DeFi, disrupter of a financial world
As blockchain and cryptocurrency have been in the news for several months, one phenomenon has not escaped your attention: the DeFi, an acronym for Decentralized Finance. Highly popularized in 2019, DeFi is in the eyes of some the future of finance: cutting out intermediaries, reducing costs, reducing inefficiencies, creating a more transparent, resilient and better distributed framework, universal access.
On the other hand, TradFi, or traditional finance, continues to reassure many investors who are still afraid of making a mistake by trusting an “unsupervised” financial system or by imagining legal liability in case of a glitch.
Yet, DeFi and TradFi would do well to work together to get the best of both worlds.
Decentralized finance by definition relies on decentralized networks to transform old financial vehicles into transparent protocols that work without intermediaries. In other words, anyone can now benefit from the same services whether they are an “average customer”, premium or corporate.
This is made possible by the Ethereum blockchain, which allows the creation of Dapps (decentralized applications) and allows anyone to act as an exchange, supplier of liquidity or even a lender.
Among the main protocols known today, we find for example Uniswap, Polygon or Aave which are one of the most used applications. The DeFi market alone is worth more than $170 billion today, as you can see from the graph below.
DeFi has come to deeply disrupt the traditional finance sector, and the imminent arrival of CBDCs (central bank digital currencies) has affirmed the gradual acceptance of the phenomenon of tokenization and the underlying decentralization. Some players are now looking at the links between DeFi and TradFi and how to build a new page of history with a more open and transparent finance, accessible to the largest number of people.
Credefi, the Fintech that helps finance SMEs through decentralized finance
Credefi, a fast-growing Bulgarian startup that just finished a $1.8 million private funding round, is a true bridge between the DeFi world and real-economy SMEs.
The platform provides decentralized and secure loans to portfolios of business projects or individual companies, protecting lenders while offering them a fixed annual return.
The protocol solves the main challenges facing DeFi and TradFi today: the still overly speculative and fragile returns of decentralized finance, which evaporate in down markets, and the difficulty for SMEs to obtain financing in the traditional finance world at normal interest rates, if at all. The founders of the project wanted to make sure that by linking decentralized finance and traditional finance, and in particular by allowing SMEs to obtain reliable and affordable loans and DeFi to have reliable and stable borrowers, they will turn the financial industry upside down. Indeed, the hidden value lies in the link between these two worlds which unlocks cost savings and a huge potential for growth for young companies.
To carry out this project, the experienced team has planned 3 different offerings:
- Loans in credit portfolios are divided into 4 categories based on the risk and return of the underlying projects. Each portfolio will offer fixed annual rates to lenders.
- Peer-to-peer (P2P) lending where lenders and borrowers will be able to directly negotiate the terms and conditions of a transaction. Credefi will provide a credit score for each borrower.
- Trade finance — underwriting letters of credit and credit lines for cross-border transactions.
With the ambition to open the DeFi universe to the real economy, Credefi has a promising roadmap. The platform will be officially launched in December and has strong development ambitions in the months to come.
Finally, in terms of tokenomics, the project relies on a token: CREDI which will be used to distribute rewards, provide an additional layer of security for the platform and allow users of the platform to participate in investments. Finally, the token benefits from a 5% annual inflation.
To better understand the project, we went to meet Ivo Grigorov, the CEO and founder of Credefi.
Ivo GRIGOROV, CEO and founder of CREDEFI
Age : 32
From : Bulgaria
Graduated from : the European Business School (London), MSc Global Banking and Finance
Credefi launch date : December 2021
Your favorite cryptocurrencies : of course CREDI, but I am a big fan of Cardano, Polkadot and Ethereum
1. Hi Ivo, how did you learn about blockchain and crypto assets?
I have always been fascinated by the art of banking and how the free flow of money helps companies grow their business. I was fortunate enough to have the opportunity to study at one of the best schools and universities in Switzerland and the UK in the field of banking and I’ve been in the financial industry ever since. I first heard about Bitcoin in 2013 but didn’t pay that much attention to it. That changed in 2017 when I started trading purely as speculation and just learning about the space. I was doing lots of fundamental research as part of my trading strategy and soon entered into the rabbit hole of blockchain and the way it can revolutionize the financial markets. DeFi came to the scene shortly after and it turned my whole world around as it offers numerous ways to fix the inefficiencies of the traditional banking system. Trust me, being in the sector for 10+ years I have come to know them deeply. That’s exactly one of my key motivations to start Credefi — to resolve the multiple inefficiencies of the traditional finance system by leveraging the amazing powers of the blockchain.
