CAFE — Dynamically Priced Coffee
Buy and trade CAFE tokens, or redeem them for coffee bags
Today we are launching our first dynamically priced coffee sale. This single-origin specialty coffee comes from the El Paraiso region in Honduras and was farmed by Oscar Ramirez. The coffee lot (200 lbs.) was tokenized into CAFE tokens using DAI as collateral and then added to a liquidity pool on Uniswap to buy or trade the tokens. The price of CAFE changes when tokens are bought and sold. It’s the first step towards a decentralized commodity exchange.
For two months you will be able to buy, sell or trade your tokens. After that, you will be able to redeem one token for one bag of freshly roasted specialty coffee for pickup at ETHDenver (free of shipping charge) or shipped anywhere in the world (for a small shipping fee). Because the lot is roasted in one batch for us to ship you the freshest coffee, you need to redeem your CAFE tokens or sell them back to the liquidity pool after the two month period. This special batch will seriously level up your coffee game ;)
You can buy your CAFE Tokens at affogato.co
What is CAFE?
CAFE (Coffee in Spanish) is an ERC-20 smart contract that represents a tokenized lot of coffee. Each CAFE token is backed by one pound of green specialty coffee and DAI as collateral, at the current coffee commodity price * 150%. The physical coffee is handled by a “validator” which in order to mint CAFE tokens first needs to stake DAI. Once the farmer approves the amount, the tokens are minted and deposited in the farmer’s wallet. The final owner of these tokens can sell, trade or burn them to redeem the physical coffee.
CAFE started as a project on the Beyond Blockchain virtual hackathon, which won first prize, we wanted to solve coffee farmers’ lack of financial liquidity by creating a token with coffee as collateral. Later we received a follow-on grant from ConsenSys Labs to improve our research and implement our solution with farmers and cooperatives.
Farmers and cooperatives already store coffee in warehouses waiting for the coffee to be sold or for prices to go up, so tokenizing coffee and using it as collateral for loans is not foreign. The words confidence, trust, reputation, and patience come up frequently when talking to coffee farmers, which blockchain can solve.
Why is CAFE necessary?
Coffee Farmers sell coffee beans at their lowest value (~$0.70/lb) because they don’t have simple financial tools and liquidity to continue processing green coffee beans (~$1–2/lb). The farmers who are able to get loans are hit with very high-interest rates (18–25% APR) from financial intermediaries (banks are worse) or agro suppliers. At the current coffee futures price, coffee farmers are barely covering costs.
Coffee is traded around the world using the coffee futures price. This year’s coffee futures price was the lowest in 15 years. Only 30% of the people who buy these futures actually buy the coffee. So, 70% of the coffee price is determined by people who aren’t in the coffee business. This price lumps dozens of countries, varieties, and qualities into one commodity price.
With a tokenized coffee lot, farmers can sell it directly to consumers, request a loan using CAFE as collateral, or even add it to a liquidity pool just like we are doing in this pilot. We are Building a decentralized commodity coffee exchange which can also serve as a storefront to sell coffee directly to consumers
What Is Uniswap?
Uniswap is the most simple and elegant solution for the exchange of tokens on the Ethereum blockchain. It is decentralized, open-source, censorship-resistant, and secure. Centralized order books are replaced with a market maker mechanism that incentivizes liquidity providers and eliminates middlemen. The price of tokens adjusts based on the relative size of the liquidity reserves and the size of the trade.
To learn more, visit the Uniswap documentation or read Cyrus Younessi’s blog post.
Who is Affogato?
Remember those guys selling coffee at ETHDenver or ETHNewYork?
Affogato is the team behind the CAFE token, we are building decentralized tools and financial instruments for the millions of coffee farmers around the world. Most farmers are prey to quick cash and predatory loans, which keeps them in a poverty cycle. DeFi empowers farmers and gives them the liquidity to produce better quality coffee and escape this cycle.
What’s next for Affogato?
We want to build the first decentralized commodity exchange for standard and specialty coffee. Even though we want to evaluate the results of this dynamically priced coffee sale, there are some improvements that we can make in order to tokenize more coffee lots and sell dynamically priced coffee at scale:
Scaling
- Migrate the ERC-20 Token model to an ERC-1155 (Each batch of specialty coffee is an NFT but the coffee from that lot is fungible)
- Custom expiring dates for different types of coffee packaging.
Security
- Use oracles for the price feed.
Business Model
- Use Chai / rDAI / cDAI as a stake instead of DAI (to generate income that’s sustainable at scale)
- Governance token: a small percentage of each coffee sale will gain interest in Compound and token holders will have a claim on that interest.
Resources
- The Coffee Handler Contract is live at:
0x8D5871DE1eC64Bea8deEfdBD1D46E5d649471E7F - The CAFE ERC-20 lives on the Ethereum mainnet at: 0x0f7f08A1b784d2a51357EfCFB5f4874cBf5DEE28
- You can test it out at https://rinkeby.affogato.co
- The source code can be found on Github.
Disclaimer
We built the CAFE contract using the best practices, we believe it’s secure enough to buy, sell or redeem tokens, yet it has not gone undergone a full audit, use it at your own risk.
Contact us
You can follow Affogato on twitter @affogatoco or email us at robert@affogato.co
