Hi all, Peter from Pando here. @Dori recently introduced ourselves (Introducing Pando: reliable yield from real world climate solutions), and we have been reading posts to learn more about the community. A big thank you to @Muntangled for raising the important topic of real-world assets and how they might intersect with the crypto world. The frameworks and concepts offered are really helpful and I think should help the community get more insight into this space.
We know the OP from Untangled was meant to be high-level, so we will keep our comments high-level too. As M said, there are a lot of nuances when looking at the various types of real world climate assets, so one framework probably can’t rule them all.
The triangle as presented is interesting and offers a unique way to blend climate, cash flowing assets, and crypto priorities. Our recommendation is to change “Yield” to “Risk Adjusted Return”. It’s challenging to consider Yield as a standalone concept – as Yields are driven by many factors, foremost Risk. For example, a return of 3% for a publicly rated, investment grade debt is likely a very attractive Yield for the associated Risk. Whereas a 10% return on an equity investment in a less-mature market with technology risk likely is a very poor risk adjusted return. We recommend that the community, when using the lens of this triangle, consider evaluating opportunities based (in part) on the risk adjusted return.
On “Liquidity”: We agree with Untangled that it is not terribly complicated to exit investments (there are standards and best practices to follow from the climate finance world). We want to be careful about the definition of liquidity discussed here as being able to sell an asset “without affecting its price”. Even selling a stablecoin could theoretically affect its price and, especially when considering real world assets, liquidating a position is often a factor of time, price and scale. For example:
Time – if the reserve needs to liquidate immediately (and with real world assets like renewable energy systems, this is measured in weeks, not days or hours), you can expect to see a discount on that liquidation, since you effectively are a distressed seller. If, however, the assets are performing well and Celo is comfortable with an orderly exit, you could realize an exit that returns 100% of principal and a % of your expected interest.
Price – if the reserve is sensitive to maximizing price over time, then the last sentence above is more achievable. If, however, the reserve is willing to realize a lower price (depending on timing, this could mean not all of your invested principal), then an exit could occur sooner than later.
Scale – finally, scale is an important determining factor in an exit. For example, the reserve could have approved a $15m debt facility, but only $1m has been deployed. In that instance, the reserve wants to exit its $1m position, which is a smaller dollar amount, likely with limited diversification in the assets funded (for distributed generation), and potentially limited performance history. Exiting that $1m position will be more challenging than if the full $15m was deployed and the assets have a reasonable performance history.
Hopefully the above is helpful as the community continues to explore real world assets!