Crypto Veteran. Tokenization, DeFi and Security Tokens - Blockchain.
Ishan Pandey: Hi Oscar, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Convergence?
Oscar Yeung: My name is Oscar Yeung, Co-Founder of Convergence. I’m passionate about bringing real-world asset investment into the world of DeFi. I’m also the COO of Liquefy, a leading DeFi incubator and investment firm based in Asia. Before my ventures in the blockchain space, I worked as a Global Markets Analyst at Deutsche Bank.
Our team strongly believes that the inclusion of real-world assets is the next frontier of DeFi. Currently, there are no significant real-world assets in the DeFi space. At the same time, we see illiquid assets out there that need a broader investor base. Convergence Finance aims to bridge them together, bringing DeFi’s liquidity to illiquid private assets, and get those assets into the DeFi space.
Ishan Pandey: How does fractionalization of NFTs work?
Oscar Yeung: Artists and content creators have a one-of-a-kind chance to monetise their work thanks to blockchain technology and NFTs. Artists, for instance, no longer have to sell their work through galleries or auction houses. Instead, the artist may sell it as an NFT straight to the consumer, allowing them to keep a larger portion of the profit. Additionally, artists may integrate royalties into their software so that they get a share of revenues when their work is sold to a new owner. This is a desirable feature because most artists do not earn subsequent revenue after their initial sale.
Fractionalization of NFT will lower the minimum ticket size and the barrier of investment entry. Imagine the $69.3 million Beeple artwork breaks into millions of pieces. That way, it will make the investment much more affordable for many investors instead of just one.
Fractionalization of NFT specifically of NFT Art will usher in a new age of price discovery. The NFT Art market is right now a very niche market and investor's do not have access to exposure to art as an asset. With the fractionalization of NFT art, retail investors will be able to expand their investment portfolio with as little as 500$.
Ishan Pandey: How can real-world assets be brought into the DeFi space?
Oscar Yeung: The whole purpose of Convergence Finance is to bring real-world assets into the DeFi space. Sourcing quality private assets, such as shares of unicorn companies, pre-IDO tokens, even investment-grade NFTs, and make them available on the protocol offering.
Let’s take pre-IDO as an example. Similar to IPO, or Initial Public Offering in the stock market, IDO — Initial Dex Offering is a process in which a crypto project launches its token through a decentralized platform. The idea is similar to a private company offering shares to the public in a new stock issuance.
IDO is lucrative because the returns could easily go double-digit or even 100x in some cases. However, heavily oversubscribed IDOs have recently become more common in the DeFi space, and the maximum allowed number of people who can participate in an IDO event is usually very low due to various technical factors.
To give you an example, the protocol breaks this deadlock by “front-running” and makes some SAFTs from high-quality early-stage crypto projects, wraps those SAFTs as NFTs, fractionalizes them, and makes the pieces tradable on the protocol’s AMM.
Ishan Pandey: When it comes to trading and lending, the existing generation of DeFi ventures is primarily limited to digital assets. Can you provide some examples of the benefits of bringing real-world assets to DeFi?
Oscar Yeung: Diversification - Once all DeFi users can have easy access to real-world assets in their DeFi portfolio, they can quickly diversify their investment portfolio and employ many more investment strategies.
New Opportunities - Bringing real-world assets into the DeFi space will bring new opportunities for investors and asset owners. For investors, they will gain unique exposure to exotic private investments that were previously unavailable to them. At the same time, asset owners will be able to widen their investor base and improve fundraising efficiency by taking advantage of DeFi’s liquidity.
Price Discovery - Private investment is a field that remains for a small group of investors. The mass public is not invited. However, when an asset class is only accessible to a small group of people, the price discovery process may not be as efficient as assets that are highly accessible to the mass. Democratizing private assets will optimize the price discovery process for illiquid assets.
Ishan Pandey: Increased cryptocurrency adoption improves financial inclusion while also assisting in the growth of wealth and asset protection leading to the democratization of investments. What will be the impact of tokenization on capital markets?
Oscar Yeung: We expect to see more players from the traditional investment world turn into DeFi as the broader space has been maturing. DeFi will significantly improve the efficiency of the current capital market on many levels. Also, it can offer greater flexibility and security, thanks to the blockchain technology behind it. In general, these edges would be an excellent incentive for financial institutions to adopt DeFi.
Ishan Pandey: Let’s talk about tokenization. For years, it has been clear that the capital market has been in desperate need of a makeover. How will tokenization potentially affect the capital market in the long run?
Oscar Yeung: The crypto world has constantly been evolving, so does the way of tokenization. Thanks to the rapid growth of DeFi, there are many more ways of doing tokenization in the DeFi era. In the past, when we talked about tokenization, people mostly referred to STO. However, with DeFi, tokenization can be done in a much more creative and flexible way. NFT is an excellent example. NFT is a kind of tokenization, after all. We expect to see more institutions take advantage of tokenization in DeFi. Tokenization in DeFi could be the bridge to connect the crypto space and the traditional finance world.
Ishan Pandey: What are the next trends that we are going to see in the blockchain industry?
Oscar Yeung: We believe that we are not too far away from mainstream adoption of DeFi, just like the mainstream adoption of Bitcoin. From a macro perspective, the upcoming ETH 2.0 could be one of the main drivers of the growth in DeFi. From a project perspective, we expect to see more disrupting protocols that can perform more complicated financial-related tasks. We also expect layer 3 technologies will play a more prominent role in DeFi, and interoperability will be essential.
The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company. Ishan Pandey.
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