Discussion & initial proposal: Reserve asset onboarding process

Mento stable assets are backed by a diversified basket of reserve assets (the ‘Reserve’), including Celo, BTC, ETH, stable value assets (DAI), as well as an allocation towards natural capital assets. The reserve assets are the backbone of Mento’s market-based expansion and contraction mechanism and are key to the stability of the overall Mento platform - a role that cannot be overemphasized in light of recent market developments.

But how can we as a community improve the reserve composition even further? With ongoing web3 development, more and more potential reserve assets become available by the day. The recent market volatility sparked discussions around additional stable value assets in the Reserve (1, 2, 3). The recently launched climatecollective.org initiative broadens the scope even further by bringing real-world assets, specifically, natural capital assets (‘Natcaps’), on-chain (1, 2, 3, 4, 5, 6 - we will discuss real-world assets in a separate post shortly). This raises the question, how do we as a community decide on reserve composition and how do we introduce new assets in a transparent and effective way?

Following the initial discussion in the Celo Forum on reserve criteria in the context of adding tokenized natural capital to the Reserve and the community governance call on 20 January 2022 (video), this document tries to further develop and formalize the Reserve asset onboarding process and define more tangible and actionable Reserve asset requirements. The process draws from the Reserve’s ongoing request for proposals, the Maker DAO collateral onboarding process, work within Mento and Reserve working groups, and countless exchanges with community members.

The aim is to offer guidance to asset proposers on how the onboarding process works and what information should be provided in that process and to allow community members to make well-informed decisions about changes to the Reserve composition.

This is intended to be a conversation-starter; please feel free to jump in with thoughts/comments/suggestions.

Overview

To decentralize decision making, minimize voter fatigue and to enable the Community to make meaningful and informed governance decisions, the following asset onboarding process is suggested. In summary, the proposed process follows three steps:

  1. Discussion stage: Proposal is presented to the community and discussed. Community decides whether to proceed with the proposal to the next stage or not (greenlight decision 1).
  2. Review stage: Proposal is reviewed by domain experts from the broader community and the Mento team. Reviewers (details below) present a summary of their findings and a recommendation to the community. Community decides whether to proceed with the proposal to the next stage or not (greenlight decision 2).
  3. Governance stage: Proposal is submitted to on-chain governance for official approval (governance decision). If approved, the asset is added to the Reserve.

Asset onboarding process

This process aims to achieve the following:

  • It decentralizes decision-making because it engages the community early in the process and filters out proposals that have no or little community support.
  • It is resource-efficient because it harnesses the collective community expertise and prevents in-depth reviews of proposals that have no or little community support.
  • It provides expert knowledge and recommendations on complex proposals that allows the community to make informed decisions without giving up decision-making power.

Discussion stage (stage 1)

The onboarding process should start with an initial proposal posted to the Mento section of the Celo Forum. The initial proposal should contain a general description of the asset and the proposer and provide relevant information on risk aspects (technical, legal, financial), as well as environmental impact (relevant for Natcaps).

The following can be a suggested template for asset proposals.

Proposal Template

Title: Proposal to include (asset XYZ) as reserve asset

Background and rationale:

  • Name of project, organization and key team members behind proposal
  • Brief history of project, including timeline on asset history
  • Brief description of asset and envisaged transaction scope
  • Mission alignment and rationale for proposal and strategic benefits to consider
  • Links to communities (discord, forum, etc.) and media accounts (twitter, mirror, etc.)

