DeFi securitization of real-world assets poses credit risks, opportunities: S&P
DeFi’s use case in traditional finance could grow in the coming years as new protocols attempt to support the securitization of real-world assets, according to a new research report from credit rating agency S&P Global Ratings.
The financing of real-world assets, or RWAs, will likely be a key focus area for DeFi protocols moving forward, S&P said in a report titled "DeFi Protocols For Securitization: A Credit Risk Perspective." Although the industry is still in its nascent stages, S&P highlighted several benefits DeFi could bring to securitization, including reducing transaction costs, improving transparency on asset pools, reducing counterparty risks and enabling faster payment settlement for investors.
“The early development of DeFi focused primarily on applications providing financial services within the crypto ecosystem, such as lending collateralized by crypto assets, investment tools for crypto assets, and crypto trading platforms,” analysts Andrew O’Neill, Alexandre Birry, Lapo Guadagnuolo and Vanessa Purwin wrote, adding:
DeFi securitizations aren’t without risks, however. S&P identified legal and operational risks associated with their issuance, as well as the potential for a mismatch between fiat currency-denominated assets and digital currency liabilities. Addressing these risks could be the difference between a robust DeFi securitization industry and one failing to attract interest from traditional finance.
S&P Global Ratings is one of the big-three rating agencies on Wall Street. While the company is researching DeFi protocols, it does not currently rate any projects.
The DeFi industry rose to prominence in mid-2020 as the promise of higher yields and easier access to credit markets attracted crypto-native
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