BORROWING IDEA: Permissioned real-world-asset pools?

I think we can all agree that the key issue for Anchor over the coming months will be generating borrower demand commensurate with the massive deposit growth to date and escape-velocity outside interest in the wider Terra Protocol. This is an issue with all DeFi protocols and especially with Anchor because its depositor yield is so high, and will remain high even under the Polychain governance proposal.

However, within DeFi, virtually all borrowing to date (which is clearly insufficient relative to depositor growth) falls into one of a few categories:

  1. Large loans to leveraged crypto traders, easily marked to market to the second. This is a good business, but very risk management intensive and not really appropriate for a decentralized credit protocol, as Anchor aspires to be.
  2. Conservative loans to help whales indirectly monetize gains without triggering capital gains liability. This is a good business too, but it’s extremely cyclical, and to date hasn’t shown much capacity.
  3. Loans against various kinds of NFTs that have some sort of reference market value. This has no near term capacity on Terra and is way riskier than (1). Also not appropriate for decentralized lending.

I propose that we set up a separate, opt-in pool on Anchor to invest in real-world assets. Good examples of real-world assets today would be Centrifuge’s Tinlake dapp or Goldfinch pools; another example would be the Aave/Centrifuge Real World Asset Market (rwamarket.io). These protocols are designed to tokenize real-world loans to businesses and fund them with DeFi deposits, but they are in need of more deposits to grow.

The upsides are many:

  1. there’s virtually unlimited demand
  2. these assets have very low correlation with other DeFi assets
  3. these are great “real world” opportunities for the protocol to show off to the world how it’s changing ordinary lives
  4. these assets have real cash flows backing them

They have one big downside: because the loans are going to real-world businesses subject to real-world geographic regulations, the lender entity (whether it’s Anchor as a whole, or every individual depositor) must go through KYC. Typically, the depositor fills out 15 minutes of forms, and the third party KYC firm spends a few days verifying that the uploaded info (personal ID, address etc) are valid. It would be purely opt-in.

I know the Anchor/Terra community is probably the most averse to KYC of any DeFi community out there (Terra’s decentralized stablecoin nature was 100% why I showed up here in the first place). But we also need to find borrowers who can pay loans reliably, and at 10%+ yields before token incentives. I work with a crypto company that has considerable experience and resources in this area, but before I proceed with a detailed proposal, I want to poll the Anchor community if this is something the community would generally be interested in?

The community would set its own risk preferences in terms of all risk parameters (overcollateralization requirements, concentration limits, and so on). My company would set up the interface for Anchor at cost, and link Anchor deposits with DeFi borrowers. Anchorians who are willing to KYC, would be able to participate in a pool where they could lend their deposits to RWA borrowers, and borrow somewhat generously against an aRWA senior debt pool token, since this would represent a receipt of ownership of a low-risk, senior debt token (there would be a first loss, junior tranche, typically 20-25% of the pool, which would have much higher yields but also first-loss exposure).

How does this sound to the broader Anchor community?

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Why won’t your company simply make another protocol that takes in the aUST for deposits and allows people to borrow from? This doesn’t seem to fit into Anchor…

I agree that the future will bring real world assets on the blockchain but I don’t think we’re there yet, these real world assets can have real world losses (buildings catch on fire), and the whole who’s responsible for maintenance, insurance and what not is a whole can of worms. And this is just one possible asset class…

This is all to say I may be biased against the idea, but I really don’t think it fits the current theme of Anchor and the audience it serves, it really feels like it’s just another protocol. This seems to fit the TerraLand theme far better…

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RWA lending via DeFi, at least in the beginning, will focus around shorter duration loans (24 months or less) like invoice factoring. There is currently very little RWA use case for what I think you’re referring to (like underwriting 10-year mortgages). Yes, RWA lending comes with risks, but it comes with attractive risk-adjusted yields also.

I view Anchor as a large bank with excess deposits. They have lots of deposits and need to put them to work somehow.

I’m not familiar with any aUST use cases outside of Mirror. I have never used aUST for any creative purpose myself.

@paletas you’ve been one of the smartest guys on this forum and I’ve learned a lot from you already. If there’s a way to put aUST to work in this use case, that doesn’t have material KYC friction and can work across different protocols (since these will probably be going to Ethereum and Polkadot protocols), you have my attention!

@paletas I also think that, from a product launch perspective, fragmenting this into another protocol would be really inefficient. The company I work for is ultimately trying to build bridges between different fragments of liquidity to optimize borrower costs against optimized depositor yields… driving down the cost of capital for borrowers while driving up the real return on deposits.

If such a product were whitelisted by Anchor, we’d gain huge benefits from Anchor brand association and much more ready users. We want to build cross protocol, cross chain liquidity, we don’t want to build a niche Terra protocol and then engage in all kinds of marketing/branding specific to that one protocol. Hope that makes some sense. :slight_smile:

  • in layman’s terms … a financial “lagrange point” somewhere around

… Qredo …

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