Over the last couple of years, the term decentralized finance (DeFi) seems to have captured the imagination of the masses, with the industry radically transforming the way in which money can change hands — primarily by eliminating the need for any centralized intermediaries. This is in direct opposition to the financial model that is in place worldwide, wherein middlemen such as banks, money lenders, etc are required for the facilitation of any monetary transaction while taking a significant cut of the pie.
To best illustrate the growing clout of the DeFi market, one can see that the total locked value (TVL) within this space has continued to rise
at an extremely rapid pace, surging from around $10 billion at the start of 2020 to a staggering $100 billion within a span of just 24-odd months.
In terms of what benefits the DeFi market is capable of delivering, the industry provides users — irrespective of their location, financial status — with seamless access to a wide range of products (ranging from loans to crypto-based mutual funds to other yield-centric opportunities) while offering extremely high annual percentage yields (APYs) that traditional monetary offerings cannot compete with on any level.
‘Real-world DeFi’ and its transformative capabilities…
From the outside looking, real-world DeFi can be viewed as the most utilitarian aspect of the decentralized market, wherein platforms operating within this space are used to initiate tangible, on-ground changes on a global scale, allowing people living in countries without even the most basic banking services to access quality monetary offerings irrespective of their social status (i.e. credit rating, social score, etc)
To simplify the concept even further, one can say that real-world DeFi applications are those that are designed to spur a transformative wave capable of completely disrupting the existing monetary ecosystem which is reliant on a debt-based economic model while being governed by a central banking institution.
Real-World-Assets (RWA) can transform the global economic landscape
In their most basic sense, RWAs are DeFi centric tools allowing users to gain access to a wide range of assets including real estate, stocks, commodities, collectibles, amongst others via the avenue of tokenization
. By allowing for the integration of non-crypto-related assets within a crypto-centric framework, RWAs have initiated a new wave of change that many investors believe can help the crypto market grow substantially in the near-to-mid term.
By opening up the dormant potential (which is touted to be worth trillions of dollars) of real-world assets, the DeFi market can become even better positioned to disrupt the monopoly of traditional banks and money lenders while providing peace of mind to risk-averse players who, up until now, have been keeping away from the digital asset space due to its perceived lack of investment security.
In this regard, Centrifuge
is a DeFi platform capable of utilizing RWAs across a host of different domains. For example, the offering helps bridge the gap that currently exists between asset markets as diverse as real estate, remittance/invoice creation, creator royalties while bringing down capital costs for small and medium-sized enterprises (SMEs). Not only that, it helps deliver DeFi investors with a source of income that is uncorrelated to volatile crypto assets.
Furthermore, Centrifuge also has a Real-World Assets (RWA) Market built on Aave
allowing investors to earn yield against real-world assets that have no relationship with any digital tokens. Aave is a DeFi protocol through which investors can borrow tokens against any collateral that they may have deposited on the platform — with interest rates fluctuating depending on supply and demand.
Also, it bears mentioning that Centrifuge has in the past supported the bridging of real-world assets to the DeFi sphere in other ways, with the firm announcing during Q1 2021 that it would be introducing real-world assets (RWAs) as collateral on MakerDAO. To elaborate, the platform is currently in possession of 50+ million DAI (the Maker Protocol’s native Ethereum-based stablecoin) in total value locked, providing an APY of around 25%.
What lies ahead for the DeFi sector?
With the crypto industry continuing to grow at an extremely rapid pace, it stands to reason that more and more people will continue to enter and harness the immense capabilities put forth by the DeFi market. Also, with more and more mainstream players — including BNY Mellon, JP Morgan, Morgan Stanley, amongst others — continuing to make their way into this space, the digital asset industry will only grow further over the coming decade.