Helping Aave Think Through RWAs

Learning Center General
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Author: Punia - Ecosystem Lead at Warbler Labs, a founding development team supporting the Goldfinch Protocol.

Context

With GHO, Aave will have a decentralized, censorship-resistant, fully collateralized stablecoin pegged to the USD. Incorporating Real-World Assets [RWAs] will help the protocol both:

  1. Diversify the collateral base of the stablecoin outside of crypto leverage.
  2. Tap into an asset base larger than crypto leverage to scale GHO to the level needed to become a global stablecoin.

Naturally, the profile of RWAs differs significantly from traditional on-chain native assets. Intersections with the off-chain world through financing more traditional economic activity come with their own challenges. The opportunities, however, are massive and essential for DeFi to create a more transparent and accessible global financial ecosystem.

Our goal is to help Aave navigate this new asset class and assist in creating a strategy for the DAO to access the RWA opportunity while mitigating associated risks.

What is Goldfinch

Goldfinch is revolutionizing the $1T+ global private debt market by first allowing credit funds and FinTechs to access cost-efficient crypto loans. Goldfinch provides crypto lenders with access to debt deals collateralized with real-world assets that have been historically inaccessible outside exclusive networks.

The Protocol expands financial access for over a million individuals worldwide via its Borrowers, spanning over 20 countries. Some of Goldfinch’s Borrowers include PayJoy in Mexico, QuickCheck in Nigeria, Divibank and Addem Capital in LatAm, Greenway through Almavest in India, and Cauris in Africa, Asia, and Latin America. You can view more Borrower Pools here.

Goldfinch, to date, has maintained a 0% default rate across currently ~$100m in loans deployed and over $1M in protocol revenue.

Warbler Lab’s Founders are two ex-Coinbase employees with a team of ex-Goldman Sachs, Morgan Stanley, McKinsey, World Bank, Binance.US, Airbnb, Meta, BlockFi, and more. Goldfinch has raised a $25M Series A, backed by a16z, Kindred Ventures, Coinbase Ventures, Variant Fund, IDEO, Bill Ackman via TABLE, Kingsway Capital, Stratos, and more.

What to Expect Over the Next Few Weeks

Over the next three weeks, we are planning a series of forum posts and a Twitter space to begin discussing and dissecting what RWAs mean for Aave.

Here is our general content plan with specific dates to come:

Week of 11/28

Forum Post Topic: Why RWAs are important to DeFi.

Week of 12/5

Forum Post Topic: How Aave Can Create an RWA Strategy.

Week of 12/12

Twitter Space: RWAs and Aave.

Week of 1/2

Forum Post: Recording of the Twitter Space.

Conclusion

We are incredibly excited to be helping Aave think through RWAs. Not only will this help Aave increase the diversity of its collateral base and scale of GHO, but it will also represent a massive leap forward for DeFi as we leverage the benefits of DeFi to finance economic activity that happens off-chain. We strongly believe in this future for DeFi.

Please let us know if there are any other topics you would like us to create studies on to help the community understand RWAs. We’re committed to helping out however we can!

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Greg here from Goldfinch. I’m personally excited to see Aave’s evolution into RWA, and think this could be a great partnership for education between Goldfinch & Aave communities.

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Agree. I’m the cofounder of Goldfinch. I’ve always admired Aave for how pioneering and innovative you’ve been in the space, not to mention the amazing pace of shipping, while maintaining security. I think RWA’s have to be a key channel for crypto’s future growth, and Aave is in an amazing position to tackle it. I think we have a lot to offer Aave, and am excited to help y’all better understand and craft a RWA strategy

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Hey guys, due to the Thanksgiving Holidays, we’ve pushed back the content schedule by one week. I’ve updated the dates in the body of the forum post.

Please do let us know if there are specific topics you would like to be covered in the Twitter space or any future educational documents!

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One thing I’d like to learn more about - reporting for RWAs.

In crypto, we have the luxury of auditing funds in real-time, on-chain. How do you bridge this expectation to assets off-chain, which are more opaque?

In protocols such as Maker, we have seen many teams employ RWAs, but the community lacks awareness of these loans’ performance, efficacy, and status after being funded.

How do you preserve the steep cultural understanding of transparency in RWAs?

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Financing agreements for RWA most often include periodic reporting requirements such as internal financials, details on asset balances, management commentary on performance, and audits performed by third-party accounting firms. The specific type and scope of information reported varies on a deal or market basis. At Goldfinch, we recognize the importance of transparency to the native crypto community and have worked towards this standard in the RWA space via the following:

  • Loan documentation includes rigorous and recurring borrower reporting requirements, including audits, financials, and other covenants
  • Reporting is accessible to investors via Discord-hosted datarooms which are populated directly by the borrowers
  • Historical interest and principal payments are easily viewed on the borrower pool page in the Goldfinch dApp

We will definitely touch on this and would love to open it up for more synchronous discussion in the Twitter Space.

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It would be helpful to understand what the workout process is anticipated to entail when a default occurs from aave’s perspective, whether any aave entities would have standing/recourse and which would be involved in managing and bearing the process costs. I recognize the 0% default rate, but given the nascency of the space, limited seasoning, and reliance on centralized admins it’s helpful to understand what a workout theoretically looks like in this context and how that will be managed and funded in the best interest of the community as it has implications for gho credit and centralization risk.

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In TradFi private credit/structured credit, there is more due diligence/research/analysis done before an investment decision is made, than what is listed in this quote.

I believe that once RWA DeFi can incorporate the best of these TradFi factors into its infrastructure/ecosystem, then large institutional TradFi capital (i.e. sophisticated and sticky capital) will flow in to RWA DeFi in general (not just Aave’s Gho or Goldfinch’s platform).

What is the minimum FIDU or backer investment required in order to have access to these datarooms and the recurring borrowing base reports?

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Heads up that we have finalized a date for the Twitter Space!

The Twitter Space will be held on December 14, 12pm EST.

We’ll post reminders through our Twitter account here.

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Adding these questions and the ones above as part of Q&A portion of the Twitter Space.

As with this one.

The Twitter Space will be recorded and posted in the Aave forums for anyone that can’t make it.

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As a reminder, the Twitter space is happening this Wednesday, 12/14, at 12pm EST/9am PST/5pm GMT.

Link here: https://twitter.com/goldfinch_fi/status/1600960160826265601?s=20&t=GxacEx6X-SWWcIPJeb_t2A

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Hey All,

Thank you for coming out last month to our Twitter Space. We deeply enjoyed the conversation and hope we helped answer some questions for the Aave community.

If you missed it, here is the recording: https://twitter.com/i/spaces/1mnxeRPlZVEKX

We look forward to figuring out other ways we can create educational content or help in thinking through financing for real-world assets. Feel free to suggest ideas in this thread!