In the past, the open-source, Ethereum-based, and non-custodial protocol Aave was used for borrowing and lending crypto. There was no possibility to trade and earn from physical assets. However, a few days ago the company announced a new collaboration with Centrifuge.
Centrifuge enables users to translate real assets and operations, such as invoices and mortgages, into crypto tokens. These tokens, in turn, become collateral that allows borrowing money.
The collaboration resulted in adding seven RWA (Real World Assets) markets on Aave, next to already existing ones. The new RWA markets are open and permissions, so anyone can join as long as they comply with the KYC procedures.
This is not the first DeFi lending protocol partnership for Centrifuge. Earlier in 2021, the company partnered with Maker (MKR) and Defactor.
Centrifuge native token CFG trades for around $0.95. The company’s asset pool Tinlake currently has an estimated yield of over 22% on a yearly basis and holds almost DAI 51 million in TVL. Meanwhile, AAVE token trades for $249.
The RWA market is a very appreciated element of DeFi, as it acts as a common ground and a bridge between the two financial systems: traditional and decentralized.
The benefits of this collaboration are multifold. On the one hand, lenders get new markets to earn from their property. On the other, the platforms provide businesses to make use of liquidity that would otherwise be unavailable.
Centrifuge provides a system that unlocks the value of physical assets, by converting them into NFTs. They are then placed into the pool as collateral. The investors fund the collateralized pool with DAI, a stablecoin whose value is connected to that of the US dollar. While the investors provide liquidity and gain a higher return, the asset holders access capital and finance their projects in a more efficient way.
According to Lucas Vogelsang, the CEO of Centrifuge, this platform hopes to bring back trust in DeFi.
At the moment, the only cryptocurrency users can trade in the Centrifuge-Aave RWA market is USD coin (USDC).