DeFi
DeFi taps TradFi to accelerate adoption of real-world tokenized assets
Decentralized finance, based on blockchains, has given us a new and more efficient way to manage and operate financial assets. With the tokenization of real-world assets such as commodities, stocks, shares, bonds, real estate, fine art and more, DeFi offers an alternative approach to improve accessibility and increase liquidity in financial markets.
RWAs, when represented as tokens on blockchain platforms, act as a bridge between traditional and decentralized financial worlds, combining the efficiency and flexibility of digital transactions with the economic value of physical assets.
At the same time, DeFi represents an alternative to traditional financial systems that offers more security and transparency while improving accessibility. It powers innovative concepts such as decentralized lending, where blockchain facilitates peer-to-peer engagements between borrowers and capital providers. Transactions are governed by immutable smart contracts, eliminating middlemen.
DeFi is a solution to the limitations of traditional financial systems, which are notoriously slow, opaque and inaccessible to many.
One of the first examples of tokenization was Maple Financewhich pioneered a protocol converting the rights to receive interest on bonds into digital tokens, which could be freely traded via decentralized markets.
Early efforts like this paved the way for other forms of tokenization. It is possible to tokenize any type of financial asset and expand accessibility through fractional ownership. These symbolic assets help to strengthen inclusiveness, bring more liquidity to the markets and expand access to capital, all in a completely transparent manner.
Connecting TradFi Risk Management to DeFi
RWA protocols today rely on robust blockchain infrastructures with processes in place to enable physical assets to be represented as digital tokens. As part of this tokenization process, it is necessary to implement capabilities focused on risk management, in order to protect investors and safeguard their capital investments.
To create these risk management systems, some of the most innovative RAW protocols are – perhaps surprisingly – following the lead set by their peers in the traditional financial industry. TradFi has long established the best practices necessary to enable secure lending, borrowing, and trading of financial assets, and many of the same principles can be applied to DeFi and RWA environments.
TradFi Veterans Jay Abbasi And Kristal Gruevski were among the first to seize this opportunity when they co-founded Zivoé, a real-world asset protocol that aims to disrupt the extremely predatory, high-interest consumer lending market. She designed a protocol to help victims of these predatory loans reorganize and refinance their debt repayments in order to obtain better terms. The platform works by pooling on-chain capital provided by investors and lending it to consumers. Liquidity providers earn interest on repayments from these borrowers, generating a sustainable return on their investment.
Zivoe CEO Abbasi, who spent more than two decades working in the financial industry before entering the crypto space, decided to give consumers a better deal after seeing firsthand the damage caused by the predatory practices of traditional lenders. Gruevski, an expert with more than a decade of financial compliance experience, is the company’s chief legal officer. They are joined by Zivoe’s risk advisor Walt Ramseyspecialized in risk management, having overseen multi-billion dollar unsecured consumer loan portfolios at companies including JP Morgan Chase, Lloyd’s Bank and Elevate Credit.
Another key figure at Zivoe is its third co-founder, Chief Technology Officer. John Quarnstromwho previously helped Maple Finance build its groundbreaking RWA protocol.
Dream Teams Can Power RWA Growth
This “dream team” sets Zivoe apart in the RWA space, with an eclectic mix of blockchain innovators and financial experts helping it design a more robust framework and facilitate safe and equitable access to credit that also benefits to borrowers and lenders.
After launching its mainnet in the second quarter of 2024, Zivoe is on track to grant its first consumer loans in the second half of the year. Its progress illustrates the benefits that exist when DeFi protocols leverage the expertise that abounds in the TradFi space, setting an example for others.
RWA protocols can go even further by cooperating with regulators to help create the legal frameworks necessary to promote decentralized lending. Such guarantees will go a long way in encouraging the rest of the TradFi sector, including institutional investors, to participate in DeFi and RWA and unlock the true potential of this technology.
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