Is RWA really secure? MakerDAO may face a default of 2.1 million, halting additional loans to Harbor Trade.

While institutions have been emphasizing the importance of Real World Assets (RWA) in the past year, is RWA really risk-free? Just last week, decentralized stablecoin protocol MakerDAO decided to stop providing additional loans to Harbor Trade, one of its RWA vaults, with approximately $2.1 million in assets in default.

Understanding RWA and various cases: Real World Assets (RWA) - Bridging the friendship between traditional finance and DeFi

Harbor Trade: A Lending Pool Backed by Accounts Receivable

According to MakerDAO's Real-World Asset report for May, as of the end of May, Harbor Trade's treasury held approximately 1.5 million DAI in loan balances. These loans are supported by a portfolio of supply chain finance assets, specifically loans collateralized by the company's accounts receivable.

The treasury is currently in a state of suspension as around 2.1 million of its assets are in default. This includes 1.8 million USD worth of DROP tokens, debt certificate tokens from the Defi protocol Centrifuge ecosystem, representing principal and interest, collateralized by accounts receivable from a consumer electronics company. The TIN tokens, representing subordinated loans with repayment priority lower than DROP, amount to nearly 340,000 USD.

The default began in April 2023, and Harbor Trade is currently in the process of resolving it to recover the accounts receivable debts as much as possible. Harbor Trade is optimistic that the loans will be meaningfully or fully recovered, but estimates that the resolution process may take six months or longer.

Last week, the MakerDAO community initiated a vote, and in the statistics ending on 7/20 here, the community unanimously agreed to stop providing additional loans to the lending pool managed by the fintech company Harbor Trade.

Are Real-World Assets (RWA) Really Stable?

According to its latest financial report at the end of May, while the project has accumulated $150,000 in profit so far with an average annualized return of 7%, the inability to recover the 2.1 million in loans will significantly impact the income from RWAs.

Amid the crypto winter that started last year, many protocol projects have turned to Real-World Assets (RWAs) for stability, as even the so-called risk-free U.S. Treasury bonds offer an annualized return of 4% to 5%. But are RWAs really 100% stable? This may depend on the risk management capabilities of the protocol parties, as even bank loans face the risk of bad debts.

According to MakerDAO's statistics, RWA assets brought in $5.2 million in May, with $3.9 million coming from the Monetailis Clydesdale project, which is an investment in U.S. Treasury bonds.

The risk-free U.S. Treasury bonds are appealing! MakerDAO proposes to repurchase $750 million, bringing in over $3 million in annual revenue