New layer targets the mismatch between RWAs and DeFi liquidation models.
The system allows lending protocols to handle slow-settling assets
Photo Credit: Unsplash/Shubham Dhage
A decentralised oracle provider, RedStone, has announced the launch of a new settlement layer for decentralised finance (DeFi). The core goal of this launch is to make tokenised real-world assets (RWAs) available as collateral in lending protocols. This new system is called RedStone Settle, and it is designed to address the structural issue in DeFi, a problem that the industry has battled for a long time. Aave and other lending platforms depend on quick liquidations to keep their risks in check. On the other hand, RWAs, like tokenised funds and bonds, usually have redemption periods of 60 to 180 days. This mismatch has made it hard for RWAs to be used as collateral.
As per RedStone, the new layer will introduce an on-chain auction mechanism that is triggered during liquidation. Liquidity providers can step in and buy positions right away, giving protocols liquidity while taking on the risk of redemption being delayed that comes with the underlying assets. The Switzerland-based company further added that this approach could help unlock more than $30 billion (roughly Rs. 2,84,460 crore) in tokenised RWAs, which are currently sitting idle in DeFi, while making it easier for users to borrow against yield-generating positions.
“Tokenisation brought real-world assets on-chain, but it stopped short of making them usable inside financial systems that depend on speed and certainty,” said RedStone CEO Marcin Kaźmierczak in a statement to Cryptobriefing He further added that, “RedStone Settle closes that gap. It allows RWAs to function as collateral in the same way assets do in traditional secured lending, without forcing protocols to take on redemption risk they can't manage.”
Earlier this month, the International Monetary Fund (IMF) had said that tokenisation can make processes such as settlement and ownership transfer easier, lowering costs and making things clearer. However, it also warned that the rapid adoption of tokenised systems could pose challenges related to financial stability, governance, and regulatory oversight across global markets. The findings highlight the growing need for policymakers to adapt to advancing financial technologies.
The launch highlights how DeFi platforms are exploring ways to integrate tokenised real-world assets into existing lending systems while addressing structural challenges that have existed for a long time. Going forward, the effectiveness of such models will depend on adoption by protocols and how they align with broader regulatory and market developments.
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