Optimizing RWA Protocol Management and Practice
Real World Assets (RWAs) mark the bridge between traditional finance (TradFi) and decentralized finance (DeFi). As the paradigm shift in asset management brings these two giant sectors together, understanding how to optimize the management process is crucial for successful RWA protocol rollout.
Traditional assets — from industrial machinery to real estate — are normally difficult to transfer and find it difficult to gain liquidity due to their nature. The introduction of blockchain technology into the world of traditional assets (through RWAs) has removed this hurdle but replaced it with DeFi complexity.
To tackle this complexity, RWA protocols like Zivoe are working toward fully comprehending the intricacies of RWA protocol management — ensuring best practices and effective risk management.
RWA Protocol Fundamentals
In the context of DeFi, RWAs normally function as tangible assets that are given inherent values and legal ownership integration through blockchain technology. This process grants the assets the liquidity access found through the global scale of blockchain networks and the transactional transparency built into each block.
Through this integration, we begin to understand the underlying fundamentals that RWA protocols build upon. However, how these fundamentals are managed can mean the difference between an RWA protocol that puts users at risk and a protocol that offers a superior service and user experience.
RWA Management: Best Practices
Effective management of RWA protocol fundamentals can optimize asset handling, legal compliance, verification processes, logistical hurdles, and technological simplification. When managing physical assets through a digital ledger, it is vital to employ the best practices to secure future stability and success.
Conducting due diligence (DD) is fundamental to establishing the best practices in RWA management. Assessing asset legalities, valuation, risk factors, and components helps ensure that physical assets integrated on-chain into DeFi maintain specification integrity and are compliant with regulatory requirements.
After onboarding an asset into an RWA protocol, maintenance is one of the highest priorities to ensure regular reevaluation. The markets are an ever-shifting element in the mix that impacts the RWA protocol, and as they change, so can an asset’s position in that market. Regular reevaluation means the appreciation or depreciation of an asset — or a change to its risk profile — can be identified quickly. Having identified asset profile changes, the appropriate steps can be taken to prevent issues further down the line.
Optimizing Risk Management
Risk management of traditional assets is a fundamental element of any market and any trade. When TradFi meets DeFi through RWAs, risk management is much the same — just more technologically sophisticated.
By optimizing the risk management of an RWA protocol, investments and investors are better protected, and sustainability and credibility remain secure for the future. To do so, RWA protocol managers must thoroughly assess all RWAs to comprehend the associated credit, operational, legal, and general market risks.
Those with experience in TradFi can offer a wealth of experience when it comes to risk management. One step often taken by TradFi asset managers is diversifying an asset portfolio to minimize risk — avoiding over-concentration of any one type of asset. Diversifying RWAs through DeFi helps to spread risk exposure, resulting in reduced risk levels and optimized risk management.
RWA Innovation: The Zivoe Approach
Zivoe, an innovative credit protocol, works to disrupt high-interest consumer lending markets by democratizing credit access. Aiming to combine an intangible asset like credit with the power of blockchain technology, Zivoe formed a core team with experience in the TradFi and DeFi fields. This meld of background knowledge gives them a distinct advantage when optimizing RWA management.
Zivoe optimizes RWA management to secure loans through a TradFi concept known as special purpose vehicles (SPVs). This enables the team to adapt TradFi into the DeFi space while managing users’ credit risks effectively.
To fund these loans, Zivoe relies upon liquidity providers that deposit stablecoins into tranches that offer varying levels of risk exposure to all protocol activities. Through this process, Zivoe combines blockchain efficiency with TradFi risk management to protect its assets and provide fair and accessible lending services to users.
The Future Art Of RWA Management
Optimization of RWA management is a complex process but, ultimately, crucial to providing investors with access to risk-assessed and regulatory-compliant options. As the world of TradFi enters the DeFi space, the assurance of best practices in RWA management determines what protocols will succeed and which will fail. By balancing the management fundamentals of TradFi and the technological innovation of DeFi, protocols like Zivoe show us what is possible for lending and general RWA protocols.
The combination of RWAs and blockchain technology remains an unfolding innovation with a fresh narrative that will undoubtedly continue to impact all asset markets in the future. As the narrative unravels, lending protocols like Zivoe demonstrate a prime example of how these best practices can be employed to optimize RWA management.