Creditcoin vs Goldfinch vs Centrifuge: How Do The Top Real-World Asset Protocols Compare?

The scramble to generate sustainable yield in DeFi’s lending markets has resulted in some creative new ways of leveraging real-world assets. 

The decentralized finance industry has been at the forefront of financial innovation for some time. DeFi primitives such as stablecoins, lending, borrowing, derivatives, swaps, insurance and prediction markets have rapidly democratized access to specialist financial products. Yet, with crypto winter bringing about bearish sentiment, DeFi yields have fallen dramatically from their all-time highs. 

The last year has illustrated DeFi’s inability to scale, mainly because the underlying yield generation mechanism in most protocols is only favorable when crypto prices are on the rise. As a result, the cumulative total value locked in DeFi protocols fell from almost $180 billion in November 2021 to just $47 billion at the time of writing. 

The need for a more sustainable yield-generating model has led to strong interest in a handful of protocols that generate returns from real-world assets, or RWAs. Although many protocols exist that have tokenized RWAs, only a few have integrated them in a way that allows investors to tap into traditional finance’s biggest credit markets. 

According to CoinGecko, RWAs are defined as tangible assets or financial primitives that can potentially serve as collateral in DeFi. Common examples of RWAs include cash, valuable metals such as gold and silver, real estate, corporate debt, unsecured debt and loans, insurance, salaries and invoices, credit notes and royalties. 

Together, RWAs account for the bulk of the world’s economic value. For example, the total value of all global real estate is said to be $362 trillion, while the global fixed income debt market is worth an estimated $127 million. All of the gold in the world is valued at approximately $11 trillion. 

The Best RWA Platforms

1. Creditcoin

Creditcoin is an interoperable, blockchain-based lending protocol that serves to connect investors and lenders with fundraisers, who could be businesses or individuals. The basic premise is that it matches those with similar loan condition requirements. 

Creditcoin’s innovative blockchain is used to immutably record on-chain credit transaction events to aid in verification and risk assessment. Lenders are able to access a borrower’s credit history and assess the risks of lending to them, meaning they can make better informed decisions. It helps to create a more transparent ecosystem that, crucially, eliminates the need for over-collateralization that is commonly used by other DeFi protocols. 

Because everything occurs on-chain, Creditcoin reduces the costs of lending and borrowing, as any party is free to compete for funding, create a lending pool, set their own requirements, invest money and even build an application atop of it. Once two parties are matched for a loan, their transactions can be settled on an alternative blockchain, such as Bitcoin, Ethereum or Gluwacoin. 

In Creditcoin’s case, its RWAs take the form of unsecured loans. The Creditcoin network enables greater transparency in its due diligence, with RWAs offered as investment opportunities through its Invest platform. Investors can generate yields of up to 20% APR on their USDC investments by earning a portion of the interest from those RWAs. 

The key advantage of Creditcoin is that it replaces collateral-based lending with credit-based lending, employing a unique model that allows anyone to participate. Whereas bigger DeFi protocols like Compound rely on over-collateralization in a “trust-less” system, Creditcoin instead uses credit scoring mechanisms to create new economic relationships by converging crypto with real-world lending economies. 

Creditcoin’s overriding goal is to create a borderless economy and connect the cheap capital of the developed world with the growth potential of emerging economies and through this, enable financial inclusion for all. It’s building a fundamental economic component for DeFi, namely a credit system. Creditcoin also helps to connect the real economy to the crypto industry through its integration with fiat lenders such as Aella, transforming its investments into a stablecoin bond, giving crypto investors the opportunity to hedge their portfolios. 

2. Goldfinch

Goldfinch is a crypto lending platform that’s similar in some ways to Creditcoin. Once again, its developers were focused on removing the need for over-collateralized loans with crypto.  

To create a more inclusive crypto lending environment, Goldfinch enables borrowers to use off-chain collateral. It’s a simple concept, with Goldfinch targeting businesses from developing countries as borrowers, while enabling anyone to lend their capital. Through the protocol, borrowers can specify the terms of their proposed loan to lending pools. Then, investors can decide for themselves if they like the terms or not. 

The investor community can provide capital to borrowers via two methods. They can lend capital directly to the borrowing pool as a backer, or they can take a more indirect route via the automatic allocation of capital across the protocol. In such cases, investors act as liquidity providers. 

Borrowers can use the borrower pools as a credit line to withdraw USDC stablecoins, then exchange these assets for fiat. From there, they’re free to use the funds for any purpose. 

Goldfinch is original in many ways but, like Creditcoin, its key advantage is that it doesn’t require crypto collateral. Instead, borrowers can use RWAs. In this way, Goldfinch creates a bridge between crypto markets and the real world, increasing financial inclusion and making crypto loans more accessible to a larger pool of borrowers. 

Goldfinch claims to offer above-market returns to investors, while incorporating the principle of trust through consensus, wherein borrowers can prove their creditworthiness through the collective assessment of community members. 

Another advantage of Goldfinch is it enables investors to diversify their holdings out of crypto and into more traditional assets. 

3. Centrifuge

The Polkadot parachain-based Centrifuge protocol provides a way for borrowers to bring RWAs on-chain by representing them as non-fungible tokens (NFTs), which can then be used to unlock access to capital. In this way, Centrifuge aims to democratize access to finance for small and medium-sized businesses that struggle to gain credit in traditional markets. At the same time, it provides new opportunities for investors to earn relatively safe and stable yields. 

The Centrifuge blockchain hosts Tinlake, which is a smart contract-powered marketplace for tokenized RWAs. Tinlake connects asset originators with potential investors who are willing to provide liquidity. Centrifuge is also building the infrastructure required to bring multiple kinds of RWAs on-chain. 

Centrifuge’s goal is to transform DeFi into the de facto infrastructure for borrowing and lending against RWAs. Its asset-agnostic approach is one of the most flexible in the market, enabling borrowers to bring almost any valuable asset on-chain to unlock liquidity. 

The best way to understand how Tinlake works is to see an example. A Nigerian fintech company in need of financing can leverage its existing assets, such as real estate (its office building) or future income (invoices). Those assets can be tokenized as privacy-enabled NFTs that represent them on-chain. Then, the NFTs can be placed into an asset pool as collateral on Tinlake. Investors can then select which asset pools they’re interested in and provide liquidity to those pools, safe in the knowledge that the assets will be liquidated in the event of nonpayment. 

A New Opportunity For DeFi Investors?

Protocols such as Creditcoin, Goldfinch and Centrifuge represent the pinnacle of DeFi evolution and are some of the most ambitious efforts thus far that aim to bring sustainable yield to investors. By bridging the crypto industry with the real world through programmatic smart contracts, they provide investors with a world of opportunity beyond the stale, overcollateralized crypto lending markets. 

RWA-based DeFi is one of the most promising new areas of blockchain innovation and smart investors should be watching closely to see how these new markets can scale and grow.