The reason for DeFi’s success in crypto is it advantages everyone involved, said Enrico Rubboli, CEO of Mintlayer. Crypto holders get a way to earn passive income on their assets through mechanisms such as yield farming, while borrowers can obtain loans in seconds, with advantageous terms no traditional financial institution can match.
DeFi has been a big hit among cryptocurrency investors, but it remains a tiny, almost minuscule, niche market in the overall financial industry. To become more relevant, DeFi needs to find a way to connect with the traditional financial ecosystem, where it can tap into real businesses and institutional investors. Tokenization is one way to do this, as it enables assets to be traded transparently and without intermediaries, making transactions faster and more efficient, with lower costs.
Tokenization also introduces more stable assets into DeFi, making users’ investments safer and protocols more accessible. It can also help incentivize DeFi protocols, as lenders are rewarded with yield based on the amount they deposit, paid out in DeFi tokens. Additionally, tokenization can enable fractional ownership of assets such as real estate and art, which will transform accessibility in existing markets.
By tokenizing real-world assets, DeFi can benefit from the consistent, long-term growth that’s associated with traditional financial markets. This is why we’ve seen several reputable institutions dipping their toes into DeFi, such as BlackRock, Fidelity, Invesco, Wisdom Tree, and Valkyrie, who have all applied for their own Bitcoin ETFs.