From Fractionalized NFTs to Private Equity – How Convergence is Democratizing Investment
Decentralized finance (DeFi), tokenization and non-fungible tokens (NFTs) are gaining momentum as sub-sectors that could transform the traditional financial system. All are leveraging a broader approach to unlock earning opportunities to everyone, offering a permissionless financial ecosystem.
Owning real-world assets or private equity, however, doesn’t allow you to access DeFi yield-generating products. Additionally, much of the excitement about NFTs and DeFi has been usually separate as they rarely come together in a single project.
This is not a technical necessity, however, and creative protocols like Convergence have stepped in to unlock the potential in combining the best features in the three sectors. The new model revolves around a decentralized interchangeable asset protocol dedicated to bringing real-world assets and investment-grade NFTs into the DeFi space through tokenization and fractionalizing assets.
With the assistance of service providers such as Convergence, one has the flexibility to tokenize every asset to access DeFi liquidity pools. Even illiquid assets, such as private/unicorn companies or exotic stocks, could be locked in DeFi protocols.
Additionally, although the scarcity and uniqueness of some crypto assets, such as NFTs, have been the main focus, there is a lack of liquidity that has limited access to a wider audience.
Convergence bridges the gap through WSTs
Convergence operates an automated market maker (AMM) protocol that makes real-world asset exposure interchangeable in the DeFi space by connecting novel Wrapped Security Tokens (WSTs) with utility tokens on a single interface.
A wrapped token is an asset hosted on the Ethereum blockchain with a price that is the same as another underlying asset (traditional or crypto). This allows for the representation of assets held in reserve to move across different blockchains by acting as a type of bridge.
Via a two-layer process, Convergence allows tokenized securities issued by partner projects to be “wrapped” and then traded on the AMM by investors and fund managers. This enables 24/7 decentralized counterparty-less trading and real asset price discovery.
Now, even people not familiar with crypto have the chance to take part since WSTs generated through the platform can seamlessly realize the economic benefits of real-world asset exposure.
In the coming months, the service expects to wrap a significant number of additional tokens, with many fast-growing unicorn companies already under consideration.
Fractionalization is the next big thing
While crypto enthusiasts have been eager to see the next breakthrough in the blockchain-based investment space, allowing provable ownership rights to represent real-world assets in a fractionalized manner could be the next big thing.
Not only for the overall development of the Defi and tokenization markets but also could forge a new chapter in democratizing investments and open up unique opportunities for asset owners and investors.
Given that many traditional and crypto assets are selling for significant amounts of money, the idea of fractionalization is taking shape to allow smaller investors to pool resources and purchase fractional interests.
As mentioned above, real-world assets will be traded in the form of wrapped security on the Convergence platform to allow free asset transfer while ensuring compliance with applicable requirements. The company has taken a step further though, to ensure more liquidity and give more investors the opportunity to get exposure to different asset classes.
Convergence has turned to fractionalization – a trend that is getting traction and may transform the emerging industry.
With fractionalization in mind, the Convergence protocol now allows individual investors with low capital to invest in assets that have been unavailable to them before. This includes shares of unicorn companies, private funds, pre-IPO, even a fraction of a real estate project.
For example, users will be able to swap Dogecoin (DOGE) with SpaceX exposure via the ConvergenceAMM. However, the vision of Convergence goes beyond this by integrating with other DeFi legos/utility tokens to further enable new and creative use cases.
Although its decentralized protocol acts as a much-needed channel to link the liquidity from the DeFi space, it also provides huge liquidity for DeFi from the finance sector, which is worth more than 30 trillion dollars. In other words, Convergence enables asset owners to access decentralized DeFi liquidity, while DeFi users can also access real-world asset exposure.
Locking crypto tokens in DeFi protocols has recently become a major trend. But the trading volumes here are flourishing merely from speculative trades and pure bets. Consequently, Convergence helps the market mature in this aspect and sets the stage for tokenized assets to follow suit.
Imagine that anyone is now able to stake his crypto assets to trade shares of an exotic private investment or private-sale stocks in the form of fractionalized, wrapped security tokens. This development is truly disruptive and could reshape the way traditional finance and the crypto world interact with each other.
Blockchain technology was meant to truly deliver on the promise of democratizing access to financial resources, eliminate intermediaries, and maybe even replace fiat altogether.
Despite some success, there are pain points that continue to hinder the adoption on a larger scale and prevent the true potential of this concept from being realized. What is actually happening, though, is that real-world assets are moving closer to the blockchain world, and projects like Convergence only hastens the process.