel system that incentivizes participants to collectively set interest rate expectations for a given revenue stream, by choosing 1 of 2 options; act as a floating rate liquidity provider (effectively the interest rate maker) or participating in what one might describe as a rolling auction (effectively the interest rate taker).
Consider the following market:
There is a pool of money P consisting of N participants who contribute amounts p1, p2, p3… pN into the pool. “Money” in this context can be any cryptocurrency that can provide a revenue stream, implying that the structure is scalable across different coins/tokens, synthetic or mirrored farming pools and even different blockchains. Within this pool, we have 2 sides of liquidity provision denominated in the pool underlying, floating payout or fixed payout, this can also be extended forward in time.
By definition we have,
The entirety of P is deposited into (an)other DeFi platform(s) where the underlying (variable) income is generated for the protocol. The income stream may vary block-by-block, or it could be a platform that gives daily income payouts. Essentially, the Horizon protocol can be adapted to support any quantization for any revenue stream. Ideally, the choice of lower level platform(s) the protocol deposits P into should be optimized to the best of the protocols ability such that the overall income for Horizon participants is maximized.
Participants do not know how the income stream will evolve, but we allow them to submit fixed interest rate ‘bids’ which (should) represent what they would be happy to receive from the underlying income stream over the relevant time Horizon. The bids are transparent and can be shared amongst the participants or displayed on a website in real time for everybody to see. These bids can also be changed - to a different interest rate level ahead of the completion of any round, in the sense that no participant is locked into a bid for a time period greater than the basic quantization of the income stream. Finally, participants are not forced to submit a bid if they prefer not to. If they so choose, they can remain as a ‘floating’ participant, or switch back to floating from fixed.
For each ‘round’, which is effectively equal to the payout quantization of the token in question, the income of P is distributed preferentially in order from the lowest to highest bids in the fixed interest rate space. Importantly, however, fixed interest rate bids cannot be awarded more than their fixed IR rate for any round. In other words, if you submitted a bid of 7% annualized then you cannot receive more than the equivalent of 7% annualized for each round while your bid remains in place. In this sense, the fixed IR bid acts as a theoretical maximum rate that you can receive over the term of the deposit while it remains in place. And in return for capping your reward, you are compensated by being paid out before the higher IR bids for that round are eligible to receive their payout (preferential treatment).
If there is no income left over after attempting to ‘fill’ all of the fixed IR bids, then the floating pool receives zero for the round (and indeed high fixed IR bids may receive low income or zero for the round if the income runs out before they are filled). Alternatively, if income is high for the round, then all of the fixed IR bids will likely be filled and the excess income then spills over into the floating pool, effectively boosting their income for the round.
The result of this game is that if over time the weighted interest rate of the fixed IR bids is higher than the average realized rate of the underlying income stream, fixed IR bids soak up a greater income than they otherwise would have received at the cost of the participants still willing to accept the floating rate. Conversely, if over time the weighted interest rate of the fixed IR bids is lower than the average realized rate of the underlying income stream, participants still sitting in the ‘floating’ pool effectively receive an income boost.
We posit that in such a game the ‘crowd’ will collectively act in a rational fashion in an attempt to maximize their individual profit according to individual risk preferences, and the weighted fixed IR bid will serve as a reasonably good predictor of future returns for the underlying income stream while providing significant use case for speculation/arbitrage and hedging of DeFi and CeFi flows.
Let’s take a look at an example below. We denote the revenue for rounds 1,2,3… as r1, r2, r3 where rX represents the realized interest rate of the round for the underlying income stream. P is the initial pool, but as it accrues value from the underlying income stream it increases in value such that P becomes P1 after round 1, then P2 after round 2 and so on.
For simplicity we assume in the following example that there is one round per day and each round represents the market rates for that day. As an illustration, this example also does not include cash flows from native token incentive or protocol fee rebates back to participants. The token in question is qUSD (a random stablecoin) and z1, z2, z3 represent the total payout for the protocol for the respective rounds.
Relevant equations related to above example:
Payouts for each successive bid then becomes:
where payout_accum(prev IR bid) denotes the accumulated payout up to the last bid in front of the current IR bid’s calculation.
Q4 2020 Version 1 - Floating and fixed interest rate market with liquidity incentives to bootstrap the protocol. Users would be able to bid in and out of fixed and floating interest rate with a short to mid term tenor.
