What can DeFI learn from Private Debt?
Scott Reid
Head of Debt Capital Markets, APAC, Alter Domus | Private Debt Markets | Loan Administration | Loan Agent | Facility Agent | Security Trustee | Private Credit Markets | Venture Debt
While DeFI gets a lot of coverage, the value of DeFI transactions remain a small fraction of global private debt deals. What is DeFI missing?
DeFI Solutions
A typical DCM DeFi protocol seeks to:
(1)??Digitize real assets;
(2)??Reconcile disparate data sets;
(3)??Provide actionable Reports;
(4)??Reduce reliance on Intermediaries;
(5)??Deliver efficient Payments;
(6)??Enable efficient Secondary Trading;
(7)??Ensure Transparent price discovery.
But are the ‘Digitize’, ‘Reconcile’, ‘Reports’, ‘Intermediaries’, ‘Payments’, ‘Trading’ and ‘Transparency' problems (‘DRRIPTT Problems) the right problems to solve for Private Debt?
Traditional Private Debt Solutions
Traditional Private Debt deals leverage corporate, partnership and trustee structures to solve three fundamental ‘problems’:
(1)??The ‘Organisational’ problem (ie. risk sharing between lenders);
(2)??The ‘Collaboration with Borrower’ problem (ie. risk sharing between lender and borrower); -
(3)??The ‘Collateral Control problem (ie. permitting lender control of collateral)
While ‘DRRIPTT Solutions’ are innovative, it is the ‘timeless’ OCC Problems that actually need digitization.
How does your DeFI protocol address the classic DRRIPTT / OCC frictions?