Exploring ReFi with Silta Finance: An Interview Series by Prime Launch
Exploring and introducing the key players of the cross-chain ReFi space
1. Tell us about Silta and what Silta is trying to get done.
Silta is the bridge to a sustainable future. We want to build a better future by directing finance to the infrastructure that can deliver real impacts.
I hope we can all agree that climate change is real. The crazy heat waves and the severe weather events illustrate this. To combat climate change, we need to start building the infrastructure supporting this objective. Silta empowers token holders to act as change agents for building a better future.
In a nutshell, Silta does three things:
- Conduct due diligence and sustainability impact scoring (Silta Score) on borrowers’ debt financing applications
- Act as a marketplace (Financing Marketplace) that brings together borrowers with TradFi and DeFi protocols to broker financing deals.
- Monitor the borrowers’ performance (Project Portal) during the construction and operations of real-world assets.
2. Tell us about the Silta Score. What are the main points you pay attention to when conducting due diligence and impact assessment reports/scores?
The Silta Score is our due diligence framework for assessing borrowers’ applications. Design, build, and operation of infrastructure require a different style of diligence than compared, say, a home loan. This is because the asset does not typically exist when the loan is issued to the borrower (there are some cases where the loan is needed for an extension or refurbishment of an existing asset, like a new lane on a toll road or additional panels at a micro-grid solar site). If a borrower defaults on its home loan, the bank can take over the home and sell it to a 3rd party. But in the case of infrastructure financing, the bank may not have the option to take over the asset if the project is still in its construction phase; thus, they are reliant on the security package offered by the borrower.
When we think about Due Diligence on an infrastructure project, at the highest possible level, there are really three questions to ask:
a) If we lend someone money, how do we get comfortable that we will get our money back?
b) What security can we take if the project fails?
c) And how do we make just they don’t just run off with the money?
To get comfortable with the three questions above, we must undertake a Project Viability assessment by deep-diving into the borrowers’ project and understanding the complexities of the transaction, construction, and operation.
Transaction structure considers things like whether this is a public utility or a private development and whether the borrower is requesting a corporate or a project finance loan. How a borrower answers these questions dictates the level and type of other diligence required as part of the Silta Score.
In the construction phase, we assess five sub-risk groups: technology choice & design risk, construction risk, completion risk, authorization risk and dispute resolution risk.
In Operation Phase, we assess five sub-risk groups: supply, market, political, force majure, and operations & maintenance risk.
Questionnaires have been designed for each risk pillar that interrogates a borrower’s project. Once the questionnaires have been satisfied, we score each sub-risk group, which subsequently rolls up into a score the pillar. We then take the lowest pillar scores, which act as the overall score for the borrowers’ application.
The next step is financial risk assessment. Because this is such an essential piece of the jigsaw, we decided to have this as a stand-alone risk group that can effectively level the base score up or down depending on the results. The summation of this exercise is a Project Viability Score.
In parallel to the Project Viability assessment runs a Sustainability Impact Assessment. We didn’t want to lose sight of sustainability impacts by rolling it up into the Project Viability, so we opted to make this standalone. Here we look at the outcomes a project might deliver if it’s funded and successful. Take WEnergy, of the borrowers in our pipeline. They aim to build solar microgrids across the islands of Palawan that give renewable energy to over 40,000 people, thus removing the reliance on fossil fuels. A tremendous impact that is precisely the type of project we want to see through Silta.
Once the score is finalized, a DD report is created, which is subsequently presented to the Silta Scoring Committee (professionals with relevant experience from our community) to verify the score and adjust the score or down by a limited number of points, if necessary. Lastly, the verified score and DD report are minted into an NFT.
3. How do the projects that get a Silta score get connected to a network of financiers in DeFi and TradFi?
Once the Silta Scoring exercise is done, it’s time to get the borrower’s finance. We showcase the borrowers’ project to a panel of pre-qualified “financiers” from TradFi and DeFi protocols. Staked financiers can view the borrowers’ project and Silta score. The borrower runs project information sessions with support from Silta Finance to the Financiers, which allows for some Q&A. Following this, the Financiers can submit expressions of interest and make financing offers to the borrowers.
4. What are the typical financing amounts that Silta would secure for sustainable infrastructure projects? How is this different from the status quo in project finance?
Silta itself doesn’t raise funds for loans or provide loan pool infrastructure. Instead, we rely on DeFi protocols such as Centrifuge, Goldfinch and TrueFi or TradFi partners to offer the financing.
Typical loan amounts needed for smaller-scale infrastructure projects can range from a few hundred thousand dollars to millions. Currently, the largest deal in our pipeline is 17M USD. We anticipate being able to help finance deals up to 100M USD by using the collective might of DeFi protocols. Why have one DeFi protocol try to fund a project of this size when you can have 3 or 4 working together?
5. How do Web3 technologies help Silta stakeholders in reach their sustainable targets?
Silta rewards for sustainability impacts. We literally pay Silta tokens to projects that make a substantial impact in the world! We also invite 3rd parties such as carbon off-takers to pre-qualify into our marketplace and buy carbon emissions from the projects in our pipeline.
Silta internally takes sustainability seriously. We are blockchain agnostic but would never consider working on a chain that has a negative climate impact. Ethereum switched to proof-of-stake, making us all poor but at least we will live longer!
6. Turning to ReFi, what do you think is the biggest gap right now in the current #ReFi space in web3 between perception and reality? What are the challenges in building web3 towards a sustainable future?
The biggest gap is actually bridging the real world, to the digital world. By that, we mean that there are very few ReFi projects that provide direct real-world usage. This isn’t to say that they’re not contributing fundamentally to the community, it’s just incredibly difficult to work on a concept that’s building on a platform in a constant state of fluidity. We do expect this to change as ReFi develops, noting that it’s an incredibly new field.
a) What can we do to overcome these challenges?
Just time. Everyone can throw as much money as they want at ReFi projects and that will definitely help, but time is the most crucial component of its development. There’s no safe way to rush a new concept, especially one that relies heavily on code and several layers of legislation. The ReFi community needs time to mess up, do things incorrectly, and learn from that. The development of ReFi will be identical to the development of DeFi. We can say it’s all rainbows and unicorns, but it’s not. This is hard work. That’s why we’re so committed.
7. What inspired you most when creating your project?
In 2014 I was running my own consulting business with another Silta Co-Founder Stanley Boots. We landed this deal with Bloomberg and Rockefeller foundation to design a Project Finance model for a fishing port that would monetize the data, thus creating a new revenue stream that brings further financial viability to a PPP transaction. That work was what brought me into the world of sustainability. Since then, I have been thinking about ways to get finance for projects that really matter, so my son lives in a beautiful world.
8. Are there any other #ReFi web3 initiatives that you find successful and we should pay close attention to?
There are quite a few #ReFi projects that are launching or have just launched, that we are paying attention to. ReFi is still a very new and innovative concept, so it’s difficult to identify ‘successful’ projects. We recommend @ReFiPodcast and @ReFiDAOist on Twitter for anyone looking for new and exciting ReFi projects launching.
9. How can different people/contributors get involved with Silta?
Anyone can be part of the Silta DAO by owning any amount of Silta tokens. If you’d like to have a more in-depth involvement, you can apply for a position at the Silta Scoring Committee, Due Diligence Advisors, or Project Monitoring Officers.
10. If you were to have a message for future generations about building a sustainable future, what would it be?
Some people talk a good game about being sustainable, and others take action. Be on the action side, because you have one life at the end of the day, so make a real, sustainable impact for your children and their children after them.