Albert Einstein called compound interest the 8th Wonder of the World and said that those who understand it, earn it, while those who don’t, pay it. With such an outsized presence in the world of traditional finance, it’s no wonder that many DeFi projects have attempted to emulate yield generation vehicles on-chain.

Unfortunately, the key distinction between these vehicles and the old world of banking, is that the old world generates returns by lending to those who have a stream of income (a job) or will eventually turn a profit. DeFi yield generation struggles from the relative anonymity of blockchain technology and the lack of accountability from those to whom money is lent, and so can not proportionately assess risk in the same way.

Some protocols have created the ability to borrow against assets, as a form of generating yield, albeit with limited functionality and a reliance on over-collateralization as a hedge against risk. Others have gone about it by providing liquidity to projects who are turning healthy profits. These methods have been relatively sufficient in previous years, but as total crypto market cap continues to grow, and large players continue to come on chain, there is an abundance of capital seeking returns with no place to go.

This hunger for returns has lead to a rise in ponzi scheme investments. Projects like BitConnect StrongBlock and TerraLuna all purported to be legitimate businesses in their time, earning the trust of thousands who poured collective Billions into their respective ecosystems. Sadly, for all the complications, tokenomics, and technology pushed by the founders and detailed across white-papers, they were nothing more than ponzi schemes at the end of the day.

Why?

Because there was no model for generating revenue. Not in any real sense. Not in the way a restaurant, or a lawncare company creates revenue. Without paying customers, there simply is no sure way to earn money. Revenue models based on selling advertising space or user data are tenuous at best, criminal at worst, and ultimately far inferior to good old fashioned paying customers.

As of late there has been a positive trend towards the integration of real world ventures into crypto, but the proposed mechanisms leave much to be desired. For instance, Real World Asset (RWA) DeFi projects, attempt to remedy the “yield problem” by investing user capital into assets that appreciate over time, such as real estate, famous art, unique vehicles, etc. While this kind of yield-generation could work given enough time, it still suffers the risk of broad-scale market correlation.

In other words, say the US were to fall into an economic depression, and housing prices dropped 60% overnight, an RWA project would face exposure to this collapse. Suddenly the returns they were able to provide to users as a result of selling assets at a higher price would be in jeopardy. Banks and other financial institutions benefit from government bailouts when they are facing a liquidity crisis, but RWA crypto projects will not be able to rely on the same.

Thus 30 the years of runway necessary to realize such substantial asset gains may not be possible if the period requires continued positive economic growth and little inflation.

For these reasons, and others yet to be expounded upon, Real World Income proposes a DeFi protocol and DAO, which relies on the investment of capital into real world enterprise as its chief method of generating returns and servicing yield. RWI will invest into tangible, already profitable businesses. Businesses that would benefit from cashflow and are capable of servicing their debt with a relatively quick turnaround (2 fiscal quarters).

Funding the expansion of existing businesses is not within our scope of interest, as expansionist daydreams carry a high risk of not panning out. To this same point, businesses in debt, who are burning through capital and in dire need of a liquid cash injection are not within our purview.

Real World Income seeks to provide cashflow to those who do not otherwise need it, but would benefit nonetheless, and carry a high likelihood of debt serviceability towards the promise of future injections and long-term partnership through a period of natural growth.