2. Tell us more about the idea you had when you created Credefi
Together with the other core team members we have 40+ years of experience in leading roles in the finance industry and we have seen first-hand its limitations, inefficiencies and great friction of transactions. At the same time, being blockchain enthusiasts, we witnessed the tremendous growth of DeFi and in late 2020 we had thе light bulb moment that we should connect the dots and bring DeFi to SMEs.
We believe DeFi is the future of banking and are quite frustrated that so far it has had very little connection with and impact on the real economy, it’s a closed universe. We aim to change that and open a brand-new niche in DeFi by enabling stablecoins to flow to real businesses and earn a fixed and non-crypto-related yield. At the same time we aim to become a gateway to DeFi for SMEs and render obsolete the outdated, bureaucratic and overregulated banking services SMEs now have to cope with, replacing them with a quick, flexible and user-friendly funding solution.
We created Credefi to resolve some of the key challenges in DeFi and TradFi:
- On the DeFi side, yields are inconsistent, fragile, and evaporate in bear markets and the aftermath of DeFi Winter and the market crash in May ’21 are a clear proof of that. We see that speculative borrowers cannot satisfy DeFi lending supply.
- On the TradFi side, small and medium enterprises are historically underserved by traditional banks and are borrowing at consistently high interest rates. There are not enough lenders to satisfy SME borrowing demand, pushing SMEs to alternative lending solutions such as peer-to-peer and crowdfunding which are billion-dollar industries.
3. Can you tell us more about the team behind Credefi?
Credefi’s team has 40+ years of experience in finance — from private equity funds and asset management to commercial and central banks. Together with Credefi’s co-founder Valentin we have also been working at the “Fund of Funds”, a vehicle managing over €600 mln of EU funding mostly for small and medium companies. There we witnessed the dire need for a smarter and more efficient funding solution for the great projects those companies have, which unfortunately are overlooked by traditional banks mostly due to overregulation.
We are crypto believers as well, being in the space since 2016 as traders and investors. We started experimenting with different DeFi protocols in 2020 and this is how we came up with the realization that DeFi can solve SMEs’ funding problems by providing much more flexible, quick and convenient lending and financial services.
4. What is the difference between Credefi and a “more traditional” DeFi platform?
The key difference is that we dare to step into the real economy and deal with the challenge of using real-world asset collaterals, educating companies how to use DeFi and making DeFi accessible for small and medium businesses. We have created a unique three-layer protection mechanism that will safeguard DeFi lenders in the messier world of the fiat economy:
- Layer 1 is our in-house proprietary credit scoring based on our vast financial expertise and validated by Experian — one of the Big Three credit scoring agencies in the world. Actually we are the very first blockchain project to partner with this financial giant.
- Layer 2: accepting both crypto and real-world assets as collateral. We are partnering with a EU-licensed financial institution that will manage the collateral on lenders’ behalf and liquidate it in case of default.
- Layer 3 is our very own Security Module (Module X) which will provide additional yield to stakers while bridging the time gap between a borrower stopping payments and the moment their collateral is liquidated and the funds returned to lenders.
5. Why mix DeFi with TradFi ?
The quick answer here is that the DeFi — TradFi mixture will absolutely revolutionize the financial industry and catapult DeFi to a whole new level. This will happen much faster than most people realize and will reshape the financial industry as we know it. We at Credefi aim to play a leading role in building this brave new world of global finance.
