Disruption of Direct Lending by Liqwid

New Markets
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Disruption of Direct Lending by Liqwid

Foreword

As many of you know, bridging DeFi with TradFi has long been one of my personal goals — and I strongly believe this is where the future of DeFi is heading, especially when built on a secure and decentralized blockchain like Cardano.

Liqwid has always envisioned a strong connection between DeFi and Real-World Assets (RWA). Below, I would like to introduce you to the concept of Direct Lending and share a brief overview of how we intend to operate in this space.

For a more in-depth explanation, I encourage you to read the full product document available here.

Alongside this message, I’m sharing the governance proposal, which outlines the next steps in detail. In essence, Liqwid will offer its technology platform as a white-label solution to Quod Agis, who will be responsible for operating and managing the RWA markets on Liqwid.

What is the Direct Lending?

Direct Lending as an Asset Class

Direct lending, a significant and rapidly growing segment within private credit markets, represents the provision of loans by non-bank institutions directly to mid-market businesses. Distinguished by bilateral, non-syndicated transactions, direct lending offers tailored, bespoke financial solutions with greater speed, flexibility, and confidentiality compared to traditional bank financing. This direct engagement addresses the specific needs of borrowers who may be underserved by conventional lenders. Over the past two decades, direct lending has evolved from a niche offering into a mainstream investment strategy, increasingly favored by institutional investors seeking yield enhancement and portfolio diversification.

Market Size and Potential

As of 2024, private credit assets under management (AUM) have surpassed an impressive $3 trillion globally, with direct lending accounting for a substantial and growing share. Projections from Preqin suggest that by 2029, the direct lending AUM could reach a remarkable $1.33 trillion. Furthermore, private credit now constitutes 7% of the nonfinancial corporate credit market in North America, underscoring its entrenched role in corporate finance. The expansion trajectory demonstrates a robust appetite for alternative lending solutions as traditional banking institutions continue their retrenchment from certain market segments. In addition, middle-market companies, often overlooked by large banks, present a substantial financing opportunity, fueling the continued growth of the direct lending sector.

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Innovative Business & Operating model

Liqwid protocol bridges DeFi liquidity with traditional credit infrastructure by integrating on-chain lending markets with established Credit Gates—entities already equipped to onboard real-world asset (RWA) collateral. This approach leverages the strengths of both worlds: Credit Gates handle borrower onboarding, collateral assessment, and off-chain enforcement, while Liqwid provides decentralized, permissionless access to capital for stablecoin holders.

Through this model, stablecoin providers can seamlessly finance real-world loans using blockchain technology that is fast, transparent, and secure. Once a borrower is approved by the Listing Agent—operating under a mandate from the Liqwid DAO—and the RWA is tokenized and listed on the protocol by Liqwid Labs, the borrower receives fiat directly into their bank account. The wallet interacting with the protocol to open and manage the loan is operated by the Credit Gate, ensuring secure and compliant handling of the transaction from end to end.

The interest margin between the rate charged to the client and the yield paid to lenders on Liqwid is used to cover intermediary costs—including those of the Credit Gate, Listing Agent, and Technology Agent.

Figure: Overview of functions and roles within Liqwid’s direct lending operations.

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Conclusion

Liqwid is pioneering a new frontier in decentralized finance by merging traditional credit processes with the efficiency of blockchain technology. Through partnerships with regulated Credit Gates and smart contract automation, Liqwid enables secure, transparent, and scalable direct lending backed by real-world assets. This model brings institutional-grade lending infrastructure to the DeFi space, offering a seamless bridge between TradFi and Cardano’s decentralized ecosystem.

By removing traditional gatekeepers, Liqwid democratizes access to lending markets, allowing stablecoin holders to earn yields while supporting real-economy lending. With protocol revenues flowing back to LQ stakers, the community is directly incentivized to support and grow the platform. As real-world finance continues its move on-chain, Liqwid is positioning itself at the forefront of this transformation, delivering both impact and long-term value for users and the broader Cardano ecosystem.

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Great move Florian. Things coming to fruition. Real builder !
Thanks for the educational content too.
I appreciate the reasoning and the design of the Direct Lending markets, their interest rate models, mixing dynamic rates, flexibility on both sides, but also predictability.
Curious also to see the on-chain stablecoins yield arbitraging playing, and how Direct Lending markets rates will influence the rates for the CNT backed markets.

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A couple of questions after I read this:
“assets (RWAs) on the Liqwid protocol are issued by a legally established purpose trust”

  1. How is this trust legally organized to operate in multiple international jurisdications? Does it need to be organized in each jurisdiction where an RWA is proposed to be tokenized?

