IIPXX : Launch the $REAL Index

Intriguing proposal. I am familiar with Maple Finance by name only so I will need to research their protocol. Forgive my ignorance but does this relate to synthetics or through the tokenization of RWA?

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First time I’ve heard of this. Reminds me of corporate and even sovereign bond ETFs whereas I suppose this makes PAY and PINT seem more like … Generalized lending in a sense.



Hi Joseph,

Great questions. Hope we are able to clarify for the benefit of the community

APYs are actuals accrued by Junior tranche depositors, as they also receive the spread between the average financing fee and the senior tranche rate. However, junior tranche APYs on Centrifuge are advertised as 30%, 16% etc. For the purpose of this proposal, we have indicated a lower number considering pool oversubscription risks. Please also note that the composition presented above is indicative and we will update the final composition and produce accrued APY via backtest data as this product moves further in the governance pipeline.

The actual financing fee portion of the yield is earned on the stable coin. Additional rewards are earned in the native tokens with net volatility in the range of 4-6% (with the limited historical data)

The average financing fee of the databased.FINANCE 1 pool as given in the tinlake portal is 9.09%. $REAL will hold TIN, ie a junior tranche position in this pool. 73% of the pool is fulfilled by senior tranche, while 27% is composed of Junior tranche investors, which brings the junior tranche APY to ~30%. As mentioned above, we have added conservative and tentative numbers to the table.

**Corporate Bond rates in the US are at ~2-4%. Bank FD rates vary between 0.5-6% (mostly in the lower end) across the world. think we have a strong argument for the on-chain rationale there. Further any return premium over and above this requires some level of active management. We also think that this product is also for the DeFi users who want to insulate their yield from crypto volatility as crypto lending rates fluctuate based on market cycles. Apart from returns, such products would also enable DeFi to make a positive impact in real world projects.

30-40% of the portfolio is denominated in DAI, so there would be a USDC->DAI swap @ 0.04% Curve trading fee. No other direct cost involved.

Roughly, we estimate net yield to be 9-10% at the minimum. However we will share a yield calculations sheet here in the coming week which lays out all the factors influencing the returns.

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Hey @epyon! I understand, real world/institutional lending is just getting started in Defi, we want to front run the market on this one :slight_smile:
The $REAL portfolio would consist of debt assets - loans given out to real world businesses. You can read about how these protocols work in brief here

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Hey @IGdood yes, this is very different from other productive assets we are building. Please hit me up with questions if any.

I think you’re benchmarking against USD rates, whereas crypto USDC yields are routinely between 6-11%.

Thanks. I’ll look forward to the final yield calculation.

Hey y’all, I’m the cofounder of Goldfinch. I think this is great, but wanted to add some thoughts, and I also had some questions.

To start, if you were to participate in the junior portion of Goldfinch pools (ie. as a Backer, in Goldfinch terminology), then your yield would actually be substantially higher than what you have listed. For example, in Almavest Basket #4, the “headline” rate is 12.5%, but Backers get a 6.25% boost (as seen in the app), meaning an actual rate of 18.75%. This boost comes from the design of the protocol, where the Senior Pool adds additional capital to pools that receive sufficient consensus from Backers, and 20% of the Senior Pool interest is re-allocated to the Backers as compensation for doing the hard work of assessment. So @sidhemraj had written that the return would be 10-11% for Almavest, but it would actually be more like 18-19.

Second, I’m curious if the intention of the index would be to allocate capital as a Backer to any of Goldfinch’s borrower pools, or only specifically ones from Almavest? There are lots of great Borrowers on Goldfinch besides just Almavest. Related, all of the Borrower pools now are over subscribed (more will open soon). So the $REAL index could either A.) potentially buy portions from existing Backers (each Backer has an NFT representing their portion). or B.) Just get in on new pools as they open up. Both would be great!

Third, there is another option here which is for the $REAL Index to go into the Goldfinch Senior Pool, instead of the individual Borrower Pools. The advantage of the Senior Pool is that it can always take more capital, and it’s much safer as it’s automatically diversified and is protected by Backer capital (which is always first-loss). The downside is it’s much lower return (7-10% after protocol fees), and fluctuates with the amount of capital coming in, so could in theory get heavily diluted. So all in all, maybe that’s not the right goal for the $REAL index, but it is an option. You could even mix and match I suppose.

