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Introduction
What is Defactor?
Defactor is the integration layer and tooling for TradFi businesses to leverage alternative finance with DeFi.
Defactor's business model is based on taking a fee for connecting Asset Originators (AO) and Liquidity Providers (LP) thereby providing transaction funding, supported by dynamic risk reporting that gives visibility and transparency to all 3 parties (Defactor, AO & LP).
For LPs, Defactor’s platform provides access into a new asset class of private credit, in particular, a fixed-income product in DeFi. Furthermore, the Real-World Asset aspect of our business model brings stability to LPs through non-correlated asset allocation and greater diversification.
A key component that differentiates Defactor is the emphasis on risk management. Asset Originators are subject to a fair, but rigorous due diligence process to build trust between all the actors involved in the protocol. In the medium term, asset originators on the Defactor platform will be able to reduce their cost of capital and improve payment terms by building a track record in repayments. In addition to the collateral that Asset Originators commit, a contribution is required in the form of an investment into the junior tranche to ensure they have skin in the game, accounting for the first losses in case of defaults.
Decentralised finance is coming of age. As a result of this, we are seeing the democratisation of access to liquidity and greater opportunities for investors to earn returns.
TradFi vs DeFi
There has been an explosion of complex yield farming products with unclear risk factors. Decentralised finance needs more structured offerings at the base layer where capital is put to work in the real world and the yield provided is a function of the market opportunity and conditions.
To really democratise access and reach mass adoption, what we need to see is Web3 making a collective effort to bring in financial institutions and FinTechs from traditional finance. This is one of the quickest ways to build a reputation and to demonstrate credibility. With RWAs and tokenisation becoming buzzwords in TradFi, we need to take advantage of the momentum and build lasting
Decentralised finance has also been mostly dominated by retail investors who often speculate and operate in line with market sentiment. As a result, with every crypto winter, we see an outflow of funds from Web3. This time, with the general macro environment being pessimistic, asset originators in the TradFi space have also found themselves in a liquidity squeeze. Investors in the TradFi space are reluctant to participate in DeFi because of the negative rhetoric and numerous protocol defaults this year. By bringing RWAs into Web3, we are ensuring greater stability by offering a non-correlated asset class, allowing both investors and asset originators to have a better outlook on their cash flows.
We are seeing more and more Asset Originators trying to reap the benefits of De-Fi protocols. Unfortunately, these Asset Originators are finding that technical integration to these protocols is complex, requires specialist knowledge and the overall cost of access to the market is in itself a drain on resources. As such most AOs are forced to use manual methods to manage transactions and move payments through the system which is both expensive, inefficient and a barrier to growth. Defactor will provide the technology to help AOs to digitise their DeFi operations, as well as the pathways and bridges needed to connect the players in these markets.
Last modified 4mo ago