There is always something to discuss when you follow up with cryptocurrency. Every new stage or step in the world of finance, cryptocurrency and Fintech is getting us into something even bigger. I talked about Fintech to be more specific yesterday and was more national related.
Where I will be heading in this article is even more broader. It is something that won't be overlooked for long. We have seen collateral business taking a huge chunk in the crypto space. In short, this was one of the reasons for the recent liquidations that saw all time new records. It was one big blame on CEX’s. That is not what to focus on, the entire idea is to understand that yes, this practice is already in incorporation.
How big is the RWA market? It is something I don't think can be fathomed to with current financial numbers. It is something to consider on how all these will sit in the digital space. RWA is no longer a new thing or at least, not that new.
We have seen Fintechs like Robinhood taking early leap. This is something that should not be undermined because the early birds always secure the worms; at least there is something to learn from Bitcoin still sitting undisputedly.
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With these tech structures being gradually put in place, we are going to see an influx of investors. In this article, let's focus on how this influx will be driven by digital collaterising. In short, one needs to watch out for the Defi markets.
So what are collaterals? The banking system knows better; for trust issues, there is always a need to stake something tangible in case you are not able to meet up loan deals. So it is more like partially handing over something valuable to pick up some bank loan.
Aside from traditional banks, even private business do practice this; it is a big money making industry. I just came to discover that the story of collateraless loan is not real. Let's leave that there for another day’s article.
The collateral market will be one of the needed tools to explode a decentralized ecosystem. Why? Everyone is in search of data privacy, this is something that the traditional banks mostly breach. Even a quick loan will need some set of private details about the loanees. You see why I said there is no collateraless loan here?
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Currently, we are mostly dealing with digital assets class as collateral in a general market setting. What then will happen when Real World Assets Tokenization takes over the entire digital space. We are not talking of staking currency for currency here. As we know, true assets classification goes beyond currency at both fiat and virtual levels. What if you could stake your bonds for a loan? How about a piece of a company's RWA as your shares?
The thing is that, it doesn't always make that much sense to drop money in exchange for money or better put, currency for currency. Most of us need the currency to complete a transaction. Anyway it makes much sense in the decentralized realms because this stakes yield some form of dividend so this virtual currencies can also serve as assets.
I know this is likely not something that will squeeze itself in a few years. This technology will need some time for a lot of layers of improvement to become that better product. It will also depend on how government authorities will try to fight back or regulate this industry. One fact remains, they can't ignore it, like it or not, RWA will find a way to exist.
To conclude, let me add, having a foreknowledge about what is coming is always a financial hedge. A time is coming when it will be very easy to collaborate physical assets to get loans. It will be a big win for entrepreneurs who will leverage every hard asset into digital liquidity pools to get the needed financing to grow brands. This is not a time to sit on the fence, technology is revolutionizing.
