2/27/2023 - Technology and Innovation

Real Asset Tokenization: How to prevent a financial crisis of Subprime Like 2008 in DeFi?

By Tomás Moreno

Real Asset Tokenization: How to prevent a financial crisis of Subprime Like 2008 in DeFi?

The ignorance of history leads to repeating it. Therefore, it is interesting to explore the relationship between tokenization of real-world assets in DeFi and the role of mortgages in the subprime crisis. This article will discuss how the tokenization of real-world assets in DeFi relates to the use of real estate loans and mortgages in the 2008 crisis and what lessons we can learn from it to avoid feeding a similar bubble in DeFi.

Tracing the Roots of the 2008 Crisis: The Role of Mortgage-Backed Bonds

The 2008 real estate bubble was a world economic phenomenon that was due to excessive inflation of property prices and a subsequent decrease in its value. The bubble originated in the United States where property prices had sustained increases for years due to lack of regulation and excess bank credit.It is important to note that the representation of real-world assets in the financial world is not a new phenomenon. For example, mortgages were used as financial instruments for a long time as a vehicle to create a financial market in different real estates. In this context, subprime mortgages were offered as investments through mortgage-backed securities. Many high-risk and interest mortgages were grouped into "paquettes" and sold as a financial product. Investors bought these bond and mortgage packages thinking they were a safe investment due to the guarantee of real estate and risk assessments of recognized banks.However, when the economy began to slow down and many subprime borrowers began to fail in their payments, this caused a decrease in property values. As a result, many of these mortgages became intensible and caused losses to investors who acquired these mortgage-backed values at irreparably high prices of the real estate market.This mortgage bubble followed by a financial crisis in the US finally led to a global economic recession, now known as the "Great Recession" of 2008.

What similarities have the mortgage-supported values with the tokenization of real assets?

One of the main similarities between the tokenization of real global assets in DeFi and mortgage-backed values used in the financial crisis of 2008 is that both processes imply to represent a physical asset through a token or financial instrument. In the case of real assets in the world, it is a sign in a chain of blocks that represents a physical asset, such as a property or vehicle. On the other hand, mortgage-backed securities are financial instruments that represent debt supported by real estate.Another similarity is that both processes allow investors to access a wide range of investment options. Tokenizing an asset or issuing a mortgage-backed security, it becomes easier for investors to acquire and gain exposure to it. This can help increase liquidity and market efficiency, which in turn can drive growth and innovation in the financial sector.

Possible consequences of overvalued chips

The overvaluation of chips representing real global assets in decentralized financing (DeFi) could have similar consequences to those observed during the 2008 financial crisis.In the 2008 financial crisis, one of the main causes was the overvaluation of mortgage-supported values. If the chips that represent real assets of the world in DeFi are overvalued, it can lead to a similar situation where they do not accurately reflect the value of the physical asset they represent. If the token value is greater than the physical asset value, this could lead to a overinversion in the token and a later down-of-value when investors perceive the disparity.If the chips are overvalued, investors can obtain an excessive exposure to them and the physical assets they represent, leading to a risk concentration. If the registered value decreases, it may have a negative impact on investors' portfolios and the financial market as a whole.

The promise of decentralized financing to avoid future financial crises

Although overvalued chips can be a crop field for a new bubble, the tokenization of real-world assets in decentralized funding could also help prevent a crisis in many ways.First of all, the tokenization of real-world assets can improve the confidence of investors in which they emit the chips. New stakeholders and decentralized ways of assigning a "fair value" to an asset increase confidence in the pricing process, eliminating banks or credit agencies from the equation. This can improve investor confidence in token and token creator by reducing the risk of financial crisis as it could prevent the creation of credit markets with poorly calculated risk value as subprime values.Secondly, the tokenization of real-world assets can also benefit from adequate regulation that can help ensure the safety and trust in the chip market by laying standards and protections for investors and part-creators. For example, regulation could establish transparency and disclosure requirements, so investors can make informed decisions about their investment. In addition, regulation can also help prevent fraud and the manipulation of the parts market, which could improve investor trust in parts chips and creators.Third, block chain transparency can also help prevent a financial crisis allowing investors to see all transactions and changes in the registry. This can make it more difficult for parts creators to manipulate the market or create chips with false or divergent representations of assets. In turn, this makes it easier for regulators to monitor and monitor the chip market, which could help detect and prevent any fraudulent or suspicious activity.In conclusion, the tokenization of real-world assets in Decentralized Finance (DeFi) offers several promising solutions to prevent future financial crises. By increasing transparency and confidence in token emitters, establishing effective regulation and using the benefits of blockchain technology, DeFi can play a crucial role in reducing the risk of financial instability and in promoting market stability. The tokenization of real-world assets in DeFi has the potential to be a powerful tool to safeguard against future financial crises.

Taking advantage of the past to form a better future in DeFi

In conclusion, although the overvaluation of chips can give way to a scenario that reminds the financial crisis of 2008, block chain technology and the opportunity to create a framework of agents that oversee the proper valuation of assets generate an optimistic climate to create a transparent and reliable market for real-world assets represented in the block chain. The tokenization of real assets would doubt be one of the major steps necessary for decentralized finance to gain traction and volume. This is why learning from the past becomes essential to avoid similar errors, as DeFi continues to evolve.

Do you want to validate this article?

By validating, you are certifying that the published information is correct, helping us fight against misinformation.

Validated by 0 users
tomas moreno

Tomás Moreno

My name is Tomas Moreno and I am passionate about technological innovation, finance and education.

I specialize in digital product management. Entusiasta de cripto y blockchain, but for technology than for investment. I love everything related to behavioral economics and circular economy. Boot but fan of the selection. Happiness is sharing a good mate

Total Views: 1

Comments