Protocol Flows
Loan Origination Process
Pre-financing:
The Borrower sources seasoned pre-financed or newly bridge-financed renewable-energy (RE) assets for refinancing.
Seasoned assets have been operational for ≥ 12–18 months, demonstrate DSCR ≥ 1.3×, and show clean repayment history under traditional lenders or private financiers.
Bridge-financed assets are recently deployed plants financed through short-term external bridge loans used to fund procurement and installation before long-term capital is arranged.
These assets were not originally financed through the USDkW protocol but will now be transitioned into permanent on-chain financing.
Ownership transfer to bankruptcy-remote SPV:
The USDkW protocol establishes a WOS that is a bankruptcy-remote SPV
The Borrower executes a true-sale / Receivables Purchase Agreement (RPA) to transfer ownership of the pre-financed RE assets to the SPV.
The protocol grants the Borrower rights to all normal business operations using the RE assets via a leasing agreement. This allows the Borrower to sign power purchase agreements or rental agreements with offtakers, etc.
This step ring-fences the assets from other creditors of the Borrower and prepares them for tokenization and on-chain financing without facing any business disruption.
Asset Tokenisation & NFT minting:
The USDkW protocol tokenizes the RE asset(s) and issues a Renewable Energy Asset Deposit (READ) NFT to the Borrower.
A third-party tokenizing entity may be involved in this tokenization process.
The READ NFT serves as the digital document of title and represents the asset’s legal and economic rights within and outside of the protocol.
Asset Deployment & Contract Execution:
The RE assets are already operational or are installed on-site after execution of a solar-financing contract (e.g., PPA, Lease, or Loan) between the SPV and the Offtaker.
This contract creates a predictable stream of receivables (cash flows) pledged to the protocol.
Loan Underwriting (by first-loss junior tranche):
Before the on-chain loan is originated, the Energy Partner (DE) or affiliated FiLo Curators commit a junior first-loss tranche, providing credit enhancement for senior noteholders.
The junior capital absorbs valuation shocks or early payment defaults, safeguarding the synthetic dollars’ backing pool.
On-Chain Loan Generation:
Once the loan terms and collateral have been approved, the borrower initiates an on-chain borrow transaction through the protocol leading to:
The READ NFT being transferred from the borrower to the protocol, making it the legal and technical custodian of the collateral for the duration of the loan.
The borrower simultaneously receiving USDC from the protocol, representing the disbursement of the overcollateralized loan. This USDC drawn from the protocol is the reserve asset of the USDkW synthetic dollars.
The NFT remaining immobilized within the protocol until the borrower fully repays or a default triggers liquidation.
Refinancing:
The SPV uses the USDC loan proceeds to repay or refinance the initial bridge lenders, thereby transitioning the assets from off-chain temporary financing to permanent on-chain credit under the USDkW protocol.
Thereafter, the future cash flows from Offtakers (PPA, Lease, Loan payments) service interest and principal, which are distributed to the senior and junior tranches via the cash waterfall.
Default & Bankruptcy Flows
🟥 Default Flow (Offtaker default)
1. Offtaker misses payments → triggers DSCR breach.
2. SPV sends default notice to protocol oracle.
3. Junior tranche (DE) absorbs loss (first-loss buffer).
4. If still undercollateralized → Reserve & OC drawn down.
5. Last resort → partial haircut to sUSDkW yield, not principal.
⚫ Bankruptcy Flow (DE or SPV)
1. DE Bankruptcy: no impact on SPV; DE replaced as servicer (backup servicer activates).
2. SPV Bankruptcy:
• Trigger independent manager / trustee control.
• Assets auctioned; proceeds distributed per waterfall.
• Oracle posts “Bankruptcy Event”; protocol freezes mint/redemptions temporarily.
• sUSDkW redemptions resumed as liquidation proceeds realized.
Securitization flow: (Asset-Backed Securities)
These are financial instruments (notes/bonds) backed by pools of income-producing assets like auto loans, mortgages, credit-card receivables — or in your case, solar PPAs, loans and leases. 1. Pooling the assets: Energy Partner selects a portfolio of assets owned by the Protocol WOS BR SPV with receivables - expected monthly payments from customers for energy (PPA) or lease installments
The loan is financed through a two-tranche capital structure:
Senior Tranche (sUSDkW Holdxxers):
Represents approximately 90% of total loan principal, covering up to 65% of collateral value (LTV).
Capital originates from sUSDkW holders, protocol supply liquidity by redeeming an equivalent amount of USDkW from the staking contract.
The redeemed USDkW is unwrapped into $M tokens via the M0 protocol and converted into USDC, which funds the senior tranche of the pool.
Junior Tranche (FiLo Curators & O&M Service Providers):
Represents approximately 10% of total loan principal, corresponding to the top 5% of collateral value.
FiLo Curators deposit USDC directly into the pool as first-loss capital, absorbing any valuation shocks or default-related losses before they impact sUSDkw depositors.
2. Issuing “notes”: The SPV creates tranches of notes:
┌────────────────────────────┐
│ Senior Notes (sUSDkW) │
│ - Short tenor (1–3 yrs) │
│ - Priority Amortization (monthly) - shortens WAL to fund sUSDkW redemptions | │ - safest, lower yielding |
├────────────────────────────┤
│ Junior / First Loss (DE & Curators) │
│ - 5–10% OC cushion │
│ - Absorbs early defaults │
│ - riskier, higher yield │
└────────────────────────────┘
SPV Capital Stack sUSDkW represents a tokenized claim on these senior notes 3. Reinvestment (Revolving Pool): When short notes mature, the SPV can replace them with new, seasoned receivables from fresh projects — keeping the pool’s average life short and predictable. (so WAL stays ≤ 18 months)
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