Why are real-world assets important to DeFi?
The use of DeFi has exploded over the past two years, but many people are still scared to take their first step, due to the volatility and uncertainty associated with cryptocurrencies and DeFi protocols.
Demand is Shifting in Favour of DeFi
Given the unmistakable demand in finance for liquidity, trust, and transparency, decentralized finance (DeFi) looks to hold the solution to improve the current traditional system, by enabling individuals and businesses to access funding freely and cost-effectively.
It comes as no surprise that when we examine the historical curve of Total Value Locked (TVL) within DeFi. It is evident there has been eminent growth at an exponential rate in recent years. 2020 proved to be a substantial year for such evolution, and 2021 exhibited no signs of tapering off. According to DeFi Llama, TVL grew by about 1,120% year over year, peaking at just under a quarter trillion dollars.
As large portions of international businesses struggle with accessing TradFi, DeFi operates as an alternative funding source to close the funding gap. Many have become privy to the advantages that blockchain technology and decentralization insert into the financial sector; faster transactions, reduced administrative burden, streamlined facilitation, real-time traceability and validation, and immutable ownership records. While adoption rates have been increasing, there is still much room for DeFi to mature, certainly to a point where the funding gap can be plugged.
The Problem
One of the most prominent issues that could potentially impede mass adoption is the extreme volatility synonymous with the cryptocurrency market. Such volatility has bred entire new markets, but many potential adopters are more risk-averse. While many native DeFi users enjoy the thrill of the volatility, this type of high-risk appetite is a dealbreaker for traditional institutions driving them to steer clear. In short, there is a high demand for DeFi, but new users are scared.
What will be the next component to propel us further down the road to mass adoption? Real-World Assets (RWAs). RWAs are anything that exists in the world that can be represented on a blockchain and funded with DeFi.
The Real-World Asset Solution
RWAs represent a virtually unlimited and untapped market to be connected to DeFi. Consider that material items, such as real estate, or non-physical things, such as invoices, can now be tokenized as non-fungible tokens (NFTs), this can unlock previously inaccessible liquidity quantifiable in trillions of dollars. Bringing this TVL to DeFi will be key to solidifying DeFi as a real competitor to TradFi.
Bridging real assets to DeFi serves as an alternative capital source benefiting businesses struggling to access finance. Additionally, the introduction of tangible assets offers peace of mind to those with a more conservative risk appetite who may have been observing from the sidelines, looking to get on board through a more unassailable route. RWAs in DeFi provide stable returns uncorrelated to the greater cryptocurrency market. The integration of RWAs into DeFi adds a renewed level of stability, equality, and accessibility that will allow mass adoption. RWAs stand to impact the entire industry substantially and they will be an essential part of the future of DeFi.
The Role of Defactor
Traditional businesses don’t have the knowledge or infrastructure to manage digital assets and interact with DeFi protocols. This halts access to liquidity and reduces the potential of RWAs. Defactor simplifies interaction with the blockchain for inexperienced institutions and makes the liquidity easily accessible, enabling enterprises to leverage DeFi using the Defactor infrastructure. By doing this, Defactor will be able to fast-track the adoption process for traditional businesses coming to DeFi and allow them to benefit from the power of access to capital. This will accelerate mass adoption of blockchain technology and it has the potential to dramatically increase DeFi TVL.
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Why are real-world assets important to DeFi?
DeFi's growth faces hurdles due to volatility. Real-world assets (RWAs) can bridge the gap and drive mass adoption. Defactor simplifies RWA integration, accelerating traditional business adoption of DeFi.