Technology
Business
Legal
Finance
Investment
DeFi
Legal Systems
DeFi lending protocols
Realworld assets
1/ Why I’m bearish on real-world assets in DeFi lending protocols
A 🧵
A 🧵
2/ Integrating with RWAs means integrating with real-world legal systems.
If you want to take RWAs as collateral, you need to be able to take possession of those assets in the event of liquidation.
You can’t do that on chain. You need a legal entity.
If you want to take RWAs as collateral, you need to be able to take possession of those assets in the event of liquidation.
You can’t do that on chain. You need a legal entity.
3/ Setting up a legal entity that is capable of confiscating collateral assets at scale is expensive.
It requires a large initial investment and substantial ongoing legal and regulatory costs.
It requires a large initial investment and substantial ongoing legal and regulatory costs.
4/ Every RWA onboarding is expensive and time consuming.
All RWAs are different, and every deal is bespoke.
That means significant legal, audit, and risk assessment costs related to each asset onboarding.
All RWAs are different, and every deal is bespoke.
That means significant legal, audit, and risk assessment costs related to each asset onboarding.
5/ The liquidation process is expensive, slow, and unreliable.
Illiquid RWAs don’t have transparent markets and price oracles.
That means you don't know if you'll be able to sell the asset or for how much.
And if you do sell it, you will have to pay a lawyer in the process.
Illiquid RWAs don’t have transparent markets and price oracles.
That means you don't know if you'll be able to sell the asset or for how much.
And if you do sell it, you will have to pay a lawyer in the process.
6/ Put this all together, and what you get is:
1. Huge ongoing costs to intermediaries like lawyers, accountants, and auditors.
2. Lack of transparency, inefficient execution, lack of reliability.
Hmmm… isn’t this what DeFi was supposed to solve?
1. Huge ongoing costs to intermediaries like lawyers, accountants, and auditors.
2. Lack of transparency, inefficient execution, lack of reliability.
Hmmm… isn’t this what DeFi was supposed to solve?
7/ When you integrate with RWAs, DeFi lending protocols lose their advantages and inherit the problems of TradFi.
RWAs don't scale like crypto assets.
RWAs don't scale like crypto assets.
8/ DeFi lending protocols need to lean on their natural advantages and focus on the new crypto-native economy.
Success will come from serving the growing crypto-native economy, not trying to shoehorn DeFi tech into an old system that it wasn’t designed for.
Success will come from serving the growing crypto-native economy, not trying to shoehorn DeFi tech into an old system that it wasn’t designed for.
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