- Franklin Templeton, trillion-dollar asset managers, have become part of the blockchain scene with the release of their Bitcoin ETF and dedicated Web3 development team.
- The institution is expanding its reach, releasing a report on the benefits of DeFi Lending Protocols and how they compare to current TradFi investments.
- The report shows that DeFi networks like Aave and MakerDAO are growing, while providing similar (if not better) risk-reward profiles compared to other fixed-income assets.
- All up, Franklin Templeton believe that DeFi Lending can open opportunities for borrowing/lending that would otherwise be inaccessible.
Franklin Templeton, one of the world’s largest asset managers, has entrenched itself in the digital assets market over the past 12-24 months, following the release of their Bitcoin ETF, EZBC. They have also filed for an Ether ETF and BTC Crypto Index ETF.
The financial institution is now turning its attention to DeFi lending protocols, releasing a report on the current state of the market and its potential across the industry.
Related: First Ether Fund Surpasses $1 Billion in Net Inflows, While Grayscale Continues with Outflows
DeFi Lending Comparable to Fixed Income Products
The report, titled Decentralized Finance Lending Protocols: The Crypto Fixed Income Market, compares DeFi lending to… fixed income, as its name suggests. Fixed income in traditional finance refers to assets that yield consistent returns (like dividends or high-interest savings accounts) until maturity.
Of particular note, Franklin Templeton argues that DeFi lending offers a similar risk-return profile to TradFi alternatives – a big call, given that fixed-income investments are typically considered safe options.
The release brings up two well-known DeFi lending protocols as pertinent case studies – following the trends of Aave and MakerDAO.
Franklin Templeton notes Aave’s unique offering – “flash loans” – as being a key to unlocking DeFi’s potential. Flash loans let investors borrow crypto without offering collateral, as long as repayments are made within the same block on the chain.
Flash loans facilitate advanced strategies like exploiting arbitrage opportunities between liquidity pools without needing upfront capital.
Franklin TempletonThis presents a great earning potential for experienced traders that may not be accessible in centralised markets.
Franklin Templeton also reported that Aave’s total value locked (TVL) has surged 90% in the year-to-date (YTD), representing renewed interest in DeFi lending.
Collateralised Stablecoins Present Unique Earning Opportunity
The document also touched upon MakerDAO’s prominence in the DeFi lending space due to its administration of the largest collateralised stablecoin, DAI. DAI is a powerful tool for investors, as it pairs the stability of a pegged cryptocurrency with the earning power of DeFi apps.
Franklin Templeton draws parallels between MakerDAO’s Dai Savings Rate (DSR) – essentially a high-interest savings account for DAI – to fiat currencies.
Similar to how the Federal Reserve adjusts interest rates, MKR holders can influence DAI demand through DSR adjustments.
Franklin TempletonMakerDAO’s emphasis on real-world assets, while promoting superior interest rates to banks, gives credence to DeFi lending as a better-yielding ecosystem than typical fixed-income products.
Related: Analysts on How Supply Overhang and Market Shocks Shape BTC Liquidity
DeFi Lending to Unlock Doors for Small Businesses and Individuals
Looking ahead, Franklin Templeton is bullish on the potential of DeFi lending as a cheaper, higher-grossing alternative to traditional financial borrowing/lending schemes.
By eliminating intermediaries and utilizing blockchain technology, DeFi lending will reduce transaction costs while improving security and transparency…as DeFi lending evolves, it will increasingly promote financial inclusion by opening up lending opportunities.
Franklin TempletonSo, I guess we can add Franklin Templeton to the list of trillion-dollar companies that have the blockchain industry’s back.
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