Why are Adaverse and Cardano positioning themselves for real-world assets?

Author: Adaverse

The current DeFi and Web3 market still has a significant gap compared to traditional financial markets, but the emergence of RWA (Real World Assets) tokenization brings new hope for Web3 to step into the next trillion-dollar market.

Among these, Africa is undoubtedly one of the most promising RWA fertile grounds. Just like the core reason for the rapid rise of Axie Infinity in 2021 was its capture of the basic market of ordinary people in Southeast Asia, today’s third world, which is eager for financial services, mineral land, and other asset liquidity, is precisely where RWA can showcase its potential.

Why do we need Real World Assets "RWA"?

Since Compound ignited the DeFi summer in 2020, the entire DeFi world has made significant progress. Even though many black swan events in the industry in 2022 led to a near halving of the market size, as of June 9, 2023, the TVL still stands at a substantial $45.5 billion (DefiLlama data).

Among these, lending (staking) protocols represented by Aave, MakerDAO, and Lido not only contribute a major share of funds but also serve as key infrastructure for various DeFi Lego protocols: Trading, derivatives, synthetic assets, insurance, and other DeFi tracks are almost all built on the funding volume of lending protocols.

In fact, in the early development of DeFi, the on-chain forms of collateralization and lending between native assets achieved a form of circular credit expansion, which can be understood as DeFi's "cold start" to some extent, because it solved the seed funding needs for early development while greatly stimulating various boundary-less innovations to improve capital efficiency within the DeFi ecosystem.

It can be said that it laid a solid foundation for the early development of DeFi, but similarly, with the further development of DeFi, the bottlenecks of on-chain native assets gradually became apparent. The most direct issue is that the scale of quality on-chain assets directly sets a ceiling for the size of DeFi, and to solve this problem within lending protocols, collateral is key.

Currently, the lending collateral model is primarily based on over-collateralization, meaning that to ensure trustless loans can occur, borrowers need to deposit collateral worth more than the loan amount. Therefore, it ultimately depends on the types and collateral ratios of collateral on various DeFi lending protocols.

In terms of collateral types, DeFi lending is still mainly limited to the digital asset realm, with very little connection to real-world assets, primarily consisting of on-chain native assets. This leads to extremely limited choices --- essentially restricted to a few mainstream crypto assets like Bitcoin and Ethereum, as the liquidity and trading depth of long-tail assets are very poor, risking a repeat of Venus's pitfalls.

Regarding the collateral ratio, since 2017, under-collateralized loans have remained an elusive holy grail for DeFi. Currently, Aave and others are gradually testing under-collateralization, which means collateralizing 100 units to borrow 200 units, effectively adding leverage. However, this can only be seen as an auxiliary technical means, addressing symptoms rather than the root cause.

New paths are continuously being explored --- by accepting real-world assets like real estate as collateral, traditional finance and DeFi can be better integrated, while bringing real-world assets on-chain, thoroughly breaking the size ceiling between DeFi and on-chain finance.

For example, Empowa, which is dedicated to solving the housing shortage for 50 million people in Africa on Cardano, has created an innovative "rent-to-own" model for affordable housing, granting liquidity to home ownership through DeFi, thus addressing the pain point that many Africans lack credit histories and cannot obtain traditional mortgages.

This not only taps into the strong lending demand in the African market but also mitigates the risks associated with purely on-chain collateralized assets through ownership of affordable housing. This is also a successful example of bringing real-world assets on-chain and solving practical problems.

In summary, "real-world asset support" is key. The integration of real assets from the traditional world is an inevitable trend for DeFi to break through existing development bottlenecks, and even the anticipated trend of DeFi breaking barriers cannot be separated from the exponential growth of physical asset scales from outside the circle.

The Rise of RWA on Cardano

This is not just beginning; established lending leaders like MakerDAO and Aave have been experimenting on this path --- allowing asset originators to convert real-world assets into tokenized loans.

One classic approach is to allow cryptocurrency investors to lend digital currencies for interest income, while borrowers can obtain short-term loans in cryptocurrencies by using their real-world assets as collateral.

