Blockchain Lending and Real Assets: Current Status and Prospects

The combination of blockchain lending and real assets ( RWA ) represents the integration of traditional finance and emerging technologies, bringing new opportunities and challenges to the lending market. This article will explore the current status, advantages, limitations, and future development prospects of this field.

Background Overview

The traditional bond market is vast, with data from the Bank for International Settlements indicating that the total amount of outstanding bonds globally was approximately $123 trillion in 2021. However, this market faces numerous challenges, such as high transaction costs, lack of transparency, and inefficiency. The emergence of blockchain technology offers a potential solution to these issues.

Blockchain lending utilizes distributed ledger technology to digitize actual assets and use them as collateral to issue loans. This model has the following characteristics:

• Improved the transparency and efficiency of the lending process
• Reduced transaction costs
• Expanded the accessibility of the lending market, especially for underserved groups.
• Enhanced stability through real asset backing

The Advantages of Blockchain Lending

Compared to traditional lending, the main advantages of blockchain lending include:

1. Global Accessibility: Lending is not restricted by geography and can serve users worldwide.

2. Availability of crypto financial tools: Can be integrated with other DeFi projects to form an interconnected ecosystem.

3. Flexibility: Borrowers can choose different lending assets based on their risk preferences.

4. Democratized Decision-Making: Network participants make decisions together, increasing fairness.

5. Transparency: Transaction records are publicly transparent.

6. Efficiency: Automated execution reduces operational costs

Main Limitations

Despite the broad prospects, blockchain lending still faces some challenges:

1. Credit risk: There is still a possibility of default on actual assets.

2. Cross-border Compliance: Different countries have varying regulatory requirements.

3. Technical Risks: Blockchain technology is still under development.

4. Asset Valuation: There are difficulties in assessing the actual asset value.

5. Liquidity: Some projects lack liquidity.

6. Centralized Risk: Some project decision-making power is concentrated.

Typical Project Cases

Centrifuge

• The largest RWA collateral lending market
• Use on-chain to off-chain structure to reduce credit risk
• Diversified collateral, including emerging market consumer loans, etc.
• The default rate is approximately 5.6%

Maple

• Convert traditional CLO into encrypted form
• Adopting a representative system, representatives are responsible for the first loss capital.
• The default rate is approximately 2.935%

Goldfinch

• Decentralized lending protocol without encrypted collateral
• Adopting a leverage model and a dynamic supporter incentive mechanism
• Diversification of borrowers, dispersion of default risk
• The current default rate is zero.

Credix

• Targeting institutional borrowers and investors
• Centralized underwriting process
• Market-specific LP tokens
• Three-tier default protection mechanism

TrueFi

• Unsecured lending based on on-chain credit scoring
• Highly reliant on portfolio manager decisions
• The default rate is about 0.258%

Conclusion and Recommendations

The combination of blockchain lending and real assets holds great potential, but is still in the early stages of development. The main conclusions are as follows:

1. Real-world assets are crucial for enhancing the credit value of DeFi.

2. The imbalance in the development of the global financial system provides opportunities for RWA lending.

3. Insufficient infrastructure is a major constraint on current development.

4. KYC and compliance still need further improvement

5. It is difficult to achieve large-scale expansion in the short term, but the long-term prospects are broad.

Future Development Suggestions:

1. Improve Blockchain infrastructure construction

2. Strengthen cross-border regulatory cooperation

3. Enhance asset valuation and risk management capabilities

4. Optimize user experience and improve usability

5. Explore more innovative business models

The integration of blockchain lending with real assets will open new avenues for financial innovation, requiring the joint efforts of regulatory agencies, technology developers, and market participants to promote the healthy development of this field.