Asset description:

  • Detailed description of asset token and tokenomics
    • What does the asset token do?
    • Who uses it?
    • How does it align with the proposer’s interests?
  • Links to relevant whitepapers

Technical aspects:

  • Overview of technical setup (smart contracts, use of oracles, etc.)
  • Links to source code and blockchain addresses
  • Copies of technical audits
  • Details on token standard (ERC20, ERC721,etc.)
  • Description of token governance and control (multisig, DAO, etc.)
  • Can the token implementation be changed? If yes, what is the process?
  • In case of cross-chain assets (not native to CELO), any relevant bridge infrastructure
  • In case of off-chain assets, possible oracle setup

Financial aspects:

  • Detailed description of envisaged transaction, including volume, timeframe, flow-of-funds, and proposal on reviewer fees (in case proposal moves to stage 2)
  • Overview of total token supply, circulating supply and ownership distribution
  • Overview of market cap and price history
  • Overview of marketplaces and exchanges on which asset is traded
  • Information on liquidity and trading volumes (current and historical)
  • Information on price correlation with other reserve assets
  • Describe the asset liquidation process, timeline and parties (if known) involved in liquidation

Legal aspects:

  • Overview of rights attached with token assets
  • Jurisdiction of the project and any relevant licenses, legal opinions or memoranda related to the legal status of the token asset
  • If relevant, proposed legal structure for transaction, including type of legal entities and relevant jurisdictions
  • In case of tokenized off-chain assets:
    • Does the underlying asset (UA) exist?
    • What is the asset?
    • Is it ‘independently’ priced (market set / derivative) or reliant on efforts of others?
    • Does it represent debt, equity, real property, or other bundle of rights?
    • Is it regulated?
    • Is the chain of ownership/title verified?
    • Is the asset clear of embargo, government limitations, private restrictions, liens, mortgages etc?
    • Is the asset defensible? (can it be expropriated or destroyed at will? Any ability to protect?)
    • Is there any insurance policy associated with the asset?
  • UA to smart contract link
    • Is there a central enforcer/counterparty?
    • Are there enforceable rights?
    • Where are the off-chain rights recorded?
    • How are the rights specific to the owner? (how is the owner identified?)
    • Are off-chain rights required to be registered off chain? (liens, easements, covenants)
  • Purchase
    • Is there a counterparty to send cash/assets to? (KYC)
    • Is the asset regulated (security, commodity etc)? By which regulatory or statutory agency?
    • Is the asset decentralized? Provide decentralized memorandum or regulatory/judicial opinion to the effect

Environmental aspects:

  • Detailed description of asset’s environmental impact and associated theory of change
  • Verifiability: How can the asset’s environmental impact be verified? Is the asset certified by verification bodies (e.g. carbon registries such as Verra or Gold Standard)? Is there additional data (eg. satellite imagery, IoT measurements, crowd-sourced samples) that document the project’s environmental impact?
  • Plausibility: How does adding the asset to the Reserve contribute towards achieving the desired environmental impact?
  • Feasibility: Assuming the asset is included in the Reserve, is everything in place to achieve the desired environmental impact?
  • Testability: Assuming that the asset is included in the Reserve, are there clear metrics in place that measure the Reserve’s contribution to the desired environmental impact?

Greenlighting decision 1

To get a first indication of the community’s interest, there should be a lightweight, timeboxed indicative voting procedure implemented on whether to proceed with the proposal or not. The vote should be linked to the proposal discussion.

The voting procedure should specify a minimum vote turnout (min # of votes) and a minimum quorum (% of votes in favor). The voting threshold should be sufficiently high so that asset proposers are incentivized to engage with the community without making the involvement of whales a necessary success condition.

As an initial proposal, the greenlighting decision 1 could be implemented as a simple majority vote (50%+1) with a 1% minimum vote turnout. For reference, past CGPs typically had a vote turnout between 15% and 20%. A 1% minimum vote turnout would correspond to roughly 4.4M CELO participating in the vote.

Possible technical solutions include snapshot.org or romulus.page.

The discussion stage should have a minimum duration (e.g. 10 days) before the greenlight vote can be initiated, starting when the initial proposal was posted. While this requires some light-touch moderation (manual start of greenlight vote), it provides the necessary flexibility to wait with the vote in case of complex proposals with an ongoing discussion. It also provides the option to effectively put a proposal on hold (by not initiating the greenlight vote), if e.g. critical information has not been provided or if information became available that would make asset onboarding impossible. The ‘moderator’ role should be filled from the Mento team.

