2020-2023, decentralised finance discovers the real world

In 2022, a small Pennsylvania bank founded in 1871, Huntingdon Valley Bank, concluded an agreement that none of its successive directors could have imagined. To finance part of its lending, it obtained a one-hundred-million-dollar credit line from MakerDAO, a decentralised finance protocol with no head office, no board of directors and no employees in the conventional sense, governed by the holders of a token. A banking institution more than a century and a half old was borrowing from a computer program.

This scene sums up the reversal of the period. After the relative failure of security tokens, the decisive push towards RWA came from a milieu nobody expected, that of decentralised finance, or DeFi. Its protocols had accumulated billions of dollars, but those billions were going round in circles. They needed the real world. The real world, for its part, was discovering a new source of funding. The encounter was fruitful, brutal at times, and decisive for what followed.

The DeFi summer

Decentralised finance refers to all the financial services built directly on public blockchains, in the form of smart contracts open to everyone. Lending, borrowing, swapping, investing, without a bank or a broker, by depositing one’s tokens in a protocol. The first building blocks had existed since 2017 and 2018. MakerDAO allowed users to deposit ether as collateral to borrow DAI, a stablecoin pegged to the dollar. Compound and Aave organised lending markets where rates adjusted automatically with supply and demand. Uniswap made it possible to swap tokens without an order book.