It can be said that the boundary innovations of leading DeFi projects often serve as significant indicators, directly enabling decentralized credit markets to provide convenience for a broader range of use cases and further pushing DeFi toward mainstream adoption. However, this has primarily revolved around Ethereum, with little attention paid to RWA attempts on other public chains.

It is important to note that the use cases of Web3 are not limited to financial markets; blockchain technology has great potential in other non-financial fields on the African continent. Besides the aforementioned technological infrastructure lag, another major issue in Africa is the lack of reliable and verifiable land ownership records, leading to many disputes and conflicts.

From this perspective, Africa, with a population of over 1.2 billion, lacking financial services, and needing to build a real-world asset system while having the internet easily accessible, is a naturally undeveloped RWA (Real World Assets) fertile ground.

Taking HouseAfrica and Seso Global, which are dedicated to the RWA track on Cardano, as examples, they aim to use blockchain technology to create transparent, immutable records that clearly define land ownership.

Seso Global, in particular, is a blockchain-based secure real estate management, documentation, and transaction platform targeting the African real estate market. It can unlock financing methods for real estate-type assets through DeFi, opening the door for the African real economy to enter DeFi liquidity.

This not only attracts trillions of dollars in value from traditional finance to meet the development needs of various African countries but also revitalizes the application paradigm of real-world assets.

Moreover, tokenized physical assets can achieve fractional or shared ownership while also providing excellent liquidity (for real-world assets, the quality of liquidity is undoubtedly one of the important factors influencing valuation).

From another angle, even though RWA (Real World Assets) mainly refers to bringing real-world assets like gold, real estate, debt, bonds, artworks, and carbon credits on-chain, the foundational scale of public chain assets and the active user base on-chain, along with the further development of the on-chain DApp ecosystem, are key prerequisites for the vigorous development of RWA.

As a well-established public chain that has withstood the test of time and market, Cardano has endured challenges from Solana, Terra, Fantom, and now Aptos and Sui, still standing among the top 10 cryptocurrencies, with a total market cap of $11.2 billion and a total locked value exceeding $1.6 billion, with over 500 existing DApps.

This means that Cardano, as a foundational asset, can provide sufficient scale and innovative support for the subsequent RWA ecosystem.

Breaking the Size Bottleneck and Pushing DeFi to the Mainstream

Rune Christensen, the founder of MakerDAO, previously referred to real-world assets as a "paradigm shift," stating that it opens the door to scalable DeFi supported by real-world assets, while also providing DeFi with protection from the world's most powerful legal structures.

For DeFi, this is indeed an anticipated "paradigm shift," especially at a time when regulation is facing a critical turning point. Finding a way to legally combine DeFi and real-world assets will be the next "explosion point" for DeFi.

In short, the tokenization of RWA (Real World Assets) is not only key for DeFi and Web3 to go mainstream but also has the potential to disrupt certain financial sectors.

It is essentially about bridging DeFi with real-world assets, as one side provides the gameplay while the other provides the funds, which is also a solution that is currently extremely lacking and desired in Africa.

It is worth noting that the African continent possesses vast undeveloped resources, whether land or minerals, which can be introduced on-chain through RWA (Real World Assets), thoroughly releasing their liquidity.

For instance, recent attempts by countries in Central Africa to tokenize national mineral resources are a microcosm of this. For the blockchain world, this will greatly expand the scale and variety of crypto assets and may become one of the catalysts for a new round of DeFi trends.

After all, after the crypto industry broke through the trillion-dollar market cap, the entire industry track has become increasingly segmented, with various innovative projects emerging rapidly, and the iteration speed is extremely fast. The competition among public chains is also more focused on improving ecosystems and fostering self-innovation.

The key to Adaverse's layout in the RWA track lies here --- embracing the urgently needed construction of the African continent, further solidifying and expanding Cardano's position as a smart contract public chain beyond Ethereum, laying the foundation for a new wave of DApps, new users, and ultimately the growth of Cardano's ecosystem TVL.

At present, we are confident in looking forward to its early arrival.