One of the emerging trends in the world of blockchain and cryptocurrency is the use of real world assets (RWA) to expand credit on the blockchain. AC Capital researcher armonio discusses the definition and characteristics of blockchain lending with RWA collateral, as well as its advantages and limitations compared to traditional lending, starting from the evolution of the global debt market. The article provides an introduction to the main projects in this field and concludes with recommendations.
Blockchain loans for Real World Assets (RWA) offer stability, democracy, and transparency. Compared to traditional lending, advantages include greater international accessibility and global market integrity, more availability of encrypted financial tools, consensus, and a more democratic decision-making process. However, there are also limitations that must be considered. Firstly, although blockchain technology provides a trustless and transparent platform, using blockchain lending for real-world assets introduces credit risk. Secondly, there may be global compliance issues when it comes to cross-border lending. Finally, there are still technological risks with blockchain lending.
Comparison analysis of RWA on-chain lending projects: 1) KYC and compliance: as the business involves real-world assets, cash flow, and default settlement, local government support, KYC, and compliance issues are crucial; 2) Credit: DeFi has a short history and limited on-chain activity, coupled with the fact that on-chain data cannot represent individual credit. These projects have not attempted to incorporate on-chain credit into project credit assessment, and only GoldFinch has attempted to ensure that each entity on the platform has a unique account; 3) Credit default recovery plan: Maple Finance, GoldFinch, and Centrifuge provide solutions. For off-chain collateral, these projects prefer to use SPVs to control disposal rights; 4) Transparency: on-chain behavior is transparent, but relevant off-chain information needs to be disclosed regularly. Centrifuge claims to have a peer-to-peer network for sharing information; 5) Liquidity: Centrifuge provides withdrawal collateral. GoldFinch has a unique credit risk assessment and unified liquidity for its senior asset pool. Credix has poor liquidity, especially when its loan pool is depleted. Maple Finance has not specifically explained how to establish liquidity.
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Overall, this is not a good business, but a huge one. The decentralized world is still in its infancy compared to traditional industries, and even if a small part of traditional finance turns to blockchain, it will be a huge success for DeFi and its infrastructure. The crypto world needs Real World Assets (RWA) to enhance its credit value. The imbalanced development of the global financial system provides survival space for RWA lending, and the accessibility of encrypted finance is much higher than that of traditional finance. Infrastructure is currently lacking. In addition, KYC and compliance are only passive requirements for customers. All of these reasons lead to the existence of a huge RWA mortgage lending market, but encrypted projects are difficult to expand their business in the short term.