My two cents is that simply participating as a Backer in all of the pools (and especially acting as a potential liquidity provider for existing Backers) could be the right move. If the $REAL index also acted as a liquidity provider to existing Backers, you could probably take a liquidity fee (eg. 2% discount on the NAV)

Love the idea! Down to help how I can.


Hey @blakewest! Welcome to the Index Coop community, and thanks for the supportive comments above.
Firstly, the composition above is indicative, we will change it right before the launch based on pool availability at the point.
Secondly, we have indicated a conservative yield because we might establish a composite senior/junior position and there could be instances of oversubscribed pools leading to some cash drag. Hence the APY indicated is in the average range of Senior and Junior pool.

I think this is ideally the strategy we will adapt, to diversify as well as to maximize returns. Would love you support in this respect.
We will share a final yield calculations sheet with the community which will show actuals based on a detailed composition that we will use if we were to launch this tomorrow.

Thanks for posting!

Do we have any market research on who the primary buyer is and whether they’re looking for this type of product in DeFi yet?

It’s a bit concerning that the whole Real World Assets TVL on DeFi is just slightly larger than the Index Coop. Wouldn’t we want to target markets that are multiples our size?

Are we convinced that people are coming to DeFi to buy products based on real world assets? It also seems counterintuitive of the early adopters of crypto that currently dominate the market.

Thank you @DocHabanero for your questions.

$REAL is primarily a yield diversification product.
Most protocols today have served the DeFi degens who chase short-term yields, but there is a need for a non-crypto volatility related returns in Defi. The primary buyers would be DAO treasuries, Institutional Funds, and market makers who are looking at an all-weather sustainable yield for their capital.

Additionally, we solve an existing problem for the investors in this space - 1 click diversification into pools across protocols in the space. Investors don’t need to keep a track of asset maturity and maximizing returns by choosing the right pools, we do it for them. Something that debt mutual funds in TradFi already solve.

Further with AAVE and MakerDAO doubling down on these markets, RWA DeFi is expected to grow multfold in the coming years. While consolidated TVL on uncollateralized lending markets today is $1.5-2B(counting Truefi)the number is growing fast. Maple recently shared a road map of 2022 to reach $5bn in TVL. Centrifuge has set a target to originate about $148bn loan every year by 2026.

With this product, we will essentially place ourselves alongside AAVE and MakerDAO as the largest providers of liquidity to real world/institutional borrowers in Defi.

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Currently working with one of the issuers on Tinlake (not one that were selected for this index).

Just curious - is this RWA index specific to just loans to SMEs (the write up seemed to focus heavily on SMEs)? Or will it eventually cover tokenized securitizations of other assets as well? (i.e. unsecured personal loans, mortgages, auto loans, solar/PACE loans, etc). Given Photons Capital’s involvement, it seems that Photons Capital (at least according to its website today) specializes in SME lending - are there plans on onboarding an external co-manager with a broader exposure to collateralized assets? Also, would these investments be limited to only senior tranches?

Also, the initial selection are technically a mix of tokenized loans to loan originators, tokenized loans to funds providing lender finance, and tokenized loans to crypto hedge funds.

Also curious to know - what kind of credit analysis has been done to determine the initial composition (and to determine rebalances)? There is mention of risk management, but no clear indication of what metrics are monitored (is it overall collateral CNL? will Photons run collateral cash flows to calculate on-going breakevens?), or how underlying loan covenants are monitored. Lastly, will there be specific rules on allocation concentrations? Would be helpful to get more clarity.

Otherwise, this is quite interesting - essentially very similar to the Aave RWA Markets pool, but not limited to Tinlake tokens.

Hi Jeremy, Great questions!

