There have been several attempts to bring real-world assets to the crypto market in the recent past. However, not even a single of them has been adopted among the traditional financial players and the retail crypto users.
Why has real-world asset tokenization failed to become a huge trend?
For sure, you have to head almost anything can be tokenized right from real estate, securities, art, etc. Several projects promised to change the way we invest in assets regardless of the type. Unfortunately, no projects managed to attain massive adoption in the market.
The traditional market experts are yet to discover evidence that tokenization improved current fundraising processes.
Why did the offerings fail to gain mass adoption? Although the tokenization concept promises a cheaper and better way of raising funds for issuers, there are no real crypto market benefits.
Corporates Interests when Raising Funds
Corporate institutions have to operate in a world full of outdated and complex rules. Hence, a clear legal structure to borrow and attract capital will be of great importance to them. With a total of $20 billion held up in DeFi (decentralized finance), there are chances to attract some interest from the corporate firms. It also makes it easy for them to enter the market. Given the popular yearly percentage rate in DeFi protocols ranges between 2% to 10%, with no extra costs to attract funding.
Although there are no ready-to-go legal models made for firms to borrow or attract funds from the DeFi protocols in the market, it is still possible to make one with less effort. The DeFi borrowing benefits cover the efforts of making such a system. DeFi will offer borrowing on suitable terms for corporate firms, which will make them consider getting into the market. In the meantime, corporate institutions will offer different stable asset types to be used as collateral for their loans. However, it is important to use real-world assets as collateral in the DeFi protocols to help prevent market falls in the future.
Is it possible for the current market players to operate in such a manner?
Currently, there are several attempts to help bring real-world assets to the DeFi market. The majority of them appear to take in the wide range of assets mostly, the tokenized invoices. The main issue that comes with using such assets is the lack of a publicly available pricing source. This will translate to a lack of transparency and the urge to depend on a centralized party to determine the cost of the collateralized asset.
There is also no method to help in monitoring the cost in real-time. The assets are generally illiquid and are never traded on any digital OTC platform or marketplace. There is also no source for updating information periodically on their pricing.
To successfully defend decentralized protocol nature and maintain trust at the highest achievable level, all intermediaries connected to the protocol will have to be insured, regulated, selected, and have the protocol community under the established requirements oversee them.
Type of Infrastructure that will help bring traditional institutions to the DeFi market
Any perfect solution that will allow traditional stable assets tokenization and one that will be suitable for the DeFi market must meet several criteria. Any real-world asset being used by the protocol will have to meet a transparent pricing source available on demand by any protocol user. This will require choosing an asset that can fulfill this requirement and making a price oracle that will help change information concerning the collateral.
The real-world assets being used by the protocol need to be as volatile as possible. This is to generate a fixed income to offer real cash flow to liquidity pools and have a particular liquidity level and market in the real world.