# Pricing Methodology

This document explains how Tortuga values the assets underlying its tokenized bonds throughout their lifecycle — the framework, cadence, asset-type methodologies, portfolio contagion resistance, and the path toward secondary market dynamics. Pricing transparency is fundamental to investor confidence, and the choices made in this framework determine how investors experience the product between subscription and redemption.

# Product Design: Yield, Not Liquidity

Tortuga's current products are structured for yield-harvesting over a defined holding period. The yield includes an illiquidity premium — investors who hold to maturity are compensated for accepting illiquidity through higher returns than comparable liquid instruments.

Price and cash flow are independent. A valuation adjustment does not change the coupon. Only the actual performance of the underlying asset determines distributions. For a hold-to-maturity investor, interim price movements are largely irrelevant to economic outcome.

# Settlement Currency: USDC

Subscription in USDC. Coupons distributed in USDC via batched on-chain transfer. Principal returned in USDC at redemption. This design eliminates fiat off-ramp friction for crypto-native investors while maintaining the regulated character of the underlying instrument. The stablecoin layer does not change the legal or regulatory character of the underlying bond.

# Two Distinct Questions

When discussing pricing, two questions must be kept strictly separate:

How are prices updated? This is the repricing cadence — the operational process of revising reported values based on new information. Answered by the weekly, quarterly, and annual review cycle described below.
How are prices fundamentally determined? This is the price-finding mechanism — whether the value of an asset is established by its intrinsic characteristics or by market supply and demand. This is a structural choice.

Tortuga's answer to the second question is intrinsic value. Assets are priced on underlying fundamentals and model-driven valuations, not on the last executed transaction price.

Why not market price? Private market assets have limited secondary trading. The last transaction is not representative — it reflects circumstances of a single trade under potentially distorted conditions. Intrinsic value pricing anchors reported price to the economic fundamentals of the asset.

# PwC-Validated Reference Pricing

Every asset class and every risk level within Tortuga's portfolio has a dedicated pricing model validated by PricewaterhouseCoopers. This applies across the full product range: performing real estate debt, development assets, preferred equity positions, land banking structures, and any asset type added to the platform.

PwC validates two dimensions:

Methodology — whether the pricing approach is appropriate for the asset type, consistent with institutional standards, and correctly specified
Output — reference price points produced by the model throughout the investment lifecycle, from origination through maturity

PwC audits approximately 60% of Luxembourg securitization vehicles and is the standard for institutional-grade validation in this market.

# Update Cadence

Cadence	Trigger	Process	Who
Weekly	Material developments affecting asset value	Review and update only if substantive event has occurred	Estating investment team
Quarterly	Scheduled formal review cycle	Model-based reassessment against PwC-validated reference prices	Estating + PwC models
Annual	Required for all core / stabilized assets	Independent third-party valuer physically inspects property	External independent valuer
Immediate	Impairment identified at any point in the cycle	Write-down executed outside regular schedule	Estating + board notification
Ad hoc	Significant macro or market environment shift	Triggered external revaluation or model adjustment	Estating judgment call

Immediate impairment recognition is a deliberate departure from the smoothed-NAV practices common in certain fund structures. Conservative valuation at origination combined with prompt impairment recognition is how the zero principal-loss track record has been maintained.

# Methodology by Asset Type

# Performing Assets (Core Income-Producing)

For a stabilized, cash-flowing property, the primary valuation check addresses three questions:

Is the cash flow still being generated at the expected level?
Has the asset value deteriorated materially since the last formal valuation?
Have market conditions changed enough to warrant a new external valuation outside the annual cycle?

If all three answers are negative, the valuation remains stable. If any trigger is identified, a formal repricing is initiated. A full external revaluation by an independent third-party valuer is conducted annually at minimum.

# Development and Construction Assets

Running full project economics forward at each reporting date — incorporating cap rate movements, labor cost changes, building material inflation, and market condition shifts — introduces volatility that does not serve hold-to-maturity investors.

Tortuga uses the cost-and-stage approach, developed in coordination with PwC. Value is based on the verified percentage of costs spent and the construction stage achieved — not on a projection of forward value creation. This deliberately understates value because costs spent are almost always less than value created by those costs.

Conservative by design. The alternative — continuous modeling of cap rates, labor costs, and market factors — would add volatility that does not serve investors in a hold-to-maturity product. A construction asset should not be marked to speculative completion value before it is complete.

# Preferred Equity Positions

Preferred equity positions are modeled at zero value — not at par, not at face value, not at projected return. Binary treatment: zero until the investment performs to contracted terms, or immediate write-down if impairment is detected. No speculative NAV. This removes the possibility of a sharp downward surprise.

# Asset-Type Summary

Asset Type	Methodology	Formal Cycle	Impairment Treatment	Philosophy
Performing / Core	Cash flow verification + annual independent external revaluation	Quarterly + annual physical	Immediate write-down if impairment identified	Stable unless material change
Development / New-Build	Cost-spent + stage-advance (PwC methodology)	Quarterly model update	Immediate write-down; no smoothing across reporting periods	Conservative; understates value deliberately
Preferred Equity	Modeled at zero value unless and until impairment is identified	Quarterly; immediate on impairment	Immediate write-down outside regular cycle	Binary: zero or impaired. No speculative NAV.

# Portfolio Contagion Resistance

Three independent mechanisms prevent cascading effects across the portfolio:

# 1. Compartment Isolation

Each asset sits in its own legally ring-fenced compartment within the Luxembourg securitization vehicle. There is no financial, legal, or operational linkage between compartments. A decline in one asset cannot mechanically affect any other asset's valuation, cash flow, or collateral position.

# 2. Intrinsic Value Pricing

In a market-priced system, a forced sale at a distressed price creates a comparable that reprices similar assets throughout the portfolio. Tortuga's intrinsic value pricing severs this transmission mechanism entirely. A distressed outcome in one compartment does not generate a pricing signal that affects any other compartment.

# 3. No Portfolio-Level Leverage

There is no leverage at the portfolio level, eliminating liquidation cascade mechanisms. DeFi leverage (Morpho Blue, Phase 2) operates at the individual token position level, not portfolio level.

# Path to Secondary Market Discovery

Secondary market functionality is Phase 2. Open questions that require honest treatment:

Speculative vs. income-seeking behavior: Will secondary market participants value the long-term cash flow characteristics, or will speculative dynamics dominate and create volatility disconnected from fundamentals?
Valuation decoupling risk: If an asset valued at intrinsic value is offered on a secondary market at a significant discount, the interaction between the two pricing frameworks is unpredictable. Stranded-asset dynamics could emerge for real, cash-flowing assets in ways not previously observed.
Thin market dynamics: Early secondary markets will likely be thin. A small number of motivated sellers can set prices that do not reflect fundamental value.

Tortuga's approach: enter with the proven hold-to-maturity product, add secondary market functionality progressively as market structure develops.

# DeFi Integration

Collateralized lending against tokenized bonds via Morpho Blue is an active roadmap item. NAV — computed off-chain using PwC-validated models and recorded on-chain — is the basis for collateral valuation in curator-defined lending pools. Curators define the haircut applied to NAV when setting LTV parameters.

For the Morpho Blue integration architecture, see architecture/defi-integration.md.