The cryptocurrency markets often show a strong correlation to other financial markets. Whether it is stocks, precious metals, or foreign exchange rates, it is always possible to draw parallels. However, things are very different from other real-world assets, as they show zero correlation with crypto price volatility.
Cryptocurrency crash doesn’t affect most real-world assets
Not that long ago, Bitcoin and other crypto markets shed 50% of their value in a matter of days. Such trends are not uncommon in the volatile cryptocurrency industry, although it took many traders by surprise. A price crash on that scale has serious repercussions, affecting other industries. Decentralized finance, for example, saw its Total Value Locked cut nearly in half. In addition, all projects depending on DeFi suffer because of the market crash, confirming its strong correlation to crypto.
However, the crash does not affect all DeFi projects alike. Over the past few months, some projects have begun exploring alternative options. The use of blockchain technology to provide decentralized finance services doesn’t necessarily require cryptocurrencies or a correlation to crypto markets. Instead, there is tremendous liquidity in real-world assets or RWA. It is a very compelling industry, as anyone is – in theory – capable of accessing DeFi services through assets they already own.
More importantly, the switch to real-world assets is a crucial one. Even if the Bitcoin price loses another 50%, it will not affect real-world assets like the housing market or the value of one’s car. Tapping into RWA can unlock trillions of dollars in liquidity and financing.
Bringing those real-world assets to decentralized finance is the next big business opportunity to explore. Tinlake is one of the projects doing so, as Centrifuge is building a safe haven for stable returns. Reducing the correlation to crypto markets as much as possible is a game-changer for projects bridging real-world assets with DeFi. Founded in late 2017, the Centrifuge team aims to unlock economic opportunities for all by introducing transparency and cost-effectiveness.
A new opportunity for everyone
With the help of services like Centrifuge, any business or consumer can tokenize real-world assets on the blockchain. With those tokens, they can access financing through Tinlake, the asset-backed lending Dapp built by the Centrifuge team. Whether it is invoices, real estate, or royalties, they can all serve as collateral in decentralized finance. Particularly SMEs will benefit from this option as it reduces the cost of capital and provides a stable source of yield uncorrelated from crypto assets.
In exchange for providing liquidity, users will earn a return and the Centrifuge Token (CFG). Through this token, users gain a stake in the broader ecosystem, and they can use it to pay for transaction fees, staking purposes, and participating in on-chain governance. In addition, submitting liquidity through Tinlake can be done through the consumer-facing Dapp and its real-world asset pools.
At its core, Tinlake introduces on-chain borrowing against collateralized assets through smart contracts. Additionally, stablecoin issuers can provide a stable store of value backed by collateralized asset pools. With a focus on future cross-chain interoperability and plug-and-play integration with funding sources, there is a lot to look forward to. But, again, all of this is accessible without worrying about a correlation to volatile cryptocurrencies.
Leveraging NFT technology to represent real-world assets to create collateral in Tinlake is another intriguing addition. The minting of NFTs from real-world assets creates a convenient and accessible bridge between RWA and decentralized finance. It is also a step toward going bankless for all participants, as these real-world assets do not require involvement by financial institutions. It is also a way to generate liquid marketplaces for illiquid and long-tail real-world assets.
Closing thoughts
The correlation between DeFi and crypto has been at the forefront of this industry. However, decentralized finance should never be limited to using volatile crypto assets. Introducing support for real-world assets will allow for the exploration of extra liquidity but also make DeFi more appealing to the mainstream. Everyone has some form of real-world assets they can tokenize to earn stable returns on. However, not everyone wants to expose themselves to volatile assets capable of gaining or losing 50% of their value in a week or less.
The benefits of decentralized finance are accessible to anyone when real-world assets get involved. Creating an intersection between DeFi and traditional finance unlocks new opportunities and uses cases that otherwise remain inaccessible. By introducing RWA into the mix, DeFi can become a trillion-dollar industry in the future. Centrifuge provides a viable incentive for real-world asset holders looking to access better financing with its stable returns.
Credit: Source link
