Tokenisation of real world assets on decentralised financial platforms

With the sudden emergence of lending and borrowing platforms in the DeFi space which are based on cryptocurrencies, wether they are wrapped bitcoin, ERC20 Altcoin based tokens such as Ethereum or even stable tokens such as USDT tokens. We can clearly assume that DeFi market is in full swing.

It should come as no surprise that we are also hearing proposals for decentralised mortgages from DeFi platforms such as AAVE as it is now only a matter of time till we see real world assets being tokenised and used as a form of collateral being used in new strategies on these said DeFi platforms.

As crypto users shift between BTC to WBTC, ERC20 or stable tokens to gain the interest currently generated in DeFi space, I come to wonder how big the DeFi market can possible grow and scale up, since the whole crypto space is dominated by bitcoin.

Current innovators in this exciting space are to preoccupied with just the possibilities of being the next AAVE, Uniswap or SushiSwap than to visualise the opportunities that lay head for those financial innovators who cross the current boundaries and borders and reach for higher heights. I see something different and much bigger than currently what is on the horizon.

I started in the crypto space by bringing invoice finance to the blockchain only to realise that I faced many hurdles which were not accounted for at the time the project was conceived. It didn’t dawn on me at the time of launching a token used for invoice finance that liquidity would play to be the biggest part of an issue we faced then and currently is. Simply for the fact that we could not sell tokens placed in our custody as collateral against invoices and at the same time finance those invoices deals that were on the table.

Volatility which is the nature of cryptocurrencies made it almost impossible to sell and buy back tokens at the same price without a costly hedge or strategy in place and still return a profit which is usually normally small in traditional finance. The profit would have been easily swallowed up by the fees exchange and trading platforms ask should we have taken that approach.

Fast forward to DeFi, currently most DeFi platforms use a lending ratio called LTV which basically means lending at a percentage of the value of a collateralised crypto in exchange for another, wether that be an Altcoin or stable token. MakerDAO’s DAI for example asks for a LTV of 50% while other DeFi platforms are around the 75% mark. This is not an unusual way of lending but a more safeguarded approach to lending and borrowing should the price of the crypto collateral in place fall in value.

Why are innovators in this space not looking at the bigger picture?

AAVE on the other hand proposed mortgages on the DeFi which I can totally say I agree with. Mortgages and other traditional finance products is the way forward. As with a mortgage, a house can easily be recovered in the event of a default in which the same goes for commercial properties which tend to be used as the collateral to cover loans using the loan to value of up to 75% to safe guarding a fall of 25% out of 100% of the value of the property used in the loan transaction.

I have been looking at new approach to invoice finance. It starts with tackling the fundamental issue at hand, for us which is liquidity. Invoice finance works a lot similar to the way lending and borrowing and how mortgages work to some extent. A company seeking finance would be ask for some form of collateral wether that be a charge over the companies assets or books or a personal guarantee from the directors of the company which would usually be in the form of the directors property.

These collaterals or securitise are officially registered with a government agency who basically takes receipt of the charge and registers the charge on a pubic register.

What we are actually considering here, is to tokenise an invoice value raised from a particular company whose collateral is securely in place and registered has a charge publicly. We can then mint a stable token based on the value of the said invoice in question. What we achieve by doing this is create a stable token which can be used as collateral on DeFi platforms at a rate of interest decided by invoice finance provider and tokenised by the underlying collateral from the company who issued the invoice which is the fixed or floating charge over the company’s assets or books.