If you’ve followed crypto through 2022, you wouldn’t be surprised to learn that we are in one of crypto’s harshest winters. During the previous year, the total market cap for the industry fell from its ATH price of $2.9 trillion to reach the low of $835 billion in June 2022 – representing almost a 72% market cap drop.
As a result of the price capitulation, investors previously seeking stable returns through DeFi protocols via liquidity mining and yield farming have struggled after rewards fully dried up – leaving nothing left to mine. With prices falling and volatility surging, there is an ever-growing demand for de-risked, capital-protected, differentiated yields – something that digital securities can provide.
However, before discussing why this is necessary, we need to also first address the need for tokenization within the industry itself. Rewinding back to the start of 2020 brings back great memories for many crypto enthusiasts. The world was going through one of the most challenging health crises in recent history, but while everybody was locked away in their homes, the decentralized finance markets saw exponential growth. New money began to flow into the industry, providing avenues for investors to generate outstanding returns on their capital. The bullish run was one of the greatest in crypto history, with Bitcoin surging to its ATH of $65,000, and pushing Ethereum as high as $4,600.
With the latter rising, the entire DeFi industry was alive as savvy investors started to move capital into DeFi protocols to take advantage of overcollateralized lending, yield farming, and algorithmic trading. However, what goes up must come down. As truly unprecedented the crypto boom was, the downfall was equally sour. Just as quickly as it had begun, retail investors’ confidence in crypto and Defi projects took a sharp tumble. The TVL locked in DeFi fell from $179 billion to reach the current level of $49.6 billion. The rewards dwindled as the liquidity dried up, and any capital left in the industry kept depreciating.
Then, heavyweight players in our industry all started to collapse like a house of cards. Terra Luna crashed, Celsius closed its doors, BlockFi had to be bailed out, and one the most prominent hedge funds in the industry – 3 Arrows Capital – went insolvent. To top it all off, FTX collapsed through a series of mismanagement and poor decisions, causing billions of dollars to be wiped out from the market, literally overnight.
With such volatility in the industry, investors need a safer type of asset class made accessible to them – one that doesn’t collapse in on itself as a few dominos start to tumble. With the freezing temperatures still prevalent in the industry, this type of asset class might seem like an unachievable pipedream. However, not only are these possible to implement in our industry – they can be accessed right now, in the form of digital securities.
So, what are they and how can they help crypto?
Digital securities allow assets with decades of stability to be tokenized in blockchain-based applications and brought on-chain to benefit from the magical blockchain technology. Today, a large proportion of the world’s wealth is locked in illiquid assets. Some estimates state that close to 50% of the world’s wealth is illiquid – which was estimated in the late 1990s – (imagine the percentage today).
Through tokenizing these asset classes and bringing them on-chain, digital securities can unlock previously inaccessible liquidity and open the doors for regular investors to invest in multiple instruments at scale. These asset classes include real estate, high-value art, public infrastructure, and private equity. The latter is something that we specialize in at DEFYCA.
Opening up these illiquid assets to the crypto market can save our industry from going through such devastating crypto winters in the future. In addition, tokenizing assets on-chain helps redefine finding and matching investors with opportunities that have significantly reduced volatility relative to crypto.
In addition, the crypto market needs to mature and expand to escape future freezing winters. One method of achieving this is tapping into the trillion-dollar demand from the real world locked as illiquid assets. This is why digital securities can help to save cryptocurrency – they can provide investors with de-risked, capital-protected, differentiated yields with verifiable asset classes and risk-profiled opportunities. But how can an investor access it? This is where DEFYCA steps in.
What is DEFYCA?
DEFYCA is an institutional-grade private debt marketplace based on blockchain technology. We are permissioned as a digital assets securities firm under CSSF in Luxembourg, ensuring our protocol remains fully compliant. Through the magic of tokenization and the utility of digital securities, DEFYCA provides risk-priced under-collateralized lending for institutional issuers and fixed-income for accredited investors.
The project was born in January 2022 with a mission to decrease friction and create liquidity in private credit markets through an institutional-grade trading venue for tokenized private debt – one of the largest illiquid asset classes. DEFYCA helps to bridge TradeFi with DeFi by making private credit investment more accessible and cost-effective while simultaneously removing opaque pricing. It allows investors to invest in traditional debt securities and loan portfolios via tokenized assets in the form of digital securities.
With DEFYCA, both investors and originators are brought together for mutual benefit. Issuers and Originators can get risk-priced, transparent, and effective funding via regulated private debt issued on-chain. They can also raise liquidity at institutional rates, previously only accessible to the largest clients in the traditional infrastructure. On the other side, investors can earn a differentiated and stable yield through monitored private debt pools backed by the world’s best private placement institutions. As a result, investors can easily yield hunt the private credit markets and receive market-beating yields on premium. In addition, they gain access to stable, risk-profiled, real-world assets that bring inflation-beating yields. They also get to participate in an open marketplace for asset classes typically reserved for large hedge funds. Most importantly, they are both protected by a robust legal and governance structure that ensures the separation of funds.
Forming digital securities from these asset classes provide several benefits over traditional securities. Besides the increased efficiency and cost savings, tokenizing these assets also helps to increase liquidity as they can be easily traded on a range of digital asset exchanges. Furthermore, the securities can be sold in smaller increments for the same cost and efficiency. This enables small investors to gain exposure to new asset classes and allows large investors to control and diversify their portfolios more precisely.
Overall, introducing decades worth of stable assets into the crypto market can significantly reduce the chances of crypto undergoing another devastating bear market in the future.
That’s stability worth investing in.
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