Real World Assets: A Key Building Block for The Future of DeFi

DeFi has become a playground for the crypto-rich. As an industry, we have lost our collective vision to get DeFi into the hands of everyday people and businesses. We have been too focussed on making ourselves richer, rather than designing apps and platforms for everyone to access decentralised technology.

Remember the days when everyone was yelling about mass adoption? Now we barely even utter those words. A lot of cool things are happening in DeFi — but now it’s time to focus on how we can build a better financial system for everybody.

What do we mean by Real World DeFi?

The true definition of Decentralized Finance — “open finance that is free of intermediaries and accessible to all” — has been diluted up to now. However, Real World DeFi is taking that definition back to its foundations: finance accessible for all regardless of social status or geographical location. Real World DeFi is the DeFi we all dreamt about.

DeFi that has a Real World Impact.

Real World DeFi = stability, accessibility, and equality.

Achievement unlocked: Real World DeFi

The road to achieving Real World DeFi is a long one. Very few projects have realised the dream of making DeFi applications that have a Real World Impact. Centrifuge is one of them.

MakerDAO paved the way with their stablecoin, DAI. For a long time, DAI was the only thing DeFi had. If you wanted to transact, pay, or invoice in crypto, DAI was the most straightforward (and most decentralized) to use if you needed a non-volatile option. Another prime example of DeFi with a Real World Impact is the work Bounties Network did back in 2018 alongside MakerDAO to carry out the first social impact bounty project “Bounties for the Ocean”.

With the advent of Real World Assets (RWA) in DeFi, Centrifuge is helping Maker pave the way for real world adoption at scale. For stablecoin collateral, diversification and volume are key. By adding tokenized financial assets to the collateral portfolio of Multi-Collateral DAI, Maker was for the first time diversified from ETH and BTC. While other cryptocurrencies brought volume, they did not add to the protocol’s resilience. The magic of RWA is that it combines both.

While the volume of RWA backed DAI is still miniscule compared to the size of DeFi, it is the only asset class that has the potential to grow DeFi beyond the billions it has already reached. Check the current status of RWA backed DAI here.

Growing Real World DeFi to the next level

Another DeFi trailblazer in this ecosystem is Aave. There are few protocols that manage to make waves as big — and stir up the TradFi pond — like Aave does. They have seen tremendous growth over the past couple of years and are truly driving institutional adoption of crypto.

Together with Aave, Centrifuge continues its journey of building Real World DeFi. By launching a RWA Market on Aave, Real World DeFi is expanding its reach beyond what we’ve seen today.

In just a few weeks, Aave users will be able to further diversify their crypto holdings and earn stable yield against a range of diversified real world assets (peep the asset types that are on the way on Tinlake). By providing liquidity to the RWA Market, Aave users allow participating businesses to finance their assets. Crypto is closing the gap that TradFi fails to provide in the world of financing, and Real World DeFi is going full circle.

(Real World) DeFi cannot exist without Real World Assets. Change my mind.

Real World Assets are anything physical that can be represented on-chain. Any object that exists in our world could be financed with DeFi.

With the technology we’ve built, Centrifuge is connecting assets like invoices, real estate and even gig economy payment advances to DeFi by unlocking currently inaccessible liquidity and allowing this new found capital to finance SMEs. Through these 3 asset types alone, we are talking trillions worth of assets bridged to DeFi. Real World Assets will connect DeFi to a limitless, untapped market.

Let that sink in.

This is how we will achieve mass adoption, and really make a Real World Impact through DeFi: by unlocking the otherwise inaccessible liquidity in Real World Assets.

Big shout out to Lea Schmitt for collaborating on this with me. And Kate Beecroft and Devin Black for their help!