Blockchain Lending: Unlocking a New Era with Real-World Assets

Blockchain technology is changing the traditional financial lending model, bringing new opportunities and challenges to the global lending market. Blockchain lending using real-world assets (RWA) as collateral is becoming an important bridge connecting the crypto world and traditional finance.

Background

With the development of Blockchain and cryptocurrency, the trend of leveraging real-world assets to expand on-chain credit is becoming increasingly apparent. This involves digitizing physical assets such as real estate and commodities, and using them as collateral to issue on-chain loans. Compared to traditional loans, this method can reduce borrowing costs, improve accessibility to loans, while allowing lenders to earn returns by providing liquidity.

The traditional global bond market is large, with approximately $123 trillion in outstanding bonds as of 2021. However, the participation of developing countries is relatively low, accounting for only about 20% of global issuance. Blockchain lending is expected to provide services for more lending demands through technological innovation.

The Advantages of Blockchain Lending

Compared to traditional lending, blockchain RWA lending has the following advantages:

1. Stronger international accessibility, not restricted by geography.
2. Improve the accessibility of crypto financial tools
3. The decision-making process is more democratic and transparent.
4. Lower transaction costs
5. The lending process is quicker and more efficient.
6. Provide more opportunities for small and micro enterprises and individuals

Limitations of Blockchain Lending

1. There is still credit risk, and blockchain cannot completely solve the default problem.
2. Global compliance faces challenges, and regulatory requirements vary by country.
3. Blockchain technology is still developing, and there are technical risks such as security.
4. There are difficulties in determining asset valuation and collateral rates.

Major Project Case Analysis

Centrifuge

• The largest RWA collateral lending market
• Use on-chain and off-chain structure to reduce risk
• Diversification of collateral, including emerging market consumer loans, etc.
• The default rate is relatively high, reaching 5.6%

Maple

• Convert traditional CLO into encrypted form
• Each project has a representative responsible for the initial loss and executing the impairment.
• The default rate is 2.935%.

Goldfinch

• Decentralized protocol without the need for encrypted collateral
• Adopting a leverage model and a dynamic supporter incentive mechanism
• The default rate is zero

Credix

• Centralized underwriting process
• Set up independent liquidity pools for different markets
• Three-tier default protection mechanism

TrueFi

• Unsecured lending based on on-chain credit scoring
• Highly dependent on portfolio manager decisions
• The default rate is relatively low, at 0.258%.

Conclusion and Suggestions

1. The RWA lending market is enormous, but it is still in its early stages.
2. The crypto world needs RWA to enhance credit value
3. Can make up for the lack of financial infrastructure in some regions
4. Still lacking comprehensive infrastructure support
5. KYC and compliance need further improvement
6. It is difficult to expand rapidly in the short term, but the long-term prospects are promising.

Blockchain RWA lending is pioneering a new era in finance and is expected to become an important link between crypto and traditional finance in the future. However, to realize this vision, continuous improvements are needed in areas such as technology and regulation.