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.
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.
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.