Traditional finance meets DeFi as Aave and Centrifuge launch first real-world asset market on Aave

Today, Ethereum-based decentralized lending protocol, Aave, in partnership with Centrifuge, a decentralized asset-backed financing protocol, launched the Real-World Asset (RWA) Market – the first diversified real-world asset market on the Aave Protocol

Built on Centrifuge and Aave, the RWA Market bridges the DeFi ecosystem with the limitless potential of real-world assets. The RWA Market, intended to serve the interests of both Aave and Centrifuge users, launched with seven liquidity pools from Tinlake, Centrifuge’s asset-backed lending protocol.

The seven Tinlake pools opened on the RWA Market cover a wide variety of asset classes, ranging from real-estate bridge loans, revenue-based financing, trade receivables, branded inventory financing, as well as cargo and freight forwarding invoices.

Bridging Regulated TradFi With Trustless DeFi

When investors deposit collateral, the Aave protocol allows them to borrow tokens, with interest rates fluctuating according to supply and demand characteristics. Owners of real-world assets can set up asset pools. From here, other investors can buy the pools’ tokens by depositing stablecoins into the pools. Deposited stablecoins can then be borrowed against real-world assets and converted into fiat currency for real-world use.

As such, the Aave-Centrifuge partnership favors both lenders and borrowers. While Aave users were formerly limited to investing in cryptocurrencies, the RWA Market will open opportunities to earn yields from real-world assets uncorrelated with the crypto market. At the same time, Centrifuge users will be able to access a new source of liquidity using their DROP tokens as collateral to borrow from the RWA Market.

A prominent benefit of the RWA Market is that Centrifuge’s pools are designed to avoid the ups and downs of the crypto market by employing USDC, DAI, and other fiat-pegged stablecoins. Accordingly, users gain a wide range of non-volatile investment opportunities for Aave users who have primarily invested in cryptocurrencies.

In addition, within the RWA Market, whenever a pool requires capital, issuers also get the option to choose between direct investments or deposit the pool tokens in the Aave protocol to directly borrow from RWA Market investors.

This isn’t the first time Centrifuge has added real-world assets in DeFi. As a pioneering platform that successfully bridged the DeFi and real-world asset marketplaces, Centrifuge had earlier launched the first RWA Market on Maker.

The RWA Market on Aave will work in the same way Tinlake already operates. However, for now, Aave’s liquidity pool is only accepting USDC deposits, allowing Aave users to invest in the broader RWA Market and not just that of Centrifuge’s pools.