Real-World Assets Delivering Stable Yields Amid Market Shakedown
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Both crypto and stock markets are currently experiencing outsized volatility as a confluence of slumping trade, scorching inflation, and the probability of higher interest rates dampen valuations.
The crypto market, just shy of reaching an aggregate USD 2 trillion market capitalization, shrunk to less than USD 1.3 trillion in just a matter of days. Leading cryptocurrencies like Bitcoin, Ethereum, Solana, Cardano, Binance Coin, and several others have shed nearly half of their values.
Terra’s algorithmic stablecoin UST lost its dollar peg twice this month, dragging the value of its sister token LUNA to extreme lows. At the time of writing, LUNA, which was sitting among the top 10 cryptocurrencies by market capitalization earlier in May, has lost almost 98% of its value. The project’s fully diluted market cap is down by 99.97%, pushing it to the 225th rank in terms of market capitalization.
And the impact isn’t just limited to cryptocurrencies!
Other associated segments, such as decentralized finance (DeFi), are also feeling the pinch of this sudden market meltdown. According to the latest data from DefiLlama, the total value locked in DeFi currently sits at USD 112.46 billion - a significant drop compared to the USD 195.33 billion at the start of May.
The traditional finance (TradFi) market has fared no better. There has been a noticeable decline across both the Dow Jones Industrial Average and the NASDAQ Composite this month. Meanwhile, the S&P 500 tumbled below the 4000 level for the first time in over a year.
There are several reasons behind the current stock market scenario, including geopolitical tension, inflation, the US Federal Reserve’s 0.5% increase in interest rates, and efforts to reduce the Central Bank’s balance sheet holdings. Besides these realities, much of the current chaos for the crypto market is the direct result of the implosion of LUNA and UST, which triggered a ripple effect across the entire market. Add to it the growing likelihood of a spike in interest rates, and it's not hard to realize why investors are panic-selling to cut their losses.
At the same time, some market experts are quick to highlight Bitcoin’s correlation with the S&P 500 Index as a material reason behind the latest slump. A report published earlier in March this year indicated that the 90-day correlation between Bitcoin and the S&P 500 had reached its all-time high due to the relentless tightening of the yield curve by the US Treasury.
Defying The Market Volatility
While the market continues its downward spiral, it seems that the tokenized real-world asset (RWA) sector has successfully managed to hold its ground. Tokenized real-world assets have no direct correlation with cryptocurrencies or stocks, and, therefore, remain largely indifferent to market volatility.
Tokenization has unlocked the possibility to bridge the liquidity of real-world assets with the ever-expanding DeFi market. It serves the interests of both borrowers and lenders by ensuring stable rates and yields, irrespective of the market conditions.
Several projects currently facilitate the tokenization of real-world assets, but Centrifuge - a decentralized lending protocol - is taking this concept to new highs by offering an asset-agnostic approach that enables anyone to tokenize a broad spectrum of RWAs and bring them over to the DeFi space.
The current total value locked (TVL) across all Tinlake pools of real-world assets is close to 85,000,000 DAI, regardless of the turmoil in the crypto and stock markets. Accordingly, several listed asset pools on the platform offer APYs as high as 10.57%, positioning the pools as a defensive strategy against the backdrop of volatile market movements.
Through its asset-backed lending platform, Tinlake, users can leverage their tokenized RWAs to access financing on their terms without intermediaries or centralized authorities. With Tinlake, you can turn your non-fungible assets (invoices, real estate, royalties, virtual properties, receipts, etc.) into fungible ERC-20 tokens. Then, with these ERC-20 tokens, you can access the different lending pools available on the Tinlake platform and use them as collateral to borrow funds in USD-pegged stablecoins such as DAI or USDC.
At the same time, investors (users who lock DAI or USDC in Tinlake pools) earn a yield on their investments based on the pool they have joined. Once investors lock in a Tinlake pool investment, they can choose to receive their return in either TIN or DROP tokens. In this context, TIN tokens offer higher and variable rewards but come with higher risks, while DROP tokens provide a lower yet more stable yield. Investors can redeem their returns at any time by converting them to DAI and removing their liquidity from the pool.