Decentralized finance (DeFi), tokenization and non-fungible tokens (NFTs) are gaining momentum as subsectors that could transform the traditional financial system. All are taking a broader approach to opening up income opportunities for all and offering a permissionless financial ecosystem.
However, if you own real assets or private equity, you will not be able to access deFi income products. Additionally, much of the excitement about NFTs and DeFi was usually separate, as they rarely come together in a single project.
However, this is not a technical necessity, and creative protocols like Convergence have sought to unlock the potential for combining the best of features in the three sectors. The new model is based on a decentralized protocol for exchangeable assets that aims to bring real assets and investment grade NFTs into the DeFi realm through tokenization and fractionation of assets.
With the support of service providers like Convergence, any asset can be flexibly tokenized for access to DeFi liquidity pools. Even illiquid assets like private / unicorn companies or exotic stocks could be locked into DeFi protocols.
Although the focus has been on the scarcity and uniqueness of some crypto assets like NFTs, there is a lack of liquidity that limits access to a wider audience.
Convergence closes the gap with WSTs
Convergence operates an AMM (Automated Market Maker) protocol that makes real-world exposure of assets in the DeFi area interchangeable by connecting novel WSTs (Wrapped Security Tokens) to utility tokens on a single interface.
A packaged token is an asset hosted on the Ethereum blockchain with a price equal to that of another underlying asset (traditional or crypto). This allows assets held in reserve to be represented to move across different blockchains by acting as a kind of bridge.
Using a two-tier process, Convergence enables token securities issued by partner projects to be “packaged” and then traded by investors and fund managers on the AMM. This enables decentralized trading without counterparties and the determination of prices for real assets around the clock.
Now people unfamiliar with crypto also have the opportunity to participate, as WSTs generated through the platform can seamlessly realize the economic benefits of real asset risk.
In the coming months, the service is expected to pack in a significant number of additional tokens, with many fast-growing unicorn companies already under consideration.
Fractionation is the next big thing
While crypto enthusiasts have been eager to see the next breakthrough in blockchain-based investing, the next big thing could be allowing verifiable property rights for the fractional representation of real assets.
Not only for the general development of defi- and tokenization markets, but could also open a new chapter in the democratization of investments and open up unique opportunities for asset owners and investors.
Given that many traditional and crypto assets are being sold for significant amounts of money, the idea of fractionation is taking shape so that smaller investors can pool resources and acquire partial interests.
As mentioned above, real assets in the form of packaged securities are traded on the convergence platform to enable free asset transfer while ensuring compliance with applicable requirements. However, the company has gone a step further to ensure more liquidity and to give more investors the opportunity to get exposure to a variety of asset classes.
Convergence has turned to fractionation – a trend that is gaining momentum and which may transform emerging industries.
With fractionation in mind, the Convergence Protocol now allows individual low-capital investors to invest in assets that were previously unavailable to them. This includes stocks in unicorn companies, private funds, pre-IPO, and even a fraction of a real estate project.
For example, users can exchange Dogecoin (DOGE) for SpaceX exposure via the ConvergenceAMM. However, the vision of convergence goes beyond that by integrating it with other DeFi Legos / utility tokens to enable new and creative use cases.
Although the decentralized protocol acts as a much-needed conduit for interconnecting liquidity from the DeFi space, it provides DeFi from the financial sector with tremendous liquidity valued at more than $ 30 trillion. In other words, Convergence gives asset owners access to decentralized DeFi liquidity, while DeFi users can also access real-world asset exposure.
Locking crypto tokens in DeFi protocols has become a major trend lately. However, the trading volume here only thrives through speculative trades and pure betting. As a result, convergence is helping the market to mature in this regard and creating the conditions for tokenized assets to follow suit.
Imagine if anyone can now use their crypto assets to trade stocks of an exotic private investment or private sale stocks in the form of fractional, packaged security tokens. This development is really disruptive and could change the way traditional finance and the crypto world interact.
Blockchain technology should deliver on the promise of democratizing access to finance, eliminating intermediaries, and possibly even replacing fiat altogether.
Despite some successes, there are weaknesses that continue to hinder large-scale adoption and prevent the concept from realizing its true potential. However, what is actually happening is that real assets are approaching the blockchain world and projects like Convergence are only accelerating the process.