Review stage (stage 2)

The proposal enters the review stage if it was greenlighted in stage 1. The review stage is the due diligence stage, in which the proposal is screened and evaluated by subject matter experts (SMEs) from the broader community and the Mento team itself.

The review stage is a critical part of the process and will involve dedicated reviewers with nuanced expertise to ensure the informational asymmetry with community members less versed in the complexity of the process is reduced. This process ensures that the community is provided with the necessary information to make meaningful and informed governance decisions.

Reviewer role

Reviewers do not have special voting rights. They dedicate their time and resources to the evaluation of a proposal, participate in meetings, and provide a summary of their findings and their recommendation to the community. Depending on the type of proposal, different types of reviewers will be necessary. It is conceivable that the review process will typically involve four broad review categories: finance, legal, technology and environmental impact (for Natcaps). In addition to the SMEs, a Mento team member will accompany and coordinate the review process and be available for Mento-specific questions that may be outside of the reviewers’ area of expertise.

The list of reviewers would ideally be filled over time with SMEs from the broader ecosystem. As a starting point, Mento, cLabs, Climate Collective (CC) and the Celo Foundation (CF) team could participate until more external reviewers become available.

Possible reviewers include (to be expanded - If you are interested to be included in the reviewer pool or if you know someone, please let us know):

Finance Legal Technology Environment
Mento risk CF legal Mento eng CC team/advisors
CF finance Local counsel cLabs eng Local expert

Each reviewer should include a summary of their findings and an explanation of the reached conclusion. The recommendation should clearly indicate whether the reviewer:

  1. Is in favor of the proposal in its current form
  2. Is in favor subject to changes (which?)
  3. Is not in favor (why?)

There should be room for follow-up discussions after the reviewer reports are published (e.g. min 10 days). This would allow the asset proposer to e.g. adjust the proposal or to respond to unfavorable reviewer recommendations. Once the discussion is concluded, the proposal is moved by the moderator to the second greenlighting decision (see above).

The review process is costly and may require contracting with external SMEs (e.g. local legal counsel). Each proposal should therefore indicate if and to what extent reviewer fees will be covered by the proposer.

Greenlighting decision 2

The functionality should be similar to the first greenlighting decision but logically greenlighting 2 should only be possible if greenlighting 1 was positive. The second greenlighting decision should be more restrictive (i.e., have higher passing thresholds) than the first greenlighting decision as it is the last filter before the proposal enters the governance voting stage.

As an initial proposal, the greenlighting decision 2 could be implemented as a two-thirds majority vote (66.67%+1) with a 3% minimum vote turnout. For reference, past CGPs typically had a vote turnout between 15% and 20%. A 3% minimum vote turnout would correspond to roughly 13M CELO participating in the vote.

The greenlighting vote should be linked to the proposal discussion and include all reviewer recommendations.

Governance stage (stage 3)

If the greenlighting decision 2 was positive, the proposal is converted into an official CGP. The CGP should be linked to the post, both greenlighting decisions and also include reviewer recommendations.

If the vote is positive, the Mento team works with the proposer to on-board the newly approved asset.

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Thanks for putting together this elaborate process to onboard new assets to the reserve.

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These quantitative measurements mean the most to me (personally).
I think we should require some bare minimal threshold of price history, price volume, and historical performance during heavy volatility.

e.g.
at least N years of price history to back test
at least $M daily volume
at least $X can be liquidated within a slippage parameter P during volatility

To me, it’s just a timeseries and as long as the historical data checks out, it’s good from a math perspective. If the math table stakes metrics doesn’t check out, then it’s a non-starter.

1 Like

Some thoughts:

(1) Reviewers should be compensated if they are not ‘on salary.’ I don’t know from which budget this should be taken. In general this would seem like a community grant of sorts.

(2) There should be standardized liquidity / quant metrics of asset health and security that are used as part of the review process — this is where a group like Prime Rating can potentially help — see Research on Demand — by Prime Rating | by PrimeDAO | PrimeDAO | May, 2022 | Medium

(3) A forum poll imho works for Greenlight 1

(4) Snapshot for Greenlight 2

(5) Certain emergency powers may make sense for the Mento team to remove assets. Not sure if this has already been assigned — a good example would be something like UST de-peg where yeeting UST out from the reserve w/o governance approval makes sense.

