FinGurú - Defi knows the real world: Unlock trillion dollars with RWA by tomas moreno

Unlock the potential: Integrate real-world assets in decentralized funding (DeFi)

The integration of real-world assets (RWA) into decentralized financing (DeFi) has the potential to revolutionise the industry. Not only could it increase the volume and adoption of DeFi platforms, but also offers the opportunity of risk diversification. There are billions of dollars per RWA value that are currently disconnected from the DeFi ecosystem, but by creating a two-sided loan market, these idle assets could be unlocked and used to fuel a new wave of decentralized applications. To continue growing, DeFi should find ways to introduce the exterior and take advantage of the potential of RWA.These assets are gaining attention as a way to bring more stability and trust to the often volatile world of cryptocurrency. But how do we create confidence in RWA within the DeFi ecosystem, and what can be achieved with these assets on DeFi platforms? In this article, we will explore the potential of RWA in DeFi, the forms of trust and the various possibilities of using these assets to create new opportunities in the world of decentralized financing.

What is a RWA?

Real-world assets (RWA) can take the form of fungable and non-fungable chips that represent physical assets, such as real estate, company actions, contracts, guarantees or invoices. These RWA can be sold in chain, allowing a variety of activities including purchase, sale and use of them as a guarantee for loans. The possibilities of using RWA in decentralized financing (DeFi) are broad, offering a new level of accessibility and flexibility in financial transactions.For example, let's say we want to take your property in a jail. The first step will be tokenize the property in a single NFT, which will represent that we own the property. Once we have our NFT, we could use it to request a loan and collateralize it with a real value asset using our NFT. As I could see, it is quite similar to a mortgage, but instead of the bureaucracy of a bank, you have tokenization.

How do you create confidence in RWA?

So the first logical question will be, who will believe it is really my home? How can investors and creditors trust that there is a real asset behind NFT?This is where chain bridges with off-chain. Before you can coin your NFT, there are several third parties who will audit, give an assessment and document the process. These third parties act as service providers who create trust in the underlying asset. All this information will be attached to the NFT, creating what we can think of in a set of documents validated by third parties that authenticate the property and value of the RWA.

So I need to provide my identity.

The answer is yes. As the RWAs are associated with identities, the same occurs in chains. To interact with Dapps and protocols that accept RWA, the portfolio accounts must complete KYC on behalf of the RWA owner.However, this does not mean that your identity and all documents are attached to NFT and in public chain. A special type of privacy-enabled NFT keeps any or all asset information private, while NFT property remains public in the lockdown chain.Therefore, to provide this extra layer of data protection, only the information required to identify all these documents to NFT meta-data while confidential data is kept outside the private chain.

And what can be done with RWA in DeFi?

Currently, the APRs are mainly used for loans and loans markets. Investors and other lending institutions evaluate the different assets and risks to provide liquidity in exchange for an interest rate. The protocols known as MakerDao or Aave are offering different solutions for liquidity or RWA tokens.RWA can play a very important role in DeFi, as they are an opportunity to increase the size of the market exponentially. These types of assets have the potential to unlock billions of real-world assets by putting Defi in direct competition with traditional banks and creditors.

RWA means more stability in DeFi

Most of the current value of DeFi is created by speculation of high-risk assets prices for the traditional financial sector. Through the introduction of tangible assets and dynamics similar to conventional finances, while limitations are removed and widen the possibilities of use, RWA can contribute more to price stability in the sector.With these types of assets and more stability, more secure investment opportunities emerge that will appeal to investors who today do not have decentralized funding.

Who uses RWA in DeFi?

As mentioned earlier, MakerDAO and Aave are working with RWAs, but two other notable protocols are Centrifuge and Defator. Centrifuge TVL has recently increased from approximately US$80M to more than US$15M and Defator has facilitated more than US$24M during 2022. Although the wider cryptographic market is experiencing a recession, the volume of economic activity in the RWA ecosystem is growing. RWA market yields are not correlated with the wider crypto market that demonstrates the RWA capacity to bring stability to DeFi.Continue Defator and Centrifuge on Twitter to stay a day with the leaders of this growing ecosystem.

3/14/2023 - Technology and Innovation

Defi knows the real world: Unlock trillion dollars with RWA