CoinMarketCap takes a deep dive into a project that aims to expand exposure to real-world assets through DeFi.
Security tokens have long been considered the next frontier in bringing traditional asset classes to the blockchain.
But their inaccessibility, low liquidity and restrictions on who can own and trade these have previously posed a major barrier to their adoption and use.
What Is Convergence Finance (CONV)?
Convergence enables asset owners to access decentralized DeFi liquidity via a Convergence Pool, such as private/unicorn companies or exotic real-world assets. DeFi users will be able to tap into new investment opportunities through the Convergence protocol, while benefiting from the excellent liquidity and flexibility that comes with using an AMM.
Convergence was launched by a team with a background in traditional finance, tokenization and digital securities. The project was founded based on the belief that the relationship between conventional finance and DeFi is getting closer in the digital assets space, converging towards a demand for real-world asset exposure in the industry.
With the next decade seeing more crypto-native appetite for real-world asset exposure — like private companies and crypto-native unicorns, beyond existing offerings such as tokenized real-world assets, derivatives or prediction markets — Convergence looks to facilitate this upcoming boom.
How Does Convergence Finance Work?
The Convergence Finance DApp has the following components to bring real-world asset exposure to DeFi:
- Wrapped Security Tokens: WST token holders can realize the economic benefits of real-world asset exposure from both an on-chain and off-chain perspective subject to the views of the DAO. Wrapped security tokens will be composable with the broader DeFi landscape, such as open lending platforms, yield farms and more.
- Token wrapping module: This is the token wrapping layer for creating the previously wrapped security tokens (WSTs) with the features mentioned above. WSTs will be injected into Convergence AMM for trading with other digital assets.
- Convergence Pools: ConvergencePools gives asset owners the flexibility to easily create and manage their market-making strategies through ConvergencePools.
- The ConvergenceAMM: This enables 24/7 decentralized counterparty-less trading and real asset price discovery. The feature intelligently finds the best order routing from aggregated liquidity sources to give traders the best prices. Users will be able to trade WSTs with other utility tokens in the DeFi ecosystem through the ConvergenceAMM.
In addition to the components mentioned above, Convergence Finance features several elements that make it a decentralized interchangeable assets protocol:
- The CONV token: Convergence Finance’s native platform token has several main functions, these include: i) governance rights, ii) ConvergenceAMM transaction fee sharing, iii) privileged access to new deals.
- ConvergenceDAO and AssetDAO: The ConvergenceDAO is designed to provide greater transparency and decentralization to the Convergence Protocol, while AssetDAO governs asset-specific wrapped security tokens. The CONV token is needed to participate in governance via the ConvergenceDAO.
What Makes Convergence Finance Unique?
Protocols that claim to bring real-world asset exposure to DeFi must do so in a way that all the on-chain changes must be fully reflected and enforceable off-chain, and vice versa. This ensures stakeholders have a real claim to the underlying assets.
Convergence Finance has spent a considerable amount of time refining this from a business and commercial perspective.
The project team has prioritized strategic partnerships to secure a pipeline of real-world assets, such as exotic unicorn companies, which are typically not accessible for retail and DeFi users.
With this, Convergence aims to democratize access to various desirable asset classes — such as private companies, unicorn companies and real-world assets (like property).
One of Convergence’s defining features is its capacity to unlock the liquidity of security tokens, by allowing practically anybody to invest and trade in securities through the use of WSTs.
Since these tokens are not technically securities, but are instead simply wrapped assets, users do not need to be accredited investors to gain exposure to the underlying securities.
Convergence Finance allows asset owners to access DeFi liquidity. At the same time, DeFi users will gain access to real-world asset exposure in a way that is composable with the broader DeFi system, unlocking creative composability for real-world assets.
Convergence Finance recently closed a funding round led by South Korean crypto fund #Hashed, which included Alameda Research, GBV, CMS Group, Kenetic Capital and Pantera's partner Paul Veradittakit, among others. This and its strong advisory team, including Jehan Chu from Kenetic, Ryan Sung ho Kim from Hashed and Suji Yan from Mask Network, puts Convergence in a strong position to deliver on its roadmap.
What Are Security Tokens?
As their name suggests, security tokens are a type of digital asset that is backed by a registered security or physical asset, such as a stock, bond, derivative or real estate. These tokens represent ownership rights of the underlying asset, and can often be traded on public and private exchange platforms.
Since these tokens generally represent registered securities, they are generally only sold to accredited investors, who can then sell or trade them with other accredited investors. However, some can be re-sold to non-accredited investors or have no restrictions on who can buy, sell, or trade them.
Convergence provides a protocol that allows users to easily exchange their regular utility tokens for Wrapped Security Tokens (WSTs) in a highly liquid, trustless environment.