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Hi all,
Lavi from Prime Rating here, excited to see this proposal and agree with @papa_raw and @diwu1989 that the quant part, such as liquidity and volume, is very important to consider, however, so are the aspects detailed in the Proposal Template (i.e. also technical, financial, legal and other aspects should be taken into consideration for a full overview).
As @papa_raw mentioned, at Prime Rating we do protocol deep-dives on a daily basis and cover many of these areas in our reports.
I’m happy to discuss the involvement of PrimeRating as an independent third party to support research & due-diligence of new reserve assets. For a full overview on previous work from our DAO please check our rating app, this should give you a first impression of our capabilities. While I haven’t done a full break-down of the above ask in comparison to our approach, we can assume that it might need slight adjusting. Happy to discuss expansion of our current focus as defined by this community.
@Slobodan what’s the preferred way to support this proposal and figure out if PrimeRating can be of support and facilitate the process for Celo?

By the way, we’re very keen to get more involved with the Celo community! We just announced a ReFi rate-athon in June, which is a great opportunity to dive into community-driven research and protocol ratings on Celo.

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Thank you all for your comments.

Re quant metrics (@diwu1989 @papa_raw): I agree that quant metrics are useful but I don’t think we should over interpret them, especially when relying on historical data. Just think about the LUNA price series pre-May '22. It has zero predictive power for what happened a week after. Similarly, liquidity/volume measures are often distorted because of incentive payments, making it hard to predict how persistent liquidity is when incentives run out.

I am fully in favour of running some quant analysis in the review stage of a proposal but I think it needs to be embedded in a bigger picture assessment of the asset’s ‘fundamentals’. I think @Tobi also spent quite some time thinking about risk metrics, would love to get his views.

It sounds like this is also in line with @Lavi’s thinking. Lavi, I would love to better understand your work with Prime Rating (will dm you). From what I’ve heard and read so far, it sounds like Prime Rating could be a great third-party reviewer in the onboarding process.

Re compensation (@papa_raw): Agreed. I think some type of cost-sharing mechanism between the proposer and the community would make sense to filter out low-quality proposals and to signal credibility and willingness to cooperate (skin in the game).

Re voting (@papa_raw): The forum poll is an interesting idea. Let me try to find out if/how it could work.

Re emergency powers (@papa_raw): I think in the onboarding process the emergency power is implicitly there through the moderator role. If it e.g. turns out that the asset implodes mid-proposal, the moderator would not proceed with the greenlight decision. Maybe this should be more explicit.

I agree that there should also be emergency powers to liquidate assets in special circumstances (similar to the liquidation mandate in the gift policy) but I think this should be covered outside the onboarding process.

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Yes absolutely cannot ONLY rely on the past timeseries, only suggesting that as a very cheap to compute high-pass-filter of the proposals. Any token that pass that initial automated sniff test then get qualitative analysis which cost human time.

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Thanks for comment and the first sync this week.
We looked into the proposed review approach and compared it to the framework we currently apply. There is def. a high overlap (see sheet here).
We highlighted the sections covered by either FA (Fundamental) or Technical reports, plus the sections that can be added without effort, in green. The ones that need a bit more clarification are highlighted in yellow or lighter green. As you can see, the only part that needs more work are the tokenized off-chain assets. We’ll be looking into the risks & quality aspects of these assets in the ReFi rating contest next week (template creation is making good progress).
In the meantime, we can establish a customized framework for the risk assessment, based on the proposed sections above and combining it with our approach and industry standards.
Lmk if this sounds like a good next step @Slobodan @diwu1989?

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Yup, some quant risk metrics would be nice for some sanity check but it’s also important to not overrely on what information they can provide. They can’t measure the full risk picture. It’s nice though to pre-filter and exclude certain assets if they don’t meet the critera of a certain time series length, volume, and risk metrics.

