Risks

DayFi is an emerging decentralized infrastructure protocol connecting distributed energy resources (DERs) to capital markets. As with any system that bridges real-world assets with onchain finance, participants are exposed to a variety of risks—technical, market-based, and operational. The following outlines the non-exhaustive but principal categories of risk relevant to the protocol and its users. The following pages outline mitigants, especially regarding the underlying assets.

1. Asset Base and Operational Risks

1.1 Host Default and Credit Risk

DayFi's revenues depend in part on homeowners and small commercial entities fulfilling long-term Power Purchase Agreements (PPAs). Economic downturns, loss of income, or operational disputes could cause elevated default rates.

1.2 Weather and Climate Events

Distributed solar and storage assets are inherently exposed to weather volatility. Severe storms, floods, wildfires, or prolonged periods of low irradiance could damage equipment or reduce output. While systems are insured and geographically diversified, correlated climate events may lead to systemic revenue disruptions.

1.3 Equipment Performance and Warranty Risk

Each system’s performance depends on reliable long-term operation of solar modules, inverters, and batteries. A manufacturing defect or class-wide failure—particularly if an original equipment manufacturer (OEM) becomes insolvent or refuses to honor warranties—could impair energy production and project economics.

1.4 Tax Incentive and Regulatory Risk

DayFi relies on monetization of government incentives such as the Investment Tax Credit (ITC). Non-compliance, early decommissioning, or changes to program eligibility could trigger clawbacks (“tax credit recapture”) and reduce realized yields. Changes in federal or state clean energy policy may materially alter project economics.

1.5 Physical Collateral Recovery Risk

In cases of PPA default, sponsors may repossess and redeploy hardware, or pursue debt collection processes. Recovery timelines, costs, and resale values are uncertain, particularly when dealing with small-scale, geographically dispersed equipment. Proceeds from recovered systems may not fully offset capital impairment.

1.6 Insurance and Force Majeure Limitations

While insurance coverage exists for production performance and equipment damage, coverage exclusions or insurer insolvency could prevent full reimbursement after catastrophic events.

1.7 Energy Market Volatility

Revenue from Virtual Power Plant (VPP) participation depends on grid conditions and wholesale electricity prices. Unexpected declines in power prices or reduced grid stress could compress yields.

1.8 Treasury Yield Sensitivity

A portion of sGRID’s revenues is derived from Treasury yields via the $M stablecoin collateral base. Interest rate declines or yield curve inversions could lower protocol income.

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2. Financial and Structural Risks

2.1 NAV and Valuation Risk

sGRID’s NAV represents the fair economic value of DayFi's asset pool. It relies on assumptions about future production, amortization schedules, and revenue timing. If underlying assets underperform, or if methodologies are flawed, NAV could misrepresent true economic value. NAV is updated monthly and may not immediately reflect real-time market changes.

2.2 Liquidity and Redemption Risk

Although sGRID is redeemable for GRID via the Queue Extractable Value (QEV) mechanism, liquidity is not guaranteed. Redemption availability depends on capital inflows, asset maturities, and auction demand. Market stress or redemptions exceeding available liquidity could delay or impair withdrawals. There is no assurance that stakers can exit positions in a defined timeframe .

2.3 Concentration and Correlation Risk

While the protocol seeks to be geographically diversified over time, DayFi's portfolio remains concentrated in distributed solar and storage assets in specific U.S. markets. Regional policy changes, weather events, or grid conditions could create correlated losses.

2.4 Counterparty and Servicing Risk

Independent Special Purpose Vehicles (SPVs) and third-party servicers manage asset ownership and operations. Mismanagement, insolvency, or operational failures by these entities could delay payments, reduce recoveries, or expose the protocol to legal disputes.

2.5 Stablecoin Counterparty Risk

GRID is built on M0’s $M stablecoin stack, which is backed by U.S. Treasuries and cash equivalents . Any failure of the underlying issuer or custodians could impact GRID liquidity and redemption integrity, indirectly affecting sGRID valuation.

2.6 Legal and Regulatory Uncertainty

Regulatory treatment of tokenized energy products and onchain yield instruments remains unsettled. Future regulation could classify the protocol's assets or tokens as securities or impose new compliance requirements. Interpretation of existing or new laws or regulations by regulatory agencies in various jurisdictions could result in such regulator concluding that certain participants in the DayFi protocol need to be registered or may be subject to compliance obligations or other requirements that cause them to stop providing services to the DayFi protocol which could materially impact the revenues of the protocol.

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3. Technical and Protocol Risks

3.1 Smart Contract and Oracle Vulnerabilities

DayFi's contracts manage minting, staking, and redemption flows. Exploits, bugs, or governance failures could compromise user funds or protocol functionality. Smart contract audits reduce but cannot eliminate such risks.

Additionally, the protocol’s reliance on external oracles introduces potential points of failure or manipulation.

3.2 Privacy and Location Verification Risks

Host identity and location are verified via hashed coordinates and zk proofs. While designed for privacy, any de-anonymization or metadata leakage could expose users’ physical energy data or home locations.

3.3 Integration and API Dependence

DayFi's ecosystem depends on API integrations with Arcadia, Texture, and other device manufacturers. Disruptions, changes to API access terms, or commercial disputes could prevent new device onboarding or data reporting.