Locking Liquidity For Solar Projects With NFTs
Unlike the treasuries of most defi projects, the Asoba DeFi treasury is put to work on the projects that funds are raised to support. This deployment of funds for operational purposes means that liquidity is essentially locked into the project, and only begins to be returned once the solar project is stable and cashflowing. At which point, the kWh generated by the project (represented by the cash in USD paid by off-takers for that electricity) can be used to mint governance tokens that are returned to LPs. In the future, as we qualify our projects for carbon credits through either self-attestation or the traditional gatekeepers (Verra or Gold Standard), we can provide additional asset backing (carbon credits) beyond essentially the cash value of electricity generated.
Rather than relying on failed (3,3) game theory staking models or having to build complex bonding mechanisms into the smart contract to attract liquidity, our approach is to create NFTs. Like a more traditional fund structure, the purchase price of the NFT relative to total funds raised for a project determines the share of rewards returned to that particular NFT via Zuva governance tokens. To address the natural and obvious sell pressure governance, our smart contract has vesting. The solar-backed Zuva tokens that NFT holders get is proportional to how long those tokens are held. The longer a governance token is held, the higher the rewards - and by extension, the greater the discounted cash flow value of the NFT those tokens are bound to becomes. The benefit to retail investors is that while the Power Purchase Agreements we sign with our government and large scale commercial clients are for 20-25 years, growth of rewards from holding rise fast enough to support more short term buy-farm-flip models of 2-3 years.
Because our focus is ultimately on sustainability, the maximum total value of rewards distributed to LPs is firmly tied to the actual outside revenue generated by the solar projects. Due to the nature of leveraged equity purchase and inflation baked into the cost of electricity our offtakers pay, the overall rate of annual yield generated by the project will increase over the life of the Power Purchase Agreements we sign with our off-takers. Further, the NFT model allows us to treat project equity raised via NFT as locked liquidity while simultaneously allowing LPs to liquidate their positions as needed.
We recognize that many retail crypto investors will find the concept of having to wait several years to start realizing double digit total returns (IRR and annual yield combined) rather "slow". A large part of that comes down to the risk profile of the underlying asset: solar energy assets by definition are significantly lower risk than, say, algorithmic stable coins or farm tokens whose valuation is based on hype and investor FOMO.
Our value proposition to LPs is returns competitive with commercial or industrial real estate projects, with a minimum of 10% levered IRR. And that is by design. Energy is not a "get rich quick" space. We strongly prefer investors who invest on a realistic time horizon. Investors who make decisions based on a strategy, a thesis, a specific conviction about clean energy or conviction about African development. And who are willing to commit liquidity over longer periods to achieve the financial and, more importantly, social returns they are seeking.
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