How DeFi Is Changing People’s Lives  

Decentralized finance is a relatively new idea that has been catching on in a big way within the global economy. Enthusiasts can point to many sectors where DeFi is having a massive effect on how we live and work, and how we make the transactions that, in a manner of speaking, power our lives.

However, many of the best new utilities for cryptocurrency and decentralized finance assets involve lending or some type of financial transfer. That’s undoubtedly true with the big range of DeFi asset opportunities known as “real-world asset tokenization.”

According to experts, the ability to tokenize real-world assets will lead to “instant, bankless liquidity,” providing essential services for the un-banked, and value for anyone else who wants to make money move at unprecedented speeds, or use staked capital to get yields in new and exciting ways.

“Tokenization in blockchain opens up multiple new possibilities for businesses and individuals,” writes an unnamed analyst at the Blockchain Council. “IDC, the global market intelligence firm, puts the tokenized asset market on the blockchain to be around $500 billion. The number is mind-blowing, but the concept of tokenization is not new and has been around for some decades.”

In other words, these uses of real assets in a real economy are changing people’s lives … in real ways. Let’s take a look at how some of that works in a practical sense.

Gain with Collateral

Many of these real-world asset systems allow individuals to earn yield against real-world assets categorized as collateral. They do this through tokenizing their existing equity in those assets and then applying that to various crypto staking strategies or other yield plans.

While you can’t yet use cryptocurrency itself to make a mortgage down payment, you can use the resulting yield from staked crypto to purchase real estate. It just requires making that initial transfer. Companies like Milo facilitate this process for borrowers.

“At Milo we’ve reimagined how mortgages should be done by considering your crypto wealth,” writes a Milo spokesperson in a segment called ‘What is a Crypto Mortgage?’. “Instead of selling your crypto for a down payment to qualify for a mortgage, a crypto mortgage lets you leverage your crypto to invest in real estate. Our strategy matches yours – keep HODLing.”

Another big use for this kind of lending is in the pursuit of startup capital. Using their equity, the borrower can unlock that capital’s potential, and get significant loans with long time horizons that will allow them to buy initial business assets and start out to build their business over time.

Contrast that with the often usurous traditional business loans given by banks and other commercial lenders – where high APY and short repayment periods bedevil the 75% of small businesses estimated to fail within five years. At least some of these businesses fail because of the insufficient capital runway. New types of real-world asset tokenization solve these problems and others!

Residuals and Royalties

Another use for real-world asset tokenization systems is the porting of residual income streams like royalties into a staking or yielding plan. So how do people participate in this new form of borrowing?

Centrifuge has a system that allows users to tokenize RWA and link to a decentralized app or ‘dApp’ for staking.

“In April 2021, Centrifuge’s Maker Improvement Proposal (MIP) last April ‘bringing real-world assets into DeFi in a secure way….’ as Lucas Vogelsang writes, was passed,” writes a Centrifuge spokesperson. “This MakerDAO proposal enables an ERC-20 token to represent shares in a pool of real estate assets as collateral in the Maker protocol. The use of real-world assets (RWA) in DeFi is the first and major step in bringing trillions of dollars worth of physical assets into the open finance ecosystem.”

Centrifuge and Aave have teamed up to offer this innovative option in a newly “DeFi” world, and a market that is quickly burgeoning – from a total of 23 billion to 93 billion in 2021 alone, companies like Centrifuge are in the vanguard of delivering this new kind of functionality to markets. 

Borrowers will no longer be bound by the idiosyncrasies and strategic gatekeeping of the commercial lenders who deal in dollars. They’ll be able to choose their crowdsourced borrowing opportunities through the bankless power of cryptocurrency and the DeFi economic system that is eliminating many of the hurdles and obstacles that have prevented success in the past. Look for more of these real-world asset tokenization opportunities to rival old, hidebound ways of doing business.