Convergence: The decentralized protocol connecting real-world assets with DeFi
With this pace, the project is already taking the lead in connecting traditional finance and crypto.
Traditional finance is gradually evolving as the world adopts digital ecosystems – cryptocurrencies appear to be taking center stage in shaping the future of finance. Recent months have seen a growing interest in the crypto industry, with prominent Wall Street players converting a percentage of their treasuries into Bitcoin. Similarly, retail traders and investors have made a debut in the crypto market.
Despite the enormous growth, crypto still suffers multiple challenges at the fundamental and technical levels. For starters, this burgeoning ecosystem is currently isolated, with most products being crypto-oriented. Most crypto projects focus on building within the digital ecosystem as external links to traditional finance lag behind.
While internal development is a fundamental building block, it is evident that traditional finance needs to adopt crypto. The two worlds have more potential in collaborating than the competition narrative fueled by some stakeholders from both camps. Decentralized Finance (DeFi explained) innovations are now creating solutions to integrate real-world assets into digital ecosystems.
A Bridge Between Crypto and Traditional Finance
DeFi protocols became famous in 2020 during the yield farming craze. This emerging crypto niche has paved the way for digital asset ecosystems to interact with various products. Most of these products derive their value from native crypto projects and the entire digital asset market. Though significant progress has been made, the DeFi market is yet to capitalize on the opportunities of integrating traditional finance.
One project dubbed Convergence is dedicated to solving the gap between traditional financial markets and crypto. The decentralized interchangeable asset protocol seeks to onboard real-world assets into DeFi by tokenizing and fractionalizing assets. As it stands, most tokenization projects in crypto focus on digital assets – Convergence is set to change this narrative through its bridge to traditional finance.
Convergence – A Decentralized Interchangeable Asset Protocol
The Convergence team believes that tokenization will play an important role in growing both DeFi and traditional finance. DeFi projects stand to benefit from additional liquidity, while traditional finance products can leverage digital ownership and markets for exposure to greater prices. Convergence protocol is designed to facilitate the value proposition of connecting both worlds.
The protocol provides the necessary infrastructure for prospects to launch Wrapped Security Tokens (WSP), representing real-world assets on Convergence. Notably, this protocol allows for the transfer of embedded economic value, which means the underlying value of a WSP token can be transferred from one token holder to another.
Convergence offers additional features other than its proprietary issuance protocol, Including an Automated Market Maker (AMM) ‘ConvX’, liquidity pools (ConvPools), and a DAO governance ecosystem. The ConvX AMM is built on Ethereum and is set to migrate to Moonbeam with additional compatibility tools for other chains like Binance Smart Chain (BSC). This AMM allows WST owners to buy or sell their real-world tokenized assets – a process that is much simpler and faster through the smart contract infrastructure.
It is quite noteworthy that Convergence will also introduce the fractionalization of NFTs and real-world assets to increase market participation. Today, the NFT marketplace is primarily inaccessible to low bidders as these digital assets can only be sold as a whole unit. Convergence protocol provides the tools to fractionalize NFTs and real world-assets, allowing them to trade in secondary DeFi markets.
Convergence decentralized ecosystem will further be complemented by its liquidity pools where users can issue WSTs and trade them. The protocol’s native token, ‘ConvX’, will act as the governance tool, giving holders the right to vote on upgrades, modifications and the future of Convergence.
Why the Integration of DeFi and TradFi is important
The integration of DeFi with traditional finance is inevitable, although it may take a while before we see a complete integration of the two. Looking at crypto, most fundamentals are borrowed from traditional finance. They seem to be an ‘advanced’ version of today’s markets – some may disagree, but existing crypto products tell a different tale.
That being the case, both worlds have synergies that could be of value to the other. Traditional finance would bring much-needed liquidity to crypto while getting exposure to digital ecosystems. It comes as no surprise that crypto projects like Convergence are gaining traction amongst investors and crypto users. The project raised $2 million in its latest funding round led by Hashed, a Korean VC. Other strategic investors were Alameda Research, Genesis Block Ventures and NGC Ventures.
Traditional finance can only achieve its full potential through digital ecosystems like Decentralized Finance (DeFi) and vice versa. Innovators from both ecosystems have started working on integration solutions to democratize finance. Most of these initiatives are still in research or experimental phases – however, some like Convergence have already launched successful testnets. With this pace, the project is already taking the lead in connecting traditional finance and crypto.