Introduction

In its current form, DeFi is a highly reflexive system. A large degree of its capital growth and yield is derived from the speculative trading of tokens. However, speculation feeds liquidity. As DeFi builds the base liquidity primitives it needs, speculation being the dominant activity is guaranteed.

However, in order for growth to be sustainable in the long-term and attract mainstream usage, DeFi has to create stable sources of value for users. Arguably, this has already been happening, albeit gradually. Whether it is reducing the cost of capital by replacing financial intermediaries or allowing users exposure to synthetic assets, DeFi has managed to create real services demanded by willing consumers. This, however, is not sufficient to change DeFi’s speculative image, and many believe that to truly scale DeFi and make it useful, it has to be connected to the off-chain world — the real world.

This is where tokenizing real-world assets (RWAs) comes into play.

Many protocols are pushing the space forward by tokenizing things like home ownership, commodities, loans, etc. This report will focus on credit-financing protocols that integrate RWAs as collateral, as well as study the traction they have amassed so far. For clarity, we define RWA credit-financing protocols as those which are in the business of obtaining financing on-chain by pledging RWA off-chain as collateral. As such, we exclude protocols that are primarily issuing uncollateralized loans (such as Maple, TrueFi, and Clearpool) from the scope of this report.

Furthermore, the growth cycles of these undercollateralized lending protocols are entirely intertwined with crypto markets — since borrowers are mostly funds or market makers whose investment strategies rely on crypto markets. For those interested in reading more about unsecured on-chain credit, we have previously written about uncollateralized money markets here.

Bridging Real-World Credit to the On-Chain World

Goldfinch

Moving back to RWA credit protocols, the largest RWA financing name in the market is currently Goldfinch