Decentralized Finance has remodelled Traditional Finance not just because of its decentralized function but because of the gaps it has filled since its inception. Traditional Finance had a range of challenges that rocked the sector for a long time, from location limitations to security crisis. Blockchain technology was deployed along with existing financial services to create systems we applaud today. Systems such as Farming, Liquidity pools, Lending & Borrowing are tools from this ecosystem, with applications like Decentralized Exchanges (DEX) incorporating most of them. Despite eliminating traditional banks, DeFi still needs growth in many areas to build stability, hence the creation of Real World Assets (RWAs).
What Are RWAs?
Real-World Assets are physical or tangible assets, like real estate, commodities (such as gold or oil), invoices and loans. These things have value in the real world, hence its name. These assets are tokenized using Blockchain technology and can be traded, fractionalized, or used in DeFi applications. Just like DeFi, RWAs grant the common investor the ability and accessibility only previously available to wealthy and institutional investors. In the context of DeFi, RWAs are being brought onto the blockchain so that they can be used in decentralized financial transactions, like lending, borrowing, or trading.
For the sustainability and progression of sectors, structure must be attained and this involves projects that build constantly with these core motives with consistent innovations to show for it. Tribal Finance, the leading RWAs platform is integral to what we’ve known about real-world assets and how they function. They’ve built a substantial structure that needs to be emphasized more than often, especially with the progress it has and will be bringing to decentralized finance.
Tribal Finance
When talking about the advancement of the Real World Assets sector, you cannot help but mention Tribal Finance. The future of DeFi is RWAs and Tribal Finance, every move is constructed to enhance the accessibility and management of real-world assets (RWAs) through advanced tokenization techniques. Often referred to as the “AngelList for RWAs”, its approach towards the sustenance and progression of this sector can be traced back to its mode of operations which are in motion. This operation has created an outstanding functionality and will in no time extend its progression to DeFi as a whole.
Every sector in this framework is centred around innovative approaches, structured mechanisms and integral roles; below are more details:
Asset Providers/Originators: These individuals provide the tangible assets that are used in the ecosystem. From real estate to artefacts, every asset going to be tokenized is offered through them, bringing about the influx of investments and engagements needed to maintain the flow of activities in this ecosystem.
Liquidity Providers: For the market operations to remain functional, these individuals are the most necessary. Just like on DeFi applications and exchanges, the input of capital or funds keeps the transactions in motion and in this case initial tokenization. This important sect makes sure the marketplace keeps running nonstop.
Tokenization Platform and Subsequent Chain: This is the core of the Tribal RWA Protocol, the Tribal Tokenization Platform. This is where the conversion of tangible and non-cash assets into tokens is made possible thanks to its technology-driven components. These now marketable tokens represent fractions of an underlying asset which are fully tradable on digital markets. It’s notable to know that this process effectively democratizes access to investment opportunities, breaking down traditional barriers faced by smaller investors.
Aggregated RWA Marketplace: Tokenized assets are fully accessible and tradeable on this platform. This marketplace provides the needed visibility and liquidity these assets require to be fully functional. Here, a seamless user interface and robust backend infrastructure ensure that users discover, trade, and sell shares of tokenized assets.
Verification and Integrity Assurance by Jiritsu: This partnership facilitates the necessary compliance of assets and individuals ensuring the integrity and authenticity of assets entering the platform. They include rigorous checks and balances to maintain asset quality and compliance which is very important for the Tribal ecosystem.
The evolution of the RWAs sector requires a substantial structure like this to maintain and improve the flow of events at every given moment. This also puts Tribal Finance at the helm of innovations in this sector and DeFi as a whole ensuring a constant development environment is constantly maintained.
Why Are RWAs Important for DeFi?
Stability in a Volatile Market: The DeFi space is mainly powered by cryptocurrencies, which are known for being very volatile — their prices can rise and fall dramatically. RWAs provide a more stable foundation because their value is tied to real-world things that aren’t as prone to sudden price changes.
Increased Liquidity: Liquidity refers to how easily an asset can be bought or sold without affecting its price. RWAs can help increase liquidity in DeFi markets by bringing more valuable and tradeable assets into the system. This would mean people can more easily get loans or trade, even in times of market instability.
Bridging the Gap Between Traditional Finance and DeFi: Traditional finance and DeFi have often operated separately. By tokenizing RWAs — converting them into digital tokens on the blockchain — we can merge the two systems. This allows institutions and individuals from the traditional financial world to access DeFi’s benefits, such as lower fees and faster transactions, while also helping DeFi users tap into more diverse investment opportunities.
Expanding Use Cases for DeFi: With RWAs, DeFi can be used for more than just crypto trading. Imagine taking out a loan using your house or car as collateral on a DeFi platform, or earning interest on tokenized versions of real-world commodities. This opens up many new possibilities for how we can use decentralized platforms.
Lowering the Risk of Over-Reliance on Cryptocurrencies: If DeFi continues to rely solely on crypto assets, the entire system is at risk when crypto prices crash. RWAs provide a way to diversify, making the ecosystem more resilient to the ups and downs of the crypto market.
Wrap Up
Integrating RWAs into DeFi is crucial for its growth. Platforms like Tribal Finance demonstrate how tokenizing real-world assets enhances DeFi’s stability, liquidity, and accessibility, pushing the financial revolution forward. With RWAs, DeFi has the potential to create a global financial system that works for everyone, connecting the digital and physical worlds.
The Need For RWAs in DeFi was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.