But in finance, you often can’t statistically measure the true properties of a time series. For example, a lot of finance time series have good risk metrics, e.g. low vol and VaR, until they collapse, like some stablecoins or hedge funds. On the other hand a lot of time series like BTC and ETH or Stock indices have terrible risk metrics, but low risk of total collapse.

As most to these time series distributions are heavy-tailed, past data doesn’t tell us much about the future. A time series could look perfectly fine while collapsing the next day, what Nassim Taleb calls the Turkey Problem.

For me a bigger picture assessment by people who know what they do and who have some skin in the game (Mento protocol) would be the most important part

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Thank you all for your thoughtful input. I wanted to share an update based on multiple discussions with community members:

Choice of reviewers: One question that came up is how are reviewers selected. In general, there should be a list of governance-approved reviewers/reviewer teams and there seemed to be an agreement that the moderator role (mento team) should identify a suitable set of reviewers, depending on the type of the proposal. The moderator would then (i) identify the need for reviews, (ii) check and coordinate with the reviewer pool on subject matter expertise, conflicts of interest and availability, and (iii) find suitable alternative reviewers if the existing reviewer pool is insufficient.

The reviewer pool should remain open over time and should be decentralized away from cLabs, CF and the core Mento team. Going forward, service DAOs like PrimeRating seem to be a great fit for the review stage and @Lavi already shared some very helpful resources and suggestions.

Reviewer compensation: there seemed to be consensus that review costs (if applicable) should be fully covered by the proposer, partly as a filter mechanism but also because the review process shouldn’t be a way for proposers to obtain free or subsidized audits/reviews that may have value outside of the asset onboarding process. Of course, there would still be the possibility to obtain partial or full sponsoring for the review process, e.g. through community funds or other funding sources.

Streamlining the process: The questions came up whether Greenlight 1 can be replaced by a simple forum vote (‘temperature check’) and whether Greenlight 2 is really necessary.

It seems that a forum poll for Greenlight 1 would indeed be sufficient, in particular in light of the fact that the proposer needs to put together a comprehensive application and would need to cover review costs. I.e., there is little incentive to somehow try to manipulate the vote to push a low-quality proposal.

Greenlight 2 is arguably more complex because on the one hand, it allows the community to filter out proposals that received bad reviews. On the other hand, it prolongs the overall process and results in some redundancy as it requires two consecutive positive votes (greenlight 2 + CGP) for final approval.

After some discussions, It seemed that Greenlight 2 can largely be replaced by an option for the proposer to withdraw a proposal in case of negative or ambiguous reviews and community feedback. If the feedback is clearly positive, there is also no reason why a proposal should not go directly to the CGP stage. In any case, the CGP should link to the reviews and to the discussion thread.

Separating the asset approval decision from the allocation question: The point was brought up that approving an asset as a reserve asset (listing decision) and allocating funds towards an already approved reserve asset (allocation decision) should be two separate decisions. I think that makes a lot of sense.

  1. It obviously makes sense to change asset allocations from time to time and there is no need to screen already approved assets over and over again. We can think about formalizing the allocation decision in a separate discussion but the listing decision should of course only apply to new assets.
  2. Having separate CGPs for listing and allocation would allow the community to vote e.g. in favor of asset X in general but against the specific proposed allocation Z%, i.e. it would capture community preferences more accurately. A combined decision (approve X + allocate Z%) would not allow this.
  3. The point was brought up that the allocation decision can arguably be quite complex, especially for proposers who are not experts on the overall Mento setup. For example, suggesting an allocation of Z% for asset X means that Z% are taken away from another asset. Which one? Also, allocations may be more complex in general. For example, instead of holding an asset X directly, the Reserve might hold the asset indirectly through an LP token in a liquidity pool that contains asset X.

Given the countless options available, it seems like a good idea to separate the two decisions. It also seems like ‘allocation proposals’’ require more technical expertise and should be coordinated more closely with the Mento team or other community members that have deep understanding of the Mento setup - but happy to discuss separately.

