DeFi Taps TradFi To Accelerate The Adoption Of Tokenized Real-World Assets

Decentralized finance, built on blockchains, has given us a new and more efficient way to manage and leverage financial assets. With the tokenization of real-world assets such as commodities, stocks, shares, equities, bonds, real estate, fine art and more, DeFi offers an alternative approach to enhancing accessibility and boosting liquidity in financial markets.

RWAs, when represented as tokens on blockchain platforms, act as a bridge between the traditional and decentralized financial worlds, combining the efficiency and flexibility of digital transactions with the economic value of physical assets.

Meanwhile, DeFi represents an alternative to traditional financial systems that provides 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 intermediaries.

DeFi is a solution to the limitations of traditional financial systems, which are notoriously slow, and opaque and inaccessible to many.

One of the first examples of tokenization was Maple Finance, which pioneered a protocol that converted the rights to receive interest from bonds into digital tokens, which could be traded freely via decentralized marketplaces.

Early efforts like this paved the way for other forms of tokenization. It’s possible to tokenize any kind of financial asset and expand accessibility through fractional ownership. These tokenized assets help to boost inclusivity, bring more liquidity into markets and expand access to capital, and they do so in a way that’s fully transparent.

Bridging TradFi Risk Management To DeFi

RWA protocols today are built 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’s necessary to implement capabilities focused on managing risks, in order to protect investors and safeguard their capital investments.

To create these risk management systems, some of the more innovative RAW protocols – perhaps surprisingly – are following the lead set out by its peers in the traditional financial industry. TradFi has long established the best practices needed 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 realize this opportunity when they co-founded Zivoe, a real-world asset protocol that intends to disrupt the extremely predatory, high-interest consumer lending market. It has designed a protocol that aims to help victims of such predatory loans reorganize and refinance their debt repayments to obtain better terms. The platform works by pooling on-chain capital provided by investors, and lending it to consumers. Liquidity providers earn interest from these borrowers’ repayments, generating a sustainable yield on their investment.

Zivoe CEO Abbasi, who spent more than two decades working in the finance industry prior to entering the crypto space, set out to offer consumers a better deal after seeing firsthand the damage caused by traditional lenders’ predatory practices. Gruevski, an expert with over a decade of experience in financial compliance, serves as the company’s General Counsel. They’re joined by Zivoe’s risk advisor Walt Ramsey, who specializes 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 Quarnstrom, who previously helped Maple Finance build its groundbreaking RWA protocol.

Dream Teams Can Propel RWA Growth

This “dream team” sets Zivoe apart in the RWA space, with an eclectic mix of blockchain innovators and financial experts helping it to devise a more robust framework and facilitate secure and fair access to credit that benefits borrowers and lenders equally.

Having just launched its mainnet in the second quarter of 2024, Zivoe is well on track to originating its first consumer loans in the second half of the year. Its progress illustrates the advantages that exist when DeFi protocols tap into the expertise that abounds within the TradFi space, setting an example for others to follow.

RWA protocols can go even further by cooperating with regulators to help create the legal frameworks needed to advance decentralized lending. Such safeguards will go a long way towards encouraging the rest of the TradFi industry, including institutional investors, to participate in DeFi and RWAs and unlock the true potential of this technology.

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