DeFi and TradFi complement each other very well and need each other if we are to really have a massive impact on how people and businesses get funding and manage their assets. If DeFi lenders need stable borrowers and SMEs need reliable lenders, the obvious solution is to bring them together, but the actual implementation in the real world faces numerous challenges that Credefi will resolve in an innovative way.
DeFi / TradFi hybrid solutions like Credefi are the next logical step in DeFi’s journey towards mass adoption in the real economy. By bringing these two worlds together, Credefi will unlock tremendous hidden value and cost savings and will unleash the potential of young companies to disrupt the business world.
6. Do you think that traditional investors will come to your platform?
Credefi has attractive offerings for traditional investors too — for example the ability to lend peer-to-peer, underwrite Letters of Credit for cross-border transactions or even lend to diversified risk-based portfolios with full transparency on the underlying projects / loans. These are all things that individual investors cannot do easily right now, traditional banks have captured these markets.
Credefi will equip investors with professional credit scoring of each loan, collateral management and the opportunity to generate additional yield by staking in our Module X. By doing so, investors will be able to mint our governance token xCREDI which will have very limited supply and will be deflationary due to our Buyback & Burn program. xCREDI holders will receive more and more decision-making power to shape the future of Credefi, which will gradually evolve into a platform with fully decentralized governance.
7. Why should we invest in CREDI Token ?
There are purely practical and also more fundamental reasons to invest in CREDI. On the practical side, we will have a tiered structure for lenders and borrowers, whereby the more CREDI you hold (and stake), the better terms you will receive. For example, lenders will receive slightly higher APY, access to VIP projects, as well as rewards in CREDI for using the platform (in the early stages). Borrowers holding CREDI will have lower loan fees and will also be able to stake their CREDI as collateral, reducing or even fully eliminating the need to provide real-world assets as collateral.
On a more fundamental level, CREDI investors will participate in and benefit from the development of Credefi and the rapid growth of TVL (Total Value Locked in the platform). We expect to scale rapidly because of the numerous benefits for DeFi users to lend to real-world companies through Credefi: diversification, risk management, stable APY and outperformance in bear markets.
Holding CREDI and staking it in Module X to mint xCREDI is one of the best strategies to profit from the upcoming mass adoption of DeFi in the real economy. Forget about metaverse, play-to-earn and other popular trends — this one will really revolutionize daily lives on a massive scale and is here to stay.
8. What would you say to an SME to convince them to use your services?
A key part of our mission is to educate SMEs and guide them on how to use DeFi, so as to make their onboarding as easy as possible and turn them into lifelong users.
An SME has many compelling reasons to use Credefi:
- speed — we process loan applications in less than 24 hours.
- adequate collateral requirements that take into account the nature and business case of each borrower and do not burden them unnecessarily.
- flexibility to negotiate loan terms and conditions directly with lenders, rather than being dictated terms by their local bank.
- no interest spread between lenders and borrowers, minimizing interest rates.
In contrast to most TradFi financial institutions SMEs use, we will listen to their feedback and take it into account when developing the platform.
9. For you, how far will DeFi and the cryptocurrency market go?
To answer your question with a question — How far can traditional finance markets go? Nobody can envision all the myriad ways in which DeFi and the blockchain technology will disrupt our lives and the way we do business. This is what makes it so exciting not only to witness but also to play a key role in actually making it happen.
We are thrilled to explore to the fullest extent how DeFi lenders can help SMEs realize their projects while enjoying a stable yield uncorrelated with the crypto market volatility. One thing is for sure — crypto and DeFi in particular are game-changers and one of the most disruptive innovations of our century.
10. Can we still invest in your project ?
We are in the final stages of preparation for our IDO on November 8 with the leading Cardano launchpad — CardStarter. Investors who don’t manage to join our IDO are welcome to purchase CREDI after our Token Generation Event — we plan listing on at least one high-volume CEX, as well as on UniSwap and PancakeSwap.
11. A final word ?
We are on a mission to connect DeFi lenders with SMEs and open entirely new horizons for both. Don’t watch the revolution from the sidelines — join us on our journey and let’s change finance together!