Firstly, we want to clarify again that the composition given above is only indicative. The final composition may be different based on pools active at the launch of the index. $REAL index is intended to be for all fund-able yield generating assets and not just for SMEs - anything from a trading invoice to a piece of real-estate, given that it’s represented on-chain through one of our partner protocols. We intend for the index to support all real-world and institutional opportunities including exposure to tokenized securitisation suggested in your comment.

Additionally, we are looking to establish a composite of senior/junior positions and in discussions with these protocols to establish the framework.

We are working closely with these protocols to establish integrated risk management strategies. There are two level risk management and due-diligence processes already in place (a) by the protocols and (b) by the originators operating in these protocols. $REAL Indexes risk management and due-diligence process include (but not limited):

  1. Continuous monitoring of delinquencies in these pools
  2. Pools focus areas and macro outlook
  3. Monitoring of underlying covenants
  4. Quality of assets class these pools are funding

Rules for allocation for concentration of a single pool would be a minimum of 8% to keep costs of rebalancing low, while a maximum of 20% to ensure healthy diversification. @sidhemraj will update this into the forum post.

We would be very happy in taking any further inputs from you to devise more robust risk management strategies for the Index, as well as any advice on a specific asset class you think we haven’t covered. Please reach us on business@photons.capital for conversations in this regard.

This would be a great addition to the product line. I’ve led the Centrifuge integration from MakerDAO-side so I’m excited to see new RWA players. The space is growing fast!

2 points:

  • How will the KYC/AML be handled? All those pools need a KYC counterparty. Moreover, those are all securities so the index will be a security as well. Was it researched and who pay the legal fees?
  • The risk profile is quite aggressive. Junior tranches of Centrifuge are … junior. Maple loans are not without risk. I understand the need to go high on the risk curve, there are fees to cover and all of that is innovation so there is any way an innovation risk. We should just be upfront I guess.

Mike from Centrifuge here. Firstly, wanted to say that we think this is an awesome initiative and we are happy to collaborate on making this happen!

We think the product you outlined has huge potential, both for the RWA ecosystem and the IndexCoop community. The proposed $REAL index would give users exposure to a diversified basket of RWAs, allowing them to generate yield that is uncorrelated to the broader crypto market, a benefit that is all too apparent at times like these. Furthermore, the opportunities within the exemplary composition are also relatively uncorrelated to each other. Meaning that even if one sector, such as real estate, were to experience some highly negative event, it should not impact the returns across the various pools. This could give users a product that offers a stable and sustainable yield, which isn’t generated from token rewards, and performs through market cycles. A big win our view.

To @Sebastien’s point above, he is correct (at least in the Centrifuge case) that the junior tranche is inherently riskier than the senior, as it takes the first losses in any pool. However, the junior tranche is only a small portion of the overall Centrifuge pools (~15%). If for example, $REAL held a proportional senior/junior ratio as represented in the pools (~85/15%), it would disperse risk and help mitigate any potential losses from a specific junior tranche. Moreover, if $REAL is diversified across numerous RWA classes and only holds a reasonable proportion of the risker tranches in any one of the individual constituents, then we believe the overall risk could be well managed and the benefit of junior investing to deliver higher yield could be warranted.

As the RWA ecosystems grows in depth and liquidity, there could be some cool iterations of this product as well. Splitting indexes by yield is an example. There could be one product that focuses on senior lending, less risky with a lower return, and one that focuses on junior lending, the opposite profile. This could give users more choice based on their risk appetite and mimic some of the traditional debt products that are available today ie. investment grade vs high yield funds. We won’t get ahead of ourselves though, just wanted to highlight what the future could hold!

We are happy to contribute to the thinking here and help @photonscapital and the community get fully up to speed on what we are doing and the broader RWA space. Great to see @photonscapital mention working on risk management strategies, we believe that using on-chain data can greatly improve on existing capabilities today to monitor and manage lending portfolios and look forward to exploring those integrations


Hi Sebastien, Thanks for your comments. We are big fans of your work with RWA at MakerDAO.

We are in discussions with the protocols and evaluating some solutions to the KYC challenges along with the Index Coop team. We will update the way forward soon.

Considering the risks in the junior tranches, a composite strategy of senior and junior tranche positions which optimizes for risk and rewards seems to be the way forward.

