We’ve answered all your burning RWA questions from November. Simply join the Discord if you have any questions and we’ll answer them next month.
Welcome to this months regular Q&A session, where we’ll be answering all of your RWA questions. Join the Creditcoin Discord today to get your questions answered next month!
Firstly we’d like to address a delay to our Fixed-Term Interest Account release schedule. Last week we discussed our hope to launch to the FTA in November. Unfortunately this has been delayed. Whilst the actual app update, dev work, and everything else is ready to go, we’re just waiting on the finalization of some legal documents before we can green-light the release.
Given that this product is the first of its kind anywhere in the world, it’s not too surprising that the legal work is taking longer than we’d hoped for. We can only ask for your continued patience and support as we wait for the legal documentation to get confirmed. As soon as we have that sorted, we’ll be releasing the FTA as fast as we can. Thanks again for your patience, Gluwa.
Q. From the user’s point of view, what are the advantages of RWA when compared to DeFi or Cefi?
Whilst hardly an exhaustive list, here is a quick summary of some of RWA's comparative advantages over DeFi and CeFi.
Advantages vs DeFi
- Real yield — Overcollateralized DeFi lending protocols only serve a small niche of customers. Generally-speaking, that niche is crypto-native investors seeking leverage on their assets. As we can see, when the markets go down, the demand for these protocols, and the yield they pay largely evaporates. In contrast, RWA yields are based on sustainable real-world businesses, which generate you returns independent of market volatility.
- Reduced smart contract risks — Whilst RWA investment does use smart contracts, the attack vector is much smaller and less lucrative than major DeFi protocols, which often have hundreds of millions of $ in tokens locked up. Therefore your funds are safer from smart contract risks (even if there are more centralisation risks as a trade-off).
- Impact Investing — Our investment products focus on real-world outcomes which improve access to finance in emerging markets, helping to unlock growth and increase prosperity for local communities which need it. Whilst DeFi often caters to crypto-native money games, RWA is calibrated towards creating meaningful real-world change.
Advantages vs CeFi:
- Transparency — Most CeFi investment services are opaque at best, exacerbating the centralisation risks inherent in todays financial markets. In contrast, Gluwa offers transparency over its investments, with Creditcoin enabling real-time loan performance verification of RWA investment partners.
- Democratised market access — CeFi is built from the ground up to minimise risk for consumers, but this also means excluding them from the most lucrative financial opportunities. Gluwa levels the playing field, giving you access to investment markets previously restricted to banks, VC firms, or other accredited or high-net worth investors.
- Higher yields — Banks function by taking your deposits and investing them for their own benefit, giving you a tiny amount of interest whilst they pocket the vast majority of the profits for themselves. By connecting you directly to new investment opportunities, Gluwa gives you the chance to earn industry-leading rates as high as 20% APR.
Q. I’m interested in the creation of new credit markets using Creditcoin. Can these markets be created by the users themselves? Are there any requirements in order to make/access them?
Yes, anyone can build their credit operations on top of Creditcoin, or establish their own independent credit market. The real challenge is simply building the correct infrastructure to support everything you need. Things you need to start include establishing legal compliance, building the infrastructure to raise and disburse funds, as well as match borrowers and lenders, and finally, some way to enforce agreements between creditors and debtors (legal agreements for example).
Gluwa is the first credit investment market operating on Creditcoin, and we’ve designed it specifically to be open to anyone, but there’s no reason why there shouldn’t be others in future. In fact, this is the eventual goal, to have lots of different credit providers and operators working on Creditcoin.
Q. From Luna to the FTX crisis, Crypto’s overall credibility continues to suffer. Is Gluwa not at risk of having similar problems given its focus on credit, as well as stablecoins? Gluwa users can stake CTC, as well as invest stablecoins through the Gluwa app, and after seeing the FTX incident, I’m wondering whether Gluwa apps are really 100% safe.
A great and pertinent question. As far as I understand it, you’ve highlighted a number of different risks in your question: centralization risks, stablecoin risks, smart contract risks and, finally, credit risks. I’ll try to answer each point seperately for you in relation to our various services. Gonna be a long one so please strap in!
- Custody/Centralization Risks.
As the old adage goes, ‘not your keys, not your crypto’. In the case of Gluwa, our wallet and exchange services are completely non-custodial, meaning you have complete control over your funds at all times.
However, as soon as you use Gluwa Invest products, you are giving up custody of your assets to a trusted third-party. Firstly Gluwa, to drawdown and distribute the funds to the fundraiser, and secondly, to the fundraiser themselves. These funds are legally protected, but obviously introduce centralization risks. This is an unavoidable reality if you want to partake in any real-world investment activities.
2. Stablecoin Risks.
Stablecoins can collapse when their collateral does not sufficiently cover their pegged value. The simplest way to solve this is to make sure all stablecoins are backed by the asset they represent. In the case of fiat-pegged stablecoins, that means they should be backed 1:1 by fiat.
Algorithmic stablecoins introduce more risk. This can be due to smart contract failures, or simply unforeseen systemic risk vectors. Terra Luna’s UST provides a clear template for algorithmic stablecoin risks.
To avoid these risks, Gluwa is committed to using fiat-pegged stablecoins in all of its investment products, which is why we use USDC in our Invest products, the industry-leading stable coin provider in transparency and institutional trust.
3. Smart Contract Risks
Any smart contract has certain risks associated with it. Generally speaking, the more money a smart contract holds, and the more complex its functions are, the more likely it is to suffer from a catastrophic error or hack resulting in loss of user funds. These risks are especially prevalent in complex DeFi protocols.
