With US Interest Rates Above 5%, DeFi Protocols Look To Address Demand For Lucrative Off-chain Yields
In a rising rate environment, DeFi’s appetite for real-world assets (RWAs) continues to grow, as platforms vie to tap the lucrative yields currently available in traditional markets. RWAs, which include traditional financial products like bonds, stocks, and real estate, offer DeFi a growth opportunity tethered to tangible assets.
Lending protocol Umee intends to launch RWA offerings focused on bonds. Maple Finance, a marketplace for institutional capital, aims to expand its current RWA offerings in the next six to nine months. Additionally, Pendle, a yield-splitting protocol, unveiled plans to launch permissionless rate swaps for RWAs. Meanwhile, Frax, a stablecoin issuer, approved a governance measure to adopt RWAs through a holding company.
Umee Targets Bonds
Rather than cast a wide net across RWA offerings, Umee founder and CEO Brent Xu told The Defiant the crypto lender is focused solely on bonds. Xu spent the better part of a decade trading bonds before making the jump from Wall Street to crypto in 2015.
“I’m looking straight at the bond market and saying this is our market, and by putting all our concentration on optimizing the bond side of things, I’d say it is a competitive advantage compared to what others might be looking at right now to custody these assets,” said Xu.
Platforms seeking to adopt RWAs must consider ease of use, maintain regulatory compliance, and build a network robust against hacks, exploits, and bugs, according to Xu.
“If you can press one button and trade the stock instead of having to go through a whole process with a Fidelity account, that’s pretty powerful,” said Xu, adding that the same applied to “OTC [over-the-counter] transactions such as real estate, or bonds.”
Maple’s Expansion In Trade Finance
Although Maple already has RWA-based lending pools, CEO Sidney Powell told The Defiant the company is looking to further expand exposure.
“We’re in further conversations with several providers of trade finance around potential pilot programs,” said Powell, adding that blockchain has an edge, with faster cross-border remittances for trade finance export deals compared to traditional banking channels.
“The yields on both of these products are higher so it’s more enticing for funds doing fixed-income and HNW [high-net-worth] lenders,” said Powell.
Powell previously said that he wanted to launch a trade finance product in the next six to nine months to capitalize on a dearth of offerings in the sector.
Maple already supports real-world assets via lending opportunities on the platform’s AQRU pool, which targets businesses in the U.S. to facilitate cash advances on an existing backlog of forthcoming tax rebates, such as the Employee Retention Program.
Counterparty risk on Maple is managed by way of escrow and collateral agents, who manage collateral in the event of a default, and enforceable legal agreements. Risk is further reduced as Maple takes assignment of receivables to ensure that repayments go directly to lenders without needing to pass through the borrower first.
Stablecoin Rate Swaps
Pendle has expanded its rate swaps to Spark Lend’s sDAI and Flux Finance’s fUSDC, stablecoins, both of which are associated with revenue driven by RWA holdings, and Treasury yields.
As an interest rate derivative protocol, Pendle allows users to trade these yields or secure a fixed yield on these assets.
“RWA is already one of the fastest growing sectors, with a monstrous addressable market waiting to be unleashed in DeFi, and we’re ready for it,” Pendle said.
Pendle also opened up voting for sDAI and fUSDC in its governance system, where holders of the native PENDLE token can lock it up to receive vePENDLE and vote to channel incentives to various pools on the platform.
Frax To Integrate RWAs
A proposal from Frax Founder Sam Kazemian to collaborate with Delaware-based non-profit C corporation FinresPBC passed with overwhelming support on August 14.
Out of the 35M FXS tokens committed via voting, nearly 100% supported the partnership with FinresPBC.
This move will enable Frax to custody a spectrum of traditional financial assets, including cash deposits and Treasury bills.