As always, we are very happy to take any inputs and suggestions to de-risk the portfolio further for the investors.

Hey @thepacecatjr Mike- Thanks for your support and feedback.

You’ve summarised a key differentiator of this product very well. $REAL would be insulated from crypto activity, and we think there’s a place for such a product in each Defi users’ portfolio.

The opportunities available for users to earn a relatively stable yield on their stable-coins, through market cycles, are few. We’ve also seen that returns diminish as supply on lending platforms far exceeds demand, or borrow demand reduces as top assets like BTC, ETH which are used as collateral loose value temporarily based on sentiment.

For ex - below is the chart for USDC returns on Compound for the last year. The APR for this pool has varied from 2%-20%(inc interest + COMP rewards), and has stayed below 5% for majority of the year.

Looking forward to working with the Centrifuge team to bring this to life.

This is a very good idea, just important to ensure that potential investors are aware of the risks. It would be great to obtain some additional insights on the historical non-performing loans and realised credit losses incurred by the lenders which will be included within the index.

Additional insight into credit portfolio parameters will also assist which include limits based on industry, geography, single obligor etc.


Update :

V1 Composition is updated on a sheet here.

The pool composition is subject to change, as pools mature/get oversubscribed by the time $REAL is launched.

However, the risk profile, ie fund split between senior/junior tranches of each pool would remain close to 80:20 for the foreseeable future, to be reconsidered as RWA protocols on Defi mature.

cc @afromac @allan.g @overanalyser @JosephKnecht.

We are currently working on KYC/AML challenges in collaboration with the protocols as well external securities consultants.


@sidhemraj and @photonscapital , had a few additional thoughts/suggestions to share:

  1. I think this idea is definitely exciting in the sense that it could be the “gateway” for a lot of larger institutional TradFi asset managers looking to gain exposure to RWA DeFi (in TradFi structured credit this is often referred to as “dipping their toes” for an “information piece”).

  2. The 80/20 senior/junior split might not be optimal - given that the RWA DeFi space is still very new and ever evolving, there is still a long ways before credit transparency in this space gets on-par with credit transparency for investors in TradFi structured credit. To clarify, not saying that the credit is opaque either. That being said, I think what might make more sense is to start with an even lower junior allocation (perhaps closer to 10~15% vs 20%), then once the REAL index starts to gain size and traction and the credit transparency in the RWA DeFi space approaches the same degree of transparency in TradFi, to scale very quickly to 30-50% junior tranche allocations across multiple names. I think that diversification of junior tranches will provide some degree of offset to the inherent credit risks, and that increased diversified exposure to junior tranches would be in greater demand (vs diversified exposure more heavily weighted to senior tranches), particularly from these sort of TradFi asset managers looking to “dip their toes”.

  3. Put a hold on including Maple pools for now - currently, the existing Maple pools are lending almost exclusively to other crypto institutions (rather than real world assets). That being said, Maple should absolutely be on REAL’s radar - here is their signal post on the Maker forum, interacting with the Maker Real World Finance team: [Signal Request] Maker Accessing Pools of Institutional Loans Through Maple Finance - #16 by ElProgreso - Signal Archive - The Maker Forum
    I suspect they are looking to set up the funding infrastructure needed for an RWA-focused pool on their platform - if that is indeed the case, then such a Maple pool should absolutely be a constituent.

  4. Include TrueFi into the index list -
    TrueFi recently launched a pool lending to a Mexican fintech: delt.ai, Mexico’s corporate credit & spend management startup, raises $25M on the TrueFi blockchain platform
    I think this is just a start of their shift in strategy to bring more fiat-native TradFi asset originators to sources of capital in DeFi.

  5. Have a transparent strategy around how reward tokens will be managed/treated. A big part of the returns on these RWA DeFi opportunities are the reward tokens (CFG for Centrifuge and GFI for Goldfinch, etc) - I think it would be beneficial to be transparent around what will be done with those tokens. Selling reward tokens to reinvest back into more of the constituent deals would be beneficial in growing the REAL index itself, but could potentially add selling pressure on the price of the reward tokens themselves. Claiming the tokens and staking them for yields could also be attractive, but potentially a deviation from the core RWA strategy.