In the case of Gluwa Invest, the smart contract is very basic, essentially just dictating the investment pool size, and then accepting, identifying and finally disbursing deposits. The FTA smart contract only holds user deposits during the fundraising period, meaning the attack opportunities for would-be hackers are limited in size and opportunity when compared to most other DeFi protocols. Finally, all of our smart contracts are regularly audited by third-parties.
4. Credit Risks
Probably the most relevant topic in todays markets as crypto lender BlockFi files for bankruptcy, joining a raft of other recent casualties. Basically, it boils down to the question of how can we trust our counterparts to pay us back. There’s two parts to this question I’d like to address.
Firstly, the risk in crypto cannot be compared to the risk in real-world markets. Gluwa Invest is focused exclusively on profit-making startups seeking access to quick lending capital to scale their operations. As much as we’re a crypto project, we’re also distinctly focused on generating yield through proven real-world businesses. This means that even when crypto markets collapse, Gluwa Invest really doesn’t care as we have no exposure to crypto-native lenders or companies. You can read more about our approach to sustainable yield, and the various ways in which we mitigate default risks here.
Secondly, Creditcoin-enabled lenders offer real-time credit performance transparency. Unlike the various CeFi providers which have recently collapsed, this service gives you unrivalled access and visibility over your counterparty’s business performance, helping you make better decisions and keeping your funds safe. One problem with the likes of FTX, Celsius and now BlockFi, is that their business operations simply weren’t transparent, meaning users could only see what was going wrong once it was already too late. On-chain transparency can help reduce this risk, and ensure that only viable businesses receive funding. By combining better transparency, with a fundamentally safer investment class (real-world bonds), Gluwa Invest is certainly less risky than many crypto alternatives.
Beyond this, there are also legal protections and company policies in place designed to protect your capital. For example, the Lottery Account is principal protected by Gluwa’s own reserves.
But, putting it all together and the answer will always be more complex than simply: yes, Gluwa is 100% safe. Risk is an inherent part of any investment, it’s what brings rewards at the end of the day, but that shouldn’t come at the expense of trust.
At Gluwa, we always strive to put transparency at the heart of everything we do. It’s up to you at how you want to invest, we’re simply building tools that empower you to do so.
Q. What are Creditcoin’s use cases and how will it benefit the global cryptocurrency industry?
You can find a more detailed breakdown of Creditcoin’s use case and value in this blog post here. To summarise it very briefly for you, Creditcoin aids in the process of financial verification. Essentially, it gives every participant in the lending economy greater visibility and transparency over their counterparties credit performance. If you can view a borrowers credit performance in real-time, you’ll be more willing to lend them money.
Essentially, it solves an information a-symmetry problem. Specifically, it reduces the information a-symmetry between fintech lenders providing credit in emerging markets, and potential investors, helping to facilitate better global capital financing flows.
As for helping the global cryptocurrency industry, we can already see how opaque business practices by CeFi institutions, especially those involved with credit, have enabled fraud, reckless decision-making, and ultimately, created a loss of trust in the industry. Creditcoin can help ensure that credit performance is always transparent. Moreover, it can also help solve the limitations of DeFi lending, helping to scale crypto lending to the real-world. You can read more about that here.
Q. Real-world adoption is a challenge for any blockchain project, especially in periods like this where mainstream interest has been cooling off. What is your team’s strategy and vision on this issue?
We’ve talked about our overall RWA partnership strategy before in our blog, where we discussed what kind of partners we’re looking for, and what our approach to onboarding them into the ecosystem is. You can find that blog post here.
For a quick summary let me highlight two different sides to this. The onboarding of investors, and the onboarding of new businesses.
In regards to the investor side, we’re building tools to help people easily interface with RWA. The biggest step towards that will be the release of the new FTA, letting investors partake in global debt markets. But this also includes building out informational tools like the new Creditcoin block explorer to help people better leverage the information on Creditcoin.
On the institutional side, we’re working with our pre-existing partners to onboard them into RWA and onto Creditcoin. Aella was the first step, but now we’re actively working to bring new partners onto Creditcoin. We’re also trying to work with other major platforms, to help boost the accessibility of our investment services, whether that means supporting new chains, or even offering our products on their platforms.
As just one example, we’re working with the Lagos State Government, as well as the Lekki Free Trade Zone in Nigeria, to help drive adoption of various blockchain technologies in an effort to unlock new forms of digital commerce.
And as a general point, I wouldn’t agree that token prices going down means that mainstream interest is cooling off. If anything, institutional adoption of blockchain technologies is always increasing, even now, we just don’t see that reality reflected in retail interest.
That’s it for this Q&A folks! Tune in next month for your next round of RWA answers.
Creditcoin is a foundational L1 blockchain designed to match and record credit transactions, creating a public ledger of credit history and loan performance and paving the way for a new generation of interoperable cross-chain credit markets.
By working with technology partners, fintech lenders such as Aella, and other financial institutions across global emerging markets, Creditcoin is securing capital financing, building credit history and facilitating trust for millions of underserved financial customers and businesses based on the principles of Real World Assets (RWAs).
Gluwa is an RWA platform, connecting capital from developed markets to emerging market lending opportunities using blockchain technology. By providing the decentralized infrastructure rails to raise and disburse capital anywhere in the world, investors can use the Gluwa Investplatform to partake in debt-financing deals with emerging market fintech lenders, earning up to 20% APR.