Q1 2021 Version 2 - Extending to more yieldstreams for protocol expansion, including Yvault, Balancer Pool and other relevant and secure yield streams. Horizon would also support longer tenors.
Q2 2021 Version 3 - Automated yield configuration, a robo-advisor like features, where users can construct their portfolio yield based on their preferences amongst different pools, tenors, and fixed or floating choices.
You acknowledge and agree that there are numerous risks associated with purchasing HRZ, holding HRZ, and using HRZ for participation in Horizon. In the worst scenario, this could lead to the loss of all or part of the HRZ which had been purchased. IF YOU DECIDE TO PURCHASE HRZ, YOU EXPRESSLY ACKNOWLEDGE, ACCEPT AND ASSUME THE FOLLOWING RISKS:
Uncertain Regulations and Enforcement Actions
The regulatory status of HRZ and distributed ledger technology is unclear or unsettled in many jurisdictions. The regulation of virtual currencies has become a primary target of regulation in all major countries in the world. It is impossible to predict how, when or whether regulatory agencies may apply existing regulations or create new regulations with respect to such technology and its applications, including HRZ and/or Horizon. Regulatory actions could negatively impact HRZ and/or Horizon in various ways. The Company or its affiliates may cease operations in a jurisdiction in the event that regulatory actions, or changes to law or regulation, make it illegal to operate in such jurisdiction, or commercially undesirable to obtain the necessary regulatory approval(s) to operate in such jurisdiction.
After consulting with a wide range of legal advisors and continuous analysis of the development and legal structure of virtual currencies, a cautious approach will be applied towards the sale of HRZ. Therefore, for the token sale, the sale strategy may be constantly adjusted in order to avoid relevant legal risks as much as possible. For the token sale, the Company is working with the specialist blockchain department at Bayfront Law LLC.
Inadequate disclosure of information
As at the date hereof, Horizon is still under development and its design concepts, consensus mechanisms, algorithms, codes, and other technical details and parameters may be constantly and frequently updated and changed. Although this white paper contains the most current information relating to Horizon, it is not absolutely complete and may still be adjusted and updated by the Horizon team from time to time. The Horizon team has no ability and obligation to keep holders of HRZ informed of every detail (including development progress and expected milestones) regarding the project to develop Horizon, hence insufficient information disclosure is inevitable and reasonable.
Various types of decentralised applications and networks are emerging at a rapid rate, and the industry is increasingly competitive. It is possible that alternative networks could be established that utilise the same or similar code and protocol underlying HRZ and/or Horizon and attempt to re-create similar facilities. Horizon may be required to compete with these alternative networks, which could negatively impact HRZ and/or Horizon.
Loss of Talent
The development of Horizon greatly depends on the continued co-operation of the existing technical team and expert consultants, who are highly knowledgeable and experienced in their respective sectors. The loss of any member may adversely affect Horizon or its future development. Further, stability and cohesion within the team is critical to the overall development of Horizon. There is the possibility that conflict within the team and/or departure of core personnel may occur, resulting in negative influence on the project in the future.
Failure to develop
There is the risk that the development of Horizon will not be executed or implemented as planned, for a variety of reasons, including without limitation the event of a decline in the prices of any digital asset, virtual currency or HRZ, unforeseen technical difficulties, and shortage of development funds for activities.
Hackers or other malicious groups or organisations may attempt to interfere with HRZ and/or Horizon in a variety of ways, including, but not limited to, malware attacks, denial of service attacks, consensus-based attacks, Sybil attacks, smurfing and spoofing. Furthermore, there is a risk that a third party or a member of the Company or its affiliate may intentionally or unintentionally introduce weaknesses into the core infrastructure of HRZ and/or Horizon, which could negatively affect HRZ and/or Horizon.
Further, the future of cryptography and security innovations are highly unpredictable and advances in cryptography, or technical advances (including without limitation development of quantum computing), could present unknown risks to HRZ and/or Horizon by rendering ineffective the cryptographic consensus mechanism that underpins that blockchain protocol.
In addition, the potential risks briefly mentioned above are not exhaustive and there are other risks (as more particularly set out in the Terms and Conditions) associated with your purchase, holding and use of HRZ, including those that the Company cannot anticipate. Such risks may further materialise as unanticipated variations or combinations of the aforementioned risks. You should conduct full due diligence on the Company, its affiliates, and the Horizon team, as well as understand the overall framework, mission and vision for Horizon prior to purchasing HRZ.