In today's thriving blockchain technology environment, the DeFi (Decentralized Finance) sector is witnessing a surge of innovations, but there has been a shortfall in the fixed income area. The emergence of the Treehouse protocol not only creates ripples in the blockchain fixed income market but also opens up new pathways for industry development from a unique perspective—integrating traditional finance and blockchain.
1. The Pain Points of Traditional Finance Call for Blockchain Solutions
The traditional financial market has a mature system in the fixed income sector, but it also faces many pain points. High transaction costs are a significant issue; in traditional bond trading, many intermediaries, such as underwriters, brokers, and custodians, are involved, and these intermediary stages charge fees at each level, significantly increasing investors' transaction costs. For example, in corporate bond issuance, besides the high underwriting fees paid to underwriters, there are also custodial fees from banks and stamp duty during the transaction process, raising corporate financing costs and lowering investor returns.
Information asymmetry is also widely present. Investors often find it difficult to obtain comprehensive and accurate information about bond issuers, making it challenging to assess the true risks of bonds. For instance, bonds issued by some small and medium-sized enterprises may not have sufficient disclosure of financial conditions and operational risks, forcing investors to rely on limited public information, which can easily lead to misjudgment in investment decisions.
Low trading efficiency also plagues traditional financial markets. Traditional bond trading requires cumbersome procedures and lengthy settlement cycles, often taking several days from trade completion to the actual delivery of funds and bonds. This not only increases market risks but also limits the liquidity and efficiency of fund usage.
The characteristics of blockchain technology provide potential solutions to these pain points. Its decentralized nature can reduce intermediary links and lower transaction costs; distributed ledgers ensure transparency of information, effectively alleviating information asymmetry; the automation of smart contracts can greatly improve