Deep Dive into RWA in Web3

Series Blog: Real-World Assets in the Crypto World

Foreword:

Before we dive into the technicalities and start discussing the various protocols which are handling the real world assets (RWA) on the blockchain, let’s investigate the role of RWA and why it is essential for us to be able to access it on the blockchain network.

Every day, investors from all around the world deal in the estimated $240 trillion accounts receivables and invest in $256 trillion worth of real-world assets on Earth[1], including every gold bar, every oil barrel, and any chunk of real estate. They make money by wisely investing, purchasing the assets they anticipate will be providing with greatest positive benefits and selling the ones they perceive to have soared in the market.

Regrettably, out-of-date procedures are employed to exchange these assets. These transactions may demand a great deal of various fees, and spatial constraints, and they may require weeks or possibly months to execute. Even if these markets prove to be lucrative, the investors feel hesitant to be a part of it due to these and other reasons which contribute to the market’s inconvenience.

As a solution to the hassle of the traditional financing and trading procedures, organisations like BSOS Tech are trying to change this by using the cutting edge technology of asset liquidation, so that the assets can be made available on the blockchain network for easy, accessible, and smooth transactioning in the blink of an eye.

This brings us to another discussion point, that is liquidation or tokenization of assets. This is an approach that has provided an opportunity to blockchain technology to prove itself to be applicable into the real world. Any tangible commodity can be tokenized, making it a completely marketable asset akin to a cryptocurrency. Many protocols and platforms such as BSOS, Centrifuge, TrueFi, Goldfinch, Defactor, Maple and many more are progressing their work into the area of bringing real world assets onto the blockchain. Let’s have a look at these in detail, to get a better understanding.

DeFi Protocols Working with Real World Assets:

BSOS

Founded in 2018, it provides a secure and innovative finance model to liquidise the real-world assets like accounts receivable. BSOS merges the past supply chain fintech, combines SaaS, blockchain and Web3, and takes it to the next level with the assistance of liquidity from the DeFi. Its continuous working capital management platform SUPLEX is through which BSOS manages to provide character to the RWA.

Centrifuge

It is a framework that gives SMEs access to quick, affordable finance and predictable return for investors. The investment platform offered by Centrifuge is Tinlake, through which Centrifuge is aiming to provide a more fair welcoming stage to any SMEs and investors. Tinlake uses its tokens TIN and DROP to function as the different tiers/tranchees for investment,similar to the traditional financing system . Junior tranche has higher yields but faces losses before the senior tranche, where the yields are less as the risk is lower.

TrueFi

It is a protocol that supports un-collateralized lending and is governed by its TRUtoken holders and was launched by TrustToken. It is observed to be the first DeFi protocol to have zero defaults and aims to further be able to target the higher-risk and higher-yield segment market. It has already undergone two major updates and has a goal to become the most trusted protocol for uncollateralized lending on blockchain. Through its uncollateralized performance it enhances the returns for the lenders and maximisation of the capital for the borrowers, who are not just crypto-native users.

GoldFinch

It is a decentralised protocol, with an agenda to bring credit activity on-chain, increasing capital access, and promoting financial incorporation by following the principle of “trust the consensus”. Thus it has been able to provide services to the population who are categorised by the traditional financing institutions as unbanked and undeserved. Thus, it not only provides funding to institutions and individuals in the crypto ecosystem, but also to businesses in the real economy.

Risks and their Mitigation:

There are a few risks that are common for all the protocols and all the protocols have very similar approaches for their mitigation. Such risks include security breach, that is hacking of the protocol which puts the liquidity pool and its fund at risk. This risk is mitigated by code and smart contract audits.

Risks specific to the above mentioned protocols are included in the table following this section.

A brief tabular comparison between the various mentioned protocols can be found below:

Even though the above three protocols mentioned have their basis of working on the DeFi as a common ground, it can be observed that their functionalities that actually describe them are different. Be it the assets they work on, whether on-chain or off-chain assets are used for the collateralization, the markets they target which also includes the type of users they support, the side that is, lender or borrower, in which their focus dominates. For example, Centrifuge provides assets on the chain that can be used for borrowing on the other hand the loans provided by Goldfinch are over-collateralised by off-chain assets. The difference in their functionality is that Centrifuge focuses mainly on their capability to tokenize real world assets which can then be used as collateral for loans. TrueFi and Goldfinch focus on their capability of being able to provide un-collateralized loans based on on-chain credit scoring. Even though their functionalities are the same, the market they target differentiates them. TrueFi focuses on institutions whereas Goldfinch wishes to provide capital to developing countries and emerging markets.

Thus, it can be said that, even though from the surface they seem to be quite homogenous, when dug deeper they are different based on their very own remarkable features.

Spotlighting the Better

This article so far has casted light in the direction of various protocols that are incorporating real world assets into the Defi, moving the spotlight to a daily working tool/platform that utilises RWA and provides businesses solutions on a daily operational basis, is BSOS’s SUPLEX, fully functional by the end of 2021.

With a vision that is dedicated to removing roadblocks in supply chain finance methods via blockchain and thereby establishing authenticity and liquidity of the assets in supply chain finance. BSOS presents to the world its platform SUPLEX with TAM of $43 trillion, observed on any single day.

SUPLEX is a working capital management platform which engages assets to provide functionality to its vertical supply chain clients that range from fashion textile industries to electronic manufacturing industries and many more. It helps businesses to function effortlessly by bringing their invoices(RWA) onto the blockchain and performing transactions/ exchanges using stablecoins, one example is Circle’s USDC . USDC is a stablecoin that has its value pegged to the USD, helping the users of SUPLEX to use the platform and perform their daily operations with much more certainty and solidity.

There are many factors that make BSOS better than these protocols and the following section will be walking you through it. With a regular operation ability that is not affected much by the daily market fluctuation gives BSOS an edge over the other protocols as these other protocols are directly or indirectly reliable on the volatile market and its volatile assets.

Where Are We Heading To

DeFi, which is widely accepted, still has a long way to go as there is a scope for various functionalities and features to be enhanced . There are a few factors in this current development stage of DeFi that if manoeuvred on can be effective in providing full competency to it. One of these factors is the need to work on expanding the inclusion of various real-world assets onto the chain. There are many categories that still are not accepted and are only limited to the real world’s working. Scaling up the assets on the chain is challenging. Nevertheless, if DeFi protocols/ platforms are able to overcome it, then the efficiency will increase exponentially.

Another factor that needs attention is the identification of the customer range, industries, risk identification and management methods, and the unified acceptance of it by the various protocols and platforms for a seamless integration of the entire DeFi network.

Just like these protocols are not perfect and working to improve, BSOS is also working to provide refinements. It aspires to move towards building its own protocol in collaboration with other protocols or platforms in the Defi network to be able to provide the users with an almost 100% efficient solution by increasing the asset scalability, expanding customer acceptability and efficient risk management approaches.

To know more about the working and how the above will be achieved, more chapters related to RWA and the detailed working of BSOS and its SUPLEX will soon be updated.