Securities Platform DEFYCA to Release Tokenized Private Debt Protocol on Avalanche

Luxembourg-based digital securities platform DEFYCA will release its tokenized private credit protocol on the Avalanche blockchain’s testnet this month, aiming for a mainnet launch in late July, the firm told CoinDesk.

DEFYCA says it is the first company to offer digital securities to professional investors under the European Union’s upcoming, comprehensive crypto regulation called MiCA and the current blockchain laws of Luxembourg.

The announcement comes as crypto and traditional capital markets are increasingly getting commingled in decentralized finance (DeFi) with protocols offering tokenized versions of real-world assets (RWA) such as bonds and credit on the blockchain for investors. Private debt funds, which DEFYCA is aiming to bring to Avalanche, manage $1.6 trillion of assets, according to a report by Broadridge.

Boston Consulting Group (BCG) and Asia’s private market exchange ADDX have forecast the asset tokenization industry will mushroom into a $16.1 trillion business opportunity by 2030.

Read more: Has Tokenization’s Moment Finally Come?

“Moving real-world assets and off-chain collateral on-chain is critical to the evolution of DeFi, and making the risk profile of these applications more robust,” Morgan Krupetsky, director of business development and institutions at Ava Labs, said. Ava Labs is the blockchain developer firm behind the Avalanche ecosystem.

Tokenized real-world assets

DEFYCA will join a growing roster of hybrid protocols that combine blockchain-based decentralized finance with traditional finance (TradFi) systems to cater institutional investors who are seeking yield-earning opportunities.

Earlier this year, Ondo Finance started to offer tokenized government and corporate bonds, while Maple Finance unveiled a tax receivables lending pool. U.S. banking giant JPMorgan’s Onyx protocol settled over $300 billion of intraday repurchase deals as of November.

Read more: Singapore’s DBS Explains How Big Banks Can Implement DeFi, Too

On the protocol, tokenized assets will be issued, securitized and structured into liquid pools, and investors can deploy algorithmic strategies to trade. As the usual steps of debt issuance such as liability matching, settlement, payment flows and price discovery are executed automatically by smart contracts, the process is faster and cheaper than in traditional markets, according to the protocol.

Investors will be able to deposit Circle’s USDC and EUROC stablecoins or traditional fiat money, with Citi being the cash custodian of the protocol.

At launch, DEFYCA’s platform will offer two funds to invest: a EUR100 million (US$105 million) direct lending fund that targets small and medium enterprises in Europe and a larger private infrastructure digital feeder fund of around $200 million.

“There is a strong pipeline of circa $1 billion of issuances over the next 18 to 24 months,” a spokesperson of the protocol said.

DEFYCA raised $1.3 million of venture capital in a seed round in November led by tech-focused fund QBN Capital and Blizzard Fund, an Avalanche-related VC firm.