Tokenization and Vaults

Crypto technology, despite its substantial capital inflow, grapples with the enigma of mass adoption. A key impediment is the fragmentation in the asset management system. A myriad of DeFi projects, with each protocol having its unique quirky interfaces, functionality, and complex transaction flows, and not centered around the user. This is daunting and overwhelms not just the uninitiated, but large swathes of existing crypto users too. This complex web breeds concerns such as siloed data, increased costs, and systemic risk.

Fragmentation in DeFi is a hydra, leading to data silos that restrict holistic crypto asset portfolio views, and exacerbates information asymmetry inefficiencies. It intimidates newcomers, makes risk assessment difficult, and puts intensive demands on time and attention. 

This is where smart contracts based tokenization emerges as a beacon, shining a light on the future of finance. At aarnâ protocol’s core are â_fi vaults, created on top of aarnâ’s tokenization platform comprising seven smart contracts.

smart contracts: the future is already here

Smart contracts, residing on a blockchain, execute once predetermined conditions are met. They not only automate agreements ensuring certainty for all participants sans intermediaries or delays but also trigger subsequent actions, thus automating workflows. The benefits are manifold:

Shared, Immutable Record: Unlike independent, non-transferrable records, smart contracts offer a "single source of truth," a shared, consistently updated record that alters the interaction with assets, thus reshaping & optimizing risk and return dynamics.

Enhanced Data Transferability: Smart contracts enable secure, seamless data transfer across entities and systems on a decentralized and immutable ledger, facilitating better risk assessment, and also democratizing this optimization of risk and return in the process.

Cost Efficiency: Automating processes via smart contracts removes intermediaries, curtails operational costs, and prevents disputes, leading to cost savings.

As smart contracts gain traction, they pave the way for asset tokenization, built on their efficiencies, removal of intermediaries, and automation.

Asset tokenisation represents the ownership rights of an asset (whether physical, digital, fungible, and non-fungible) and is  digitally represented as tokens and stored on a blockchain. Tokenization simplifies the financial system by consolidating origination, distribution, trading, clearing, settlement, and safekeeping into one. In the near future, tokenization will also disrupt many industries, including global securities. Our focus right now is on tokenization of digital assets and complex DeFi transactions into vaults. So let’s unravel some key benefits:

user access & confidence

Tokenization (via utilizing vaults)addresses the core problems of complexity of DeFi access, asymmetry, & fragmentation. On-chain asset management driven by vaults will usher in the next generation of DeFi. The ease of access, and that too informed & intelligent access brings in much needed user trust and confidence in crypto & DeFi, and will bring in the  next 200 million users. 

interoperability or composability

Tokenization leverages the core blockchain primitive of composability, or interoperability between different protocols, a key feature of DeFi. This enables accessing passive yield optimization via automated lending, staking, and yield farming. Toeknization also tackles liquidity fragmentation by facilitating seamless transferability of fractionalized assets, unlocking liquidity opportunities.

democratizing higher reward assets

Generally, the high-upside assets are out of the common investors’ reach owing to regulatory or financial constraints. Tokenization allows investors with lower capital to access alpha assets. There can be an argument that whilst democratizing higher rewards, tokenization will also democratize the higher risk that goes with it. There is substance in this, but as DeFi evolves, and with the integration of collaborative AI & decentralized human expertise, alpha structured products’ risk profile can be mitigated. 

mitigating  risk

Tokenization provides open tracking and auditing of high-value assets, empowering informed financial decisions while reducing investment security risks. Further, tokenization works on automated transactions if smart contracts, which have clear financial covenants (like say collateral) built in, and they transact accordingly. Systemic risk arising from centralized asset management and execution is contained via this.   

At aarnâ, we’ve been working on further enhancing DeFi asset management by making vaults intelligent - not just via active management with decentralized human expertise in the loop, but also with AI, with machine learning model output feeds integrated with vaults via oracles. Our tokenization platform which has been undergoing extensive testing & audit will be deployed on mainnet on both Ethereum and Arbitrum chains in the coming months. DeFi 2.0 is being ushered in by aarnâ’s â_fi vaults.

Circle, issuer of USDC stablecoin, unveils a programmable Web3 wallet for developers. The wallet enables the creation and deployment of smart contract-based apps on Ethereum. Circle aims to boost innovation and expand USDC's role in DeFi.dYdX exchange launches testnet for fully decentralized Version 4. The update brings enhanced features and functionality to the decentralized exchange. dYdX aims to offer a seamless and secure trading experience for users in the decentralized finance (DeFi) space.DeFi trading experiences a surge in popularity as centralized exchanges face regulatory challenges. Traders flock to DeFi platforms seeking greater autonomy and avoiding regulatory scrutiny.top DeFi tweets@0xEvix writes a thread on asset management in DeFi and tells us why he’s optimistic about the growth of this sector.Here’s a thread by @FactorDAO on DeFi vault infrastructure and why they are crucial for facilitating widespread adoption of DeFi.@stacy_muur deep dives into the latest developments in the L2 space, namely L3s, hyperchains and superchains.

aarnâ witnessed remarkable progress in various aspects during the previous month, especially in community engagement, socials, and our own wallet integration. Check out our June update >