Intro

Credit protocols in real world assets (RWA) present an immediate opportunity for AlloyX. RWAs are tangible assets that exist in the physical world which are brought on chain via tokenization, such as loans, trade receivables, invoices, real estate. Tokenized credit in RWAs have witnessed continuous growth since 2020 as a crypto asset category, growing an order of magnitude to over $1 billion in deposits at its recent peak in mid 2022. However, with immense growth in what seems to be one single asset type in RWAs, this asset class is not only fragmented but also quite diverse and different on a variety of parameters that are important for investors to consider.

The underlying tangible asset (i.e. borrowers) within pools in a credit protocol represent many regions, industries, types of businesses, and maturity cycle. For example, the Goldfinch Senior Pool represents loans on chain from countries in Africa, Latin America and Southeast Asia and spans across fintech debt, consumer loans, and SME loans. When investors want to allocate capital to a

In addition to the broad category of risks presented by a pool on a credit protocol, investors when allocating to RWAs also need to consider and manage risks unique to DeFi and blockchains, such as blockchain downtime risk, smart contract risk, governance risk, and protocol risk. Moreover, RWAs also often struggle to manage liquidity for withdrawal needs due to the long-dated nature of their asset holdings. The loans in a pool of a credit protocol have a maturity of several years, presenting a long lock-up period for capital invested into RWAs. During such lock-up periods users cannot withdraw their USDC nor use it as collateral. If a credit protocol nonetheless wishes to support withdrawals, it can set aside a portion of its total value locked to process redemptions. This significantly reduces a pool’s performance returns due to cash drag (i.e. idle cash)

AlloyX will initially focus on solutions for credit protocols within RWAs. AlloyX provides liquid staking for capital markets, which is highly valuable in the DeFi credit protocol space. Our infrastructure platform focuses on addressing the above key risks in several ways.