The question is then if it should be possible to initiate an ‘approval CGP’ and an ‘allocation CGP’ (conditional on approval) in parallel, e.g. building on reviewer input. I don’t really see a reason why this shouldn’t be possible but I think it should be optional (see updated process below). But more than happy to discuss.

Updated process with listing decision and separate (optional) allocation decision:

In terms of next steps, we will continue working on the onboarding process and, in particular, on further structuring the review stage. Comments and suggestions are still very welcome and please also reach out if you have suggestions for the reviewer pool (and don’t be shy to nominate yourself).

4 Likes

Thank you @Slobodan for putting together this framework for onboarding assets to the Celo’s reserve.

Reviewer compensation

We agreed that reviewers need to be paid. However, 100% recharging to proposers may discourage some proposers of NatCap/RWAs at a time when Celo is still new to these asset classes.

To a proposer - essentially someone trying to sell a commodity, a loan or a security, this fee is like a sales cost. Therefore, they will consider:

  • How likely is the sale /success? Is it within an acceptable time frame?
  • What are the marginal benefits compared to other alternatives?

If the answer to either or both of these questions is “higher”, the proposer is more likely to be willing to pay. If the answer is ‘uncertain’, then it makes sense not to recharge or to subsidise. This is the approach that some other protocols take, with their salaried ‘core units’ handling the review process for RWAs, beyond the initial screening.

For discrete services like legal or security audits, which often happen later in the process, proposers could source their own suppliers or get recharged.

NatCap/RWA Continuum

As the original title suggests, it only deals with onboarding of assets. For NatCap and RWA assets especially, once onboarded, it soon becomes important to monitor performance and to intervene when necessary, dealing with issues such as:

  • Performance monitoring - underlying assets are off-chain with no trusted oracles and no secondary markets
  • Intervention
    • When - triggers before intervention
    • By who - similar to a multisig, there needs to be a degree of decentralisation
    • How - liquidation procedures on-chain and off chain

These require separate posts. I will first share our framework for proposing assets to get the community’s comments.

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We fully agree with @Muntangled two points above. In reverse order, regarding @Muntangled’s second point re monitoring, that is a different skill set than a proposal reviewer and is a bit easier to manage with real world assets, depending on the ownership of the process that Celo wants to have. But, most real world projects already will include 3rd party providers like Servicers, Payment Agents, and/or Collateral Agents. Celo can use the data from these providers (with the caveat that these providers likely will not let Celo legally “rely” on their data).
On the first point, most project developers (“proposers” here) are comfortable paying some of the costs of an investor. However, that usually comes with some degree of clarity (not always certainty) that there is a path to reaching an agreement. Providing that clarity is really important, and Pando is drafting a post that we will share here soon that might provide some help on that point.

Hi Celo Forum. And thank you @Slobodan.

We thought it might be helpful to share some thoughts on collateral onboarding of Real World Assets, based on both our TradFi experience and more recent interactions with other Protocols. We understand that our suggestions do not have the benefit of the full history of Celo’s thought process, so we offer them with good intentions and with an understanding that we might miss the mark in some places. Also, we suggest that Celo think through these issues prior to determining who and how to bring on reviewer assistance, as understanding these items will help you make a more informed decision on both the who and what role they will play.

-Asset Types: Our recommendation is that Celo start with a narrow focus on certain asset types, which can and should be consistent with an overall Celo investment objective. For example, Celo could focus initially on reforestation projects or on cash-flowing energy generation projects (just two examples). These are both worthy investment types, but they require vastly different skill sets to understand, underwrite, structure, monitor, etc.
They also present very different outcomes and risks. For example, an investment in a forest requires less active monitoring and is a rather straightforward investment to structure. It does, however, provide limited, often uncontracted financial returns and typically is a very hard investment to exit (meaning these types of investments are not “liquid”). A project with stable cash flows can be more complicated to structure, requires active monitoring, and the return is based on knowable, measured asset performance (versus unknown value appreciation). However, it should provide contracted cash flows that are easy to understand, measure, and as long as the project performs within reason it is far easier to empirically show a return and if necessary exit as an investment.
Again, both of these sorts of investment types are worthy, but they require differing skill sets before and after the investment is made, and offer different return/risk expectations. It is possible to do both (and more) assets, but as an early entrant into the market, our recommendation is that Celo begin with a tailored focus. There are other asset type factors to consider as well (e.g., maturity of a particular sector, geographic preferences, etc.), which can be further added to initial asset-specific guidance.