  6. Consider cross-chain investments - both Centrifuge and Goldfinch are operating on the Ethereum network (Centrifuge transitioning to Polkadot), but there are a few other platforms with interesting RWA projects, some of which are already active:

  • Credix on Solana - focused on lending to LatAm fintechs, already onboarded and executed transactions with a few Brazilian fintech companies
  • Apothio on Avalanche for an Initial Litigation Offering through Republic
  • Lofty.ai on Algorand tokenizing individual rental income generating residential real estate investments
  • I’m sure other platforms on other blockchains that I haven’t come across yet
  1. In your initial constituents list, you have both senior and junior investments allocated to the same issuers - it may be worth considering diversifying and avoiding concentration risk at the issuer level. In other words, instead of investing in both the senior and the junior for the same issuers, invest in the junior for the ones that have the strongest credit transparency/history/performance, and the seniors for the ones that are relatively not as strong on that front.

I’m new to this forum but I’ve been following Centrifuge, Goldfinch, Maple Finance and other protocols for a while now and also been discussing $REAL with @photonscapital and @sidhemraj

I currently work as a product lead at an institutional investment firm that manages $1+ Trillion with $500 Billion in fixed income investments. Structured products such as ABS, MBS, CMBS, CLO, etc. constitute approximately $30 Billion of the investments within fixed income at my firm.

Reading the posts on this forum, I agree with a lot of excellent points that have been made about the opportunity and potential for $REAL. I can’t stress enough the size of the opportunity here, so I wanted to share my thoughts, some of which have already been posted on the forum by others.

The structured products market is huge ($7+ Trillion) and plays an important role in the economy by packaging debt into investable securities with various return-risk profiles; this enables institutional investors such as pension funds to participate in AAA rated senior tranches of a structured product, and enables other institutional players such as hedge funds with a higher risk appetite to participate in junior tranches that are high yield securities.

Creating structured products is a long (3-6 months) and inefficient process with multiple players (lawyers, administrators, rating agencies, etc.) that each charge a fee for their services. Not much has changed in the securitization process since the first MBS was created in the 70s and the securitization of debt as CDOs started in the 80s. The creation of a structured product and administering is still a very manual process.

Institutional investors consider the structured product market to be:

  • Complex: these are securities that pool loans from multiple borrowers into a hierarchical structure with
    multiple tranches and follows a waterfall payment model for distribution of repayments.

  • Inefficient: this is a result of the complexity I mentioned in addition to the large amount of data required
    to analyze structured products. Valuation inefficiencies are also caused by the lack of a consensus
    method to value structured products. Rating agencies are not reliable in evaluating the risks of
    structured products. The financial crisis of 2008 is the strongest evidence of rating agencies not being a
    reliable evaluator of credit risk.

A complex and inefficient market is an opportunity for return alpha to institutional investors. Structured products also cater to the mandates of various institutional players by offering a tranche that fits their return-risk profile in a low yield environment.

Disrupting the structured finance and private credit market is a huge opportunity for DeFi protocols such as Centrifuge, Goldfinch, TrueFi, Maple Finance, etc. Simply put, these protocols are essentially creating structured products by leveraging the power of blockchain.

So, why create structured products on-chain? I believe there is a very good opportunity to simplify the securitization process, to efficiently manage and administer structured products and improve transparency by providing data that enables easier analysis of structured products.

Structured products and private credit funds are generally less accessible to individual investors and are currently almost exclusively marketed to institutional investors. I strongly believe that $REAL is an opportunity for individual investors to invest in stable, lower risk and higher yielding securities as an alternative to risky (volatile) investments in non-real-world digital assets and low yield traditional securities. As the volume of structured products created on-chain grows, I expect to see participation from traditional institutional investors simply because this is an efficient, simpler, transparent, and attractive alternative to traditional debt securities.

I’m super excited about the potential for structured products created on DeFi protocols and the opportunity for the $REAL token to generate attractive yields. With $REAL, we finally have an institutional grade product that is available to individual investors.