By Asad Khan, Protocol Partnerships @ Centrifuge.

Originally published on Medium on December 14, 2022.

We’re incredibly excited to close the year with the official launch of a $220 million fund with our partners BlockTower Credit and MakerDAO. The executive vote passed on Sunday, December 11, and Maker will deploy four vaults to fund investments in real-world assets (RWA), originated by BlockTower and issued on-chain through Centrifuge.

This stands to be the largest on-chain investment in real-world assets to date, with Maker providing $150m of senior capital and BlockTower providing $70m of junior capital. It also marks the first institutional credit fund to bring their collateralized lending operations on-chain.

Here’s a rundown of the senior capital that Maker’s vaults will provide to BlockTower’s pools on Centrifuge:

RWAs bring stability and institutional liquidity to DeFi

Deep in a bear market, at the end of a year’s worth of stomach turning headlines, this milestone cements the role of RWA in DeFi.

While speculation recedes, economic needs continue. As demand for trading falls, DeFi-native stablecoins have seen revenue diminish. MakerDAO has been actively working to diversify its reserves and establish other revenue streams — and real-world assets have delivered — now representing 75% of MakerDAO’s revenues.

And this doesn’t surprise us. As the first protocol to bring real-world assets on-chain, we’ve always believed RWAs are the key to stable yields in DeFi.

By tapping into productive assets in the real-world, DeFi users and protocols get exposure to cash flows that are uncorrelated to crypto market volatility.

It’s becoming increasingly clear that RWAs bring greater stability into DeFi, provide superior composability with other financial primitives, enable more accessibility to the world’s unbanked population, and cater to an exponentially larger addressable market (in the trillions).

RWAs unlock something for everyone: Stablecoin Providers (MakerDAO), Institutional Credit Funds (BlockTower), and DeFi Protocols (Centrifuge).

For all our partners, it represents yet another step in their RWA journey. For Maker, it means onboarding BlockTower as a professional asset manager that can provide access to multiple and diversified asset classes, which in turn increases the resilience of its stablecoin DAI.

For BlockTower Credit, it means sourcing funding from an unbiased global currency and putting it to productive use, bringing new liquidity and transparency to the broken securitization process.

And for Centrifuge, it’s a continuation of our strategic roadmap, building on our long-lasting relationship with Maker and establishing the first of many initiatives with our institutional partner BlockTower.

What does this mean for the future of DeFi?

Professional investment and portfolio managers like BlockTower Credit — the credit franchise of SEC-registered BlockTower Capital — are an important provider in the Centrifuge ecosystem. With the capability to manage investment portfolios of a large size and scale, they can support large volume transactions and large-scale liquidity providers.

They offer expertise that applies across a variety of credit instruments and asset classes, they are skilled in navigating bespoke structures and market infrastructure, and they are well acquainted with the needs of risk management for portfolios of billions of dollars in size.

This investment marks the beginning of what we anticipate to be an exponential increase in the institutional adoption of real-world assets, where any institutional fund or stablecoin provider can use our technology to drive change at scale.

For stablecoins, the heart and soul of DeFi capital markets, institutional managers play a critical role in connecting them to much needed real-world credit markets.

There’s still more work to be done. The capital for this pool has to be deployed and managed. MakerDAO’s DAI and other stablecoins continue to develop and grow, with diverse needs and balance sheets. And there are still trillions of dollars worth of demand to be met.

Despite the negative market sentiment, our conviction hasn’t wavered. Our thesis remains that real-world assets are the key to bringing institutional adoption to DeFi. We’re excited to close out 2022 with a bang and to continue building with partners that share our joint vision of creating a more inclusive financial world.