DeFi credit protocols like @goldfinch_fi and @centrifuge have shown investors an alternative avenue for real yield through lending, yet "Project Finance" has still remained untouched. . .Here's how @silta_fi is shaping up to be the backbone for a $275 billion/year industry 🧵
2/ First, what even is Project Finance? PF is essentially the long term financing of infrastructure and industrial projects.Different from Public Private Partnerships (PPP) that relies on government funding for projects, PF sources the credit from private markets
3/ Investors usually form a Special Purpose Vehicle (SPV) that takes on large amounts of debt from lenders and pays back the debt+interest from the cash flows of the projectYields can range anywhere from 4-20% APY based on project risk + credit risk + time to maturity etc
4/ Yet even with the global infrastructure market valued at $3.3 trillion, we still see a $350 billion annual shortfall in PF investment due to:
- redundant due diligence processes
- high investment minimums
- lengthy waiting times
5/ When raising funds for an infrastructure investment, each project team needs to PAY "lenders advisors" working on behalf of each and every bank a due diligence fee to even have their project assessed.This comes with NO guarantee that the bank will actually fund the project.
6/ With limited resources, banks tend to only look at infrastructure investments that are >$50-100M.The DD process is similar and time consuming for both big and small deals, so why waste time on smaller projects when these "Mega Projects" have bigger pay outs?
7/ These two major issues cause many impactful, but smaller infrastructure projects to be killed before they even have a chance.This is especially seen in developing countries that most need the infrastructure, but struggle to gain access to the necessary capital.
8/This is where @silta_fi enters -->Silta aims to be the bridge for sustainable infrastructure projects to raise funds from DeFi and TradFi in a more efficient manner, thus opening up an entirely new market for projects that were previously priced out of the market.
9/ Silta plays 3 main roles within the lifecycle of a project finance investment:
1. Due Diligence (denoted as a "Silta Score")
2. Marketplace for borrowers and lenders
3. Project monitoring
10/ The first step of Due Diligence falls on the project to fill out basic information about the team, idea, etc.This is essentially a heat check to immediately remove any low-quality or non-sustainable projects.Once this is passed the project is considered "Pre Qualified".
11/ After pre-qualification, projects must stake the Silta Token (not released yet) relative to their desired loan size to receive a DD assessmentEach application is assessed for project viability, credit health, and societal/environmental impact.
12/ After DD, the project receives its "Silta Score" as an on-chain NFT.Investors can pay a subscription to "unlock access" to the metadata of the NFT, thus removing the majority of DD work required, and leaving more bandwidth for investors to dive into more specific concerns
13/ Rather than having a one-size-fits-all approach to due diligence, Silta also scales up the intensity of DD with loan size. Projects >$50m receive institutional level DD, designed for pension funds, investment banks and insurance companies that asses over 320 data points.
14/ Projects $5-50M receive a slightly lighter report, which includes an exception report that details anything not covered in the DD report. For Projects $0-5M, the DD verifies the information given for pre qualification and focuses on red flag issues that may cause defaults.
15/ As previously mentioned, after DD, potential investors stake the Silta token to view the deal pipeline and access DD reports. The investors then make offers to the project, which can choose the best terms for itself in a competitive funding environment.
16/ The investment does not come from Silta itself, but rather the financiers paying to view the deal pipe line. The actual investment may come from a DeFi credit protocol pool or even a TradFi company. While payment in Stablecoins is most efficient, OTC deals can also be done
17/ After the investment is made, Silta receives a loan origination fee from the borrower. However, the relationship does not end there. Silta continues to monitor the projects with local experts to assess the progress of projects and monitor cash flows.
18/ As the project is monitored, the NFT is continuously updated with the progress. If the project successfully completes the project without breaking any loan covenants, they can actually receive Silta tokens for a successful project, creating a self sustaining system.
19/ Yet with such big ambitions, questions may arise as to why protocols like Goldfinch and Centrifuge don't pivot to copy Silta and open credit pools for sustainable infrastructure.The answer lies in the team.
20/ Corporate finance is an entirely different ballgame to project finance.It requires a different expertise for financial analysis and understanding as well as actual on the ground progress checks on the development of projects.
21/ More so, Silta focuses on sustainable infrastructure, with each due diligence report focusing on the applicable UN Sustainable development goals that have been driving recent ESG and CSR efforts
22/ Best case scenario? If silta captures just 1% of sustainable infrastrucuture investments each year, they can help finance up to $2.8B in loans. So what does that mean for a token?
- Token Buy backs
- Community governance
Essentially a community owned World Bank/IMF
23/ Moving away from existing DeFi credit protocols that offer short term loans -> Silta offers investors an opportunity for impact investing in projects ranging from large scale industrial projects to micro solar farms that can improve the lives of many in developing countries
2/ For the average DeFi investor, this means access to long term sustainable cash flows if done correctly.
To learn more about how real yield can be generated while creating a more sustainable future check out, @silta_fi.
25/ Big thanks to everyone who helped out with this thread from @chapterone and @silta_fi.
Interested in more research from the chapter one research cohort? Check out the list bellow!!