# Product: RWA-Backed Lending Protocol

OpenFi introduces a lending protocol that brings **real-world assets (RWA) into decentralized credit markets.** By enabling tokenized equities, gold, and money market funds to serve as collateral, OpenFi creates a bridge between traditional financial products and on-chain liquidity. The design of the product can be explained across four dimensions: Borrow and Lend, Interest Rate Model, Risk Parameters, and Liquidation.

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#### 1. Borrow and Lend

Users can deposit tokenized RWAs issued by OpenFi’s partners as collateral:

* **Equities (xStocks)**: tokenized shares of publicly listed companies.
* **Gold (MatrixDock)**: tokens backed by custodied physical bullion.
* **Money Market Funds (Asseto)**: tokens backed by short-term Treasuries and commercial paper portfolios.

Against these collateral types, users may borrow stablecoins such as USDC or USDT. This creates an efficient pathway for RWA holders to unlock on-chain liquidity without liquidating their positions, while borrowers gain access to stable, yield-bearing assets.

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#### 2. Interest Rate Model

The interest rate model is designed to align on-chain liquidity demand with off-chain yield benchmarks:

* **Supply side**: Lenders providing stablecoins expect returns higher than the underlying RWA yield. For example, if U.S. Treasuries yield 5%, lenders may expect 6–7% on-chain.
* **Demand side**: Borrowers are willing to pay above-market rates to gain instant liquidity against their RWA holdings.
* Result: The interest rate curve follows a “**real-world base rate + DeFi premium**” structure, rather than purely crypto-native supply-demand utilization curves.

This creates a market equilibrium that links traditional fixed-income benchmarks with DeFi credit spreads.

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#### 3. Risk Parameters

Each collateral type is governed by a set of risk parameters calibrated to volatility, redemption lag, and liquidity profile:

* Loan-to-Value (LTV):
  * Equities: 50–60%
  * Gold: 65–70%
  * Money Market Funds: 75–80%
* Liquidation Thresholds: Slightly above LTV ratios, set conservatively to account for oracle latency and off-chain redemption cycles.
* Liquidation Discounts: Applied to incentivize liquidators and mitigate potential losses during redemption delays.

Risk parameters are dynamically managed by governance to respond to changes in both on-chain and off-chain market conditions.

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#### 4. Liquidation

Liquidation in RWA-backed lending requires a **two-layer mechanism**:

1. **On-Chain Trigger:**
   * Smart contracts continuously monitor collateral ratios using decentralized oracle feeds (e.g., Chainlink).
   * When an LTV breach occurs, liquidation is automatically triggered.
2. **Off-Chain Redemption:**
   * The underlying asset (e.g., equity token, gold token, MMF token) may need to be redeemed from custodians or sold in secondary markets.
   * This process introduces settlement lag, which is mitigated by higher liquidation discounts and conservative LTV ratios.

Through this hybrid approach, OpenFi ensures trustless, automated enforcement on-chain, while aligning with the operational realities of off-chain assets.

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#### Summary

The OpenFi RWA-backed lending protocol creates a composable, hybrid lending infrastructure:

* Borrow and Lend: Unlock liquidity from equities, gold, and MMFs.
* Interest Rate Model: Anchored in real-world yields plus DeFi premiums.
* Risk Parameters: Conservative LTV and liquidation thresholds tailored to each asset.
* Liquidation: Dual on-chain/off-chain enforcement for transparency and solvency.<br>

This product architecture allows OpenFi to extend DeFi beyond crypto-native collateral into multi-trillion-dollar RWA markets.


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