-Capital Position: Another consideration (which is influenced by asset type) is the type of capital that Celo wants to be. At its most basic, there are two types of investment capital: equity or debt. Each of these present different risks and returns, and they require differing skill sets to structure, evaluate, and monitor. Our recommendation is that Celo focus on being a Senior Debt Lender – meaning you are in the least risky position in an investment, usually with the lowest returns, and depending on the asset type, among the easier positions to exit.

-Impact Desired: Once you have decided which asset and capital positions are a priority, then Celo can further narrow its focus on environmental impact. Again, we can use the examples of reforestation and cash flowing renewable projects. A reforestation investment has clear environmental benefits simply by acquiring and preserving a forest. It also potentially can generate revenue by generating/selling credits. It is fairly straightforward to qualify this type of investment under an additionality test.

A renewable energy generating project also has clear environmental benefits, but may have challenges with an additionality threshold. While the concept of climate additionality has been debated since the 1990s, there are some relatively non-controversial ways to think through energy generating projects. For example, a large utility scale wind project in Texas does not need capital from Celo. On the contrary, a distributed generation project of commercial and industrial solar in Mexico would benefit highly from Celo capital and would be an initial step toward creating a real solar presence in Mexico, where installed solar capacity for the entire country is roughly equivalent to the state of Arizona (Disclosure: Pando is actively looking to deploy capital for this sort of project).

-Quality/Stage of Development of Project: Another consideration is at what stage of project development does Celo prefer to invest. For example, is Celo comfortable with receiving proposals that are highly conceptual and require engagement by Celo and/or other parties to structure? Or would Celo prefer that a project be “fully-baked”, meaning that it is clearly structured in a way that is sufficient for a TradFi lender to assess and review, with a clear path to closing the transaction? This criteria is another limiting factor in what sort of proposals that Celo will receive – which has both positives and negatives. One challenge to waiting for “fully-baked” opportunities is you are artificially excluding some potentially interesting opportunities and you have less say in the types of projects you will see. However, those opportunities you do see will be more easily transactable and you’re likely to see proposals from more experienced parties.
Our recommendation is that in these early stages Celo focuses on relatively well-structured projects from experienced parties. Starting this way will make it easier to get into the real world asset space, and you always can add complexity later.

-Real World Risk Appetite: While a lot of focus is appropriately directed toward the crypto-related risks from investments, real world investments do add more traditional risks. These risks are influenced by many factors, including asset type, capital position, and desired return. Understanding these combined factors will help Celo articulate the types of risks it is and is not willing to take, and what returns it will demand in order to accept certain risks. Many traditional risks can be mitigated through the transaction structure, but an assessment of risk is inherently subjective, so there isn’t a strict rule of thumb. Having said that, the potential risks for real world assets are well known and not complicated to address.

-Proposal Application Process: Finally, to facilitate the intake of what could be many, many proposals, Pando recommends that Celo create a very clear proposal intake process (and possibly a separate platform). Some of the Pando partners were faced with a similar situation as Celo currently is exploring – namely, how do you transparently, efficiently, fairly, and effectively process and evaluate a large number of proposed projects. One way to set up this framework is to begin with binary questions that allow you to simply qualify incoming proposals. Only those proposals that positively answer the binary questions are then able to progress with submitted additional materials for their project/investment opportunity. At the next stage of the process, you can ask more subjective questions and request documents in support of the proposal. These requests can be structured so the review process is standardized, which typically reduces review times and increases participant satisfaction with the process.

If helpful, we are happy to talk more with you on this effort when the time is right. Thank you for letting us contribute.