Settlement Right Token

Transfer Pending Settlement Claims Without Waiting

A Settlement Right Token (SRT) represents the right to receive settlement proceeds from a pending exit. When redemption takes time, the SRT lets holders transfer their claim immediately instead of waiting for the underlying process to complete.

The Problem

Fund redemption is slow. Quarterly processing. 90 day notice periods. Gates during stress. Even when you submit a redemption request, you wait months before receiving proceeds.

During this waiting period, your capital is locked. You cannot redeploy it. You cannot hedge it effectively. You bear all the risk of the pending settlement with none of the liquidity.

The SRT solves this by tokenizing your pending claim, making it transferable immediately.

How It Works

Step 1: Submit Redemption Request

You submit a redemption request to the underlying fund through normal channels. The fund acknowledges the request and queues it for processing.

Step 2: Mint SRT

RAVA mints an SRT representing your pending claim. The SRT specifies:

• Underlying fund and share class
• Redemption amount requested
• Expected settlement date
• Any conditions or gates that apply

Step 3: Transfer or Hold

You now have two assets:

• The pending redemption claim (held by RAVA as custodian)
• The SRT (liquid, transferable, yours to trade)

You can sell the SRT immediately for liquidity, or hold it until settlement.

Step 4: Settlement

When the underlying fund processes the redemption:

• Settlement proceeds flow to RAVA
• RAVA distributes proceeds to the current SRT holder
• SRT is burned

The SRT holder receives exactly what the redemption yields, minus a small processing fee.

Pricing

SRTs trade at a discount to face value. The discount reflects:

Time value: Money now is worth more than money later. A 90 day wait might justify 1% to 2% discount.

Settlement risk: The fund might gate, side pocket, or reduce NAV before settlement. Higher uncertainty means higher discount.

Liquidity premium: Buyers of SRTs demand compensation for providing liquidity. Illiquid markets mean higher discounts.

Example:

• Redemption request: $10M
• Expected settlement: 90 days
• Fund status: Open, no gates
• SRT price: $9.7M (3% discount)

Stressed example:

• Redemption request: $10M
• Expected settlement: 180 days (gates announced)
• Fund status: Partial gates, uncertain NAV
• SRT price: $8.5M (15% discount)

Use Cases

Immediate liquidity: Convert pending redemptions into cash today instead of waiting months.

Risk transfer: Transfer settlement risk to buyers willing to wait and bear uncertainty.

Arbitrage: If SRT discount exceeds fair value of time and risk, buyers can profit by purchasing and holding to settlement.

Estate planning: Transfer claims without waiting for settlement to complete.

Portfolio rebalancing: Exit exposure to pending redemptions when strategy changes.

Comparison to Other Exit Paths

SRT vs Selling Before Redemption

Why not just sell to Standing Liquidity Facility instead of submitting redemption?

The discount is different. SRTs typically trade at smaller discounts than the Standing Liquidity Facility charges, because:

1. Redemption is in progress: The fund has already acknowledged the exit. Settlement is expected.

2. Time is shorter: SRT discount reflects remaining time to settlement, not full exit window.

3. NAV is locked: Many funds lock NAV at redemption request, reducing price uncertainty.

Example:

• Asset haircut: 25%
• Asset discount (SLF): 35%
• SRT discount (90 days to settlement): 5%

Selling the asset to SLF yields 65 cents on the dollar. Selling the SRT yields 95 cents on the dollar. The difference justifies submitting redemption first, then selling the SRT.

Token Mechanics

Minting: SRTs are minted when redemption requests are verified and custodied by RAVA.

Denomination: Each SRT represents a specific redemption claim with defined terms.

Transfer: SRTs are ERC 721 tokens (NFTs) representing unique claims. Transfer is permissionless.

Settlement: When proceeds arrive, RAVA burns the SRT and distributes funds to the holder.

Disputes: If settlement differs from expected (gates, NAV adjustment), the SRT holder receives actual proceeds.

Example: Quarterly Redemption

A protocol holds $20M in a tokenized private credit fund with quarterly redemptions.

Day 1: Submit redemption request for Q2 processing

Day 3: RAVA verifies and mints SRT for the pending claim

Day 5: Protocol sells SRT for $19.2M (4% discount, 85 days to expected settlement)

Day 90: Fund processes redemption, sends $19.8M to RAVA (NAV dropped slightly)

Day 91: RAVA distributes $19.8M to SRT holder, burns token

The protocol received $19.2M on day 5 instead of $19.8M on day 91. They paid 3% for 85 days of liquidity. The SRT buyer received $19.8M for their $19.2M investment (3.1% return in 85 days).

Risk Factors

Settlement risk: The underlying redemption might fail, gate, or settle at reduced NAV. SRT holders bear this risk.

Counterparty risk: RAVA must properly custody claims and distribute proceeds. Smart contract and operational risks apply.

Market risk: SRT prices fluctuate. Selling during stress may require accepting larger discounts.

Regulatory risk: Treatment of SRTs varies by jurisdiction. Buyers should verify compliance.

Relationship to Routing Function

SRTs complement the other exit paths:

• If you haven't submitted redemption and need exit: Standing Liquidity Facility
• If SLF is at capacity: Discount Token Fund
• If you already submitted redemption and need liquidity before settlement: SRT

Each path serves different situations. RAVA provides all three to ensure holders always have options.