Real World Assets & DeFi

The Decentralized Finance (DeFi) ecosystem has connected communities across the globe in search of transparency, access, efficiency, and financial empowerment. Until recently, the financial industry has been almost completely controlled under a Centralized Finance (CeFi) model, regulated by governments and accessible to the public via commercial banking institutions.

The DeFi ecosystem has actively been developing its own financial solutions as alternatives to many of the financial products offered by CeFi, including crypto collateralized borrowing and lending, trading, and high yield savings accounts, among others. Heightened attention on the development and offering of alternative DeFi services has created an interest among the DeFi community to participate in an expanded range of crypto products and services. Among the most exciting of these involves the idea of bringing real-world assets on-chain and building new DeFi solutions that add efficiency and utility to everyday life.

While the DeFi ecosystem has been flourishing, with more than US$100 Billion in Total Value Locked at the time of writing, some of the core building blocks within DeFi limit its ability to scale. Many of the mainstream DeFi protocols are dependent on collateralization using digital assets like ETH, which are prone to large market swings. This crypto-dependent collateralization exposes lenders and borrowers to large market fluctuations in the price of the underlying asset, which on several occasions have generated mass liquidation events. Big swings in 24 hour market prices have thus made it difficult for borrowers to maintain the loan-to-value ratio of their collateralized loan positions, resulting in those loan positions being liquidated. This, of course, is bad for borrowers as their collateral is liquidated. But it is also impacts lenders. The lenders' ability to earn high yields, in turn, fluctuates with market volatility and collateral stability, exposing lenders to unpredictability as well as earnings that are lower than anticipated. Shifting attention to real-world assets offers valuable stability and predictability to lenders and an alternative decentralized source of funding for borrowers.

At Prestio, we share an aspiration towards bringing value to the fast-growing DeFi community by expanding its real-world value propositions to increase utility and further drive mass-market adoption. Major actors within the DeFi ecosystem, such as MakerDao, Binance, and many more, are actively investing in and promoting real-world-asset-driven DeFi projects, and the community has responded by co-investing in this future.