The fusion of traditional financial systems and decentralized finance (DeFi) is an omnipresent topic of discussion. The current DeFi ecosystem is nowhere close to the comprehensiveness of the traditional systems. But, what blockchain and crypto enthusiasts are banking on is DeFi’s potential to overhaul the existing bottlenecks through the use of innovative solutions.
What is the Current Scenario?
Several DeFi solutions have achieved visible success in their respective verticals. Despite that, there is one major concern as for the mass adoption of DeFi products and digital assets — the absence of collated efforts and unified solutions. Even the successful DeFi solutions are limited to their individual DeFi architecture.
Meanwhile, there have been efforts to build cross-chain solutions enhancing the portability of DeFi products. But, in a similar vein, these efforts have been in isolated environments.
This situation offers the development of individual financial components but not a robust ecosystem. This equates to DeFi products being shelved as independent applications. Furthermore, the larger vision of traditional systems embracing DeFi solutions and coexisting drifts into oblivion.
The Need for a DeFi-based Financial Infrastructure
Existing concerns, coupled with an ambitious vision — DeFi’s future lies in the development of a robust financial infrastructure. By this, DeFi-based financial products and services are brought under the same umbrella. Abiding by true decentralization, applications and solutions shall be available for cross-chain integration and use.
Echoing the same aim is UFiT — Universal Financial Instrument Fund — a project that aims to monetize heterogeneous assets via virtual cross-chain. By removing the geographical barriers in absolute, UFiT is a vital step towards a generic and comprehensive DeFi platform.
UFiT 101 — Utility | Approach | Technology
The operations of UFiT are focused on providing decentralized applications (dApps) with the much-needed ability to function on different blockchain networks. The utility of UFiT is spread across four dimensions.
Securitization is the process of creating liquid, asset-backed securities from pools of illiquid assets. This is further used for financing purposes. UFiT enables the use of traditional assets like mortgages that have little to no liquidity in unison with crypto assets.
This integration is facilitated by UFiT which corroborates the matching of both value of illiquid assets and the price performance of crypto assets. This provides the required liquidity for both lending and/or asset purchase under DAO governance.
Provision of custody for heterogeneous assets
With no generic blockchain network in existence, the need for cross-blockchain deployment is immense. Recognizing this need, UFiT along with its NFT abstraction layer (NFTAL) and Universal NFT (UNFT) provides clearing and custody facilities for heterogeneous assets.
After verifying the assets and locking them, UNFT is produced for the same value. This UNFT is taken into custody for the creation of a new divisible financial instrument. Or in the case of investment funds, a digitally transferable is mapped.
Before the conversion to UNFT, all the assets and instruments are safeguarded in the Unified Custodian Vault (UCV) and are protected by vaulting contracts. Based on these, UFiT facilitates fund managers to exercise their asset management practices.
For using UCV management contracts, fund managers need to specify a preset asset composition to invest in or abide by diversification rules. But they have the liberty to change fund compositions. Using these contracts, they can conduct investing, redemption, funding, and liquidity operations. And to track asset management efficiently, UFiT has designed a specialized vault type, known as ‘proceeds vaults’.
Risk control mechanism for collateralized borrowing
Issuing debt tokens by pledging other assets as collateral is growing in popularity. The UFiT platform encourages a more transparent way of issuing debt instruments while maintaining the integrity and validity of the issued obligations.
Though stablecoins are in practice, the growing lack of a centralized anchor is unfortunate. Hence, by custodizing UNFTs as collateral, UFiT proves to be a credible mediator of lending and borrowing.
UFiT – The First Credit Enhancement Platform in Crypto
Despite the growing diversity in crypto assets, the facet of creditworthiness is rarely talked about. DeFi-based financial instruments need both asset valuation and credit enhancement to sustain their legitimacy and be adopted by the masses.
UFiT solves this issue using a variety of aforesaid facilities. It allows for the cross-funneling of crypto and real-world assets to meet liquidity requirements. To maintain transparency and accountability, UFiT uses a decentralized system of governance.
For credit enhancement, UFiT follows a three-step approach.
- Unlocking structurally illiquid assets
Using securitization and DAO governance, UFiT maps the value of real-world assets in relation to the price performance of crypto assets. This maintains the equilibrium of impact between the illiquidity of traditional assets and the volatility of the crypto assets.
- Democratic asset management
By providing a window for asset managers to tap into the potential of digital assets, UFiT encourages the involvement of the masses in DeFi. Using vaulting contracts, UFiT provides enough leverage for asset managers to alter their strategies on the go.
- Issuance of UNFT
The monopoly of ERC-20 tokens in the usage of dApps is not feasible. With UNFT, the generic deployment of tokens is made possible, enhancing the potential of UFiT’s virtual cross-chain mechanism.
Being a truly decentralized platform, UFiT with its facilities is a must for the mass adoption of DeFi products. By collating individual DeFi-based solutions, UFiT is pioneering the development of a comprehensive ecosystem.