“three key parties—Credit Gate, Listing Agent, and Technology Agent—collaborating under a mandate from the Liqwid DAO.”
2. Is this term “collaborate under a mandate” strong enough legally? Should it be strengthened so that all parties collaborate, but ultimate the Liqwid DAO has the control to terminate or shift directions as needed? I am specifically thinking of the early challenges between IOHK, Cardano Foundation, and Emurgo where early vision was not implemented and there really was no recourse or way to change direction.

Overall these are details to iron out, but I think the concept is awesome and a great future product for Liqwid to offer.

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This is very interesting indeed. I have just a few questions based on my limited understand.

  1. Would it not be possible for the stablecoins to be remitted directly into a wallet that the borrower self-custodies, rather than to the Credit Gate who then transfers fiat to the borrower’s bank account?

  2. Will custom oracle solutions be required for every RWA backed loan in order to monitor collateral value? That seems like it could be cost prohibitive if we’re doing this for every loan.

  3. What happens if a borrower goes through the process of being approved by a Credit Gate but the DAO does not approve the RWA?

  4. Who exactly is Quod Agis? Is that just a business entity created by Florian? It seems like there is some overlapping responsibilites between the Credit Gate and QA, in terms of RWA vetting and LTV recommendations, if I’m understanding correctly.

  5. How are the Credit Gates and QA being compensated if the loan interest payments go to the DAO Treasury, stablecoin lenders and LQ stakers?

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@JakeMN @Trevor

Thank you for your questions and here below are the answers. Please, watch also the recent video done with DappCentral about the Direct Lending on Liqwid.

FAQ to the Direct Lending proposal

Here is a summary of the questions submitted by the community, along with the answers.

1. How is this trust legally organized to operate in multiple international jurisdictions? Does it need to be organized in each jurisdiction where an RWA is proposed to be tokenized?

Answer: The Trust will act as the token issuer of record and protect the community’s interests. It establishes a bankruptcy remote structure, effectively segregating the operational risks of the operational company Quod Agis LLC from the issued tokens. A Swiss regulated trustee is appointed to oversee the trust, mandated to adhere to the trust terms, token issuance policy and fiduciary duties, thereby ensuring responsible token issuance and governance.

2. How are the contractual relationships defined between the three key parties—Credit Gate, Listing Agent, and Technology Agent—collaborating under a mandate from the Liqwid DAO?

Answer: A listing agent agreement will be signed between the Liqwid DAO and Quod Agis. Details be following before the onchain votes.

Then a technology services agreement is also signed between Quod Agis and Liqwid Labs (Tech Agent). Quod Agis is also signing an arranger agreement with the Credit Gate.

3. Would it not be possible for the stablecoins to be remitted directly into a wallet that the borrower self-custodies, rather than to the Credit Gate who then transfers fiat to the borrower’s bank account?

Answer: Yes, it is possible. However, borrowers currently prefer not to manage wallets or interact with DeFi directly. Once the loan agreement is signed, they expect to receive fiat currency directly. For this convenience, they are willing to pay a service fee.

4. Will custom oracle solutions be required for every RWA backed loan in order to monitor collateral value? That seems like it could be cost prohibitive if we’re doing this for every loan.

Answer: RWA valuation is handled off-chain and defined contractually, including any liquidation procedures. There is no need for a continuously updating oracle feed for dynamic valuations.

5. What happens if a borrower goes through the process of being approved by a Credit Gate but the DAO does not approve the RWA?

Answer: The DAO grants Quod Agis a mandate to select high-quality deals. If a deal does not meet Quod Agis’s credit risk policy, it will not be listed. Quod Agis will publish its credit policy before launching the RWA Direct Lending markets, so capital suppliers understand what they are funding.

6. Who exactly is Quod Agis? Is that just a business entity created by Florian? It seems like there is some overlapping responsibilities between the Credit Gate and QA, in terms of RWA vetting and LTV recommendations, if I’m understanding correctly.

Answer: Quod Agis is led by F. Volery and P. Izmaylov. The Credit Gates have not been publicly announced yet, but they will be once RWA deals are introduced.
Quod Agis selects the deals sourced by the Credit Gates and has the following responsibilities as Listing Agent:

Listing Agent Responsibilities are:
• Build a pipeline of handpicked RWA loan opportunities with attractive risk & reward characteristics from traditional private markets for direct lending.
• Select and underwrite RWA collaterals in partnership with credit gate providers.
• Structure and manage off-chain agreements and due diligence processes.
• Operate the RWA Direct Lending markets within the Liqwid ecosystem.
• Publish quarterly reports detailing market activity and performance.
• Lead marketing, investor relations, and fundraising for the RWA markets.

7. How are the Credit Gates and QA being compensated if the loan interest payments go to the DAO Treasury, stablecoin lenders and LQ stakers?

Answer: The borrower’s interest rate is higher than the rate paid out on Liqwid. The difference between these two rates serves as the compensation for both the Credit Gate and Quod Agis.

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