RWA Collateral: Protecting Investments with Real-World Assets

One of Credefi’s standout features is our use of Real-World Assets (RWA) as collateral for loans, bridging the gap between traditional finance and decentralized finance (DeFi). By accepting RWAs, we provide a more secure, stable, and predictable lending environment. However, to ensure these assets are properly managed and protected, Credefi employs a rigorous collateral administration process, supported by trusted financial institutions and legal frameworks.

Collateral Administration: Secure and Structured Why RWA Collateral? Real-World Assets (RWAs) offer tangible value that acts as a safeguard for both lenders and borrowers. By requiring RWAs as collateral, Credefi reduces the inherent risk associated with lending in the decentralized space. However, to ensure that these assets are properly pledged, valued, and protected, we partner with established financial institutions that serve as collateral administrators. These institutions play a critical role in verifying the legal rights and status of the collateral. They handle the due diligence process, ensuring that the assets are legitimate, free of legal encumbrances, and properly pledged to Credefi's platform.

Key Steps in Collateral Management Due Diligence: The collateral administrators begin their role by performing a thorough due diligence process. This includes confirming the ownership, value, and legal status of the asset being offered as collateral. Their main responsibility is to verify that the borrower has the legal rights to the asset and that it can be used as collateral under the terms of the loan agreement. Setting Up the Pledge: Once the due diligence is complete, the collateral is formally pledged to Credefi through a legal agreement. The pledge is then registered, confirming Credefi’s right to liquidate the asset in case of a borrower’s default. This adds an extra layer of security for both lenders and the platform. Collateral Liquidation: Protecting Lenders in Case of Default In the unfortunate event that a loan turns non-performing (i.e., the borrower fails to repay), the collateral administration process kicks in. The collateral administrator is responsible for managing the liquidation of the asset, ensuring that lenders are compensated. Liquidation Process: If an asset needs to be liquidated, the collateral administrator will initiate the process by notifying the court and exercising the legal rights tied to the pledged asset. This step ensures that the asset can be legally sold to recover the loan principal. Smart Contract Integration: Once the asset is liquidated, the proceeds are deposited into the smart contract. Lenders can then claim their respective portions of the loan, ensuring they are reimbursed for their investment in a timely and transparent manner.

Collateral Valuation: Ensuring Accurate Asset Assessment Accurate collateral valuation is essential to ensure that the asset is sufficient to cover the loan in case of default. Credefi employs a two-step process to assess the value of the collateral: Initial Screening: When the borrower applies for a loan, Credefi conducts an initial screening of the collateral. This includes evaluating key risk parameters like: Probability of Default (PD): Assessing the likelihood that the borrower will default on the loan. Loan-to-Value (LTV): Determining how much the loan amount compares to the value of the offered collateral. Liquidity: Considering how easily the asset can be sold in the market. The value of the collateral is also benchmarked based on peer data and market trends. For example, if the collateral is real estate, Credefi analyzes the local property market, including previous sales and market trends in the area. Collateral Administrator’s Due Diligence: Once the collateral is preliminarily approved, the collateral administrator steps in to conduct a more thorough evaluation. This includes verifying the legal documentation, such as proof of ownership and ensuring that the asset is free from any legal disputes or encumbrances. The administrator will also facilitate the formal signing of the pledge agreement and its registration, securing the legal rights to the asset in case of default.

Summary: Safeguarding Investments with Real-World Collateral At Credefi, we offer lenders a secure and stable investment environment by requiring Real-World Asset (RWA) collateral for loans. Our comprehensive collateral management process ensures that all assets are properly valued, pledged, and protected by law, minimizing risk for lenders and providing borrowers with clear terms for loan agreements.

Key Benefits of Our RWA Collateral Process: Legal Protection: Assets are pledged and registered, ensuring legal security for lenders. Transparency: Clear collateral valuation and due diligence ensure fair risk assessment for all parties. Efficiency: In case of default, assets can be liquidated swiftly to reimburse lenders.

Credefi’s robust collateral administration process bridges the gap between traditional finance and decentralized lending, creating a secure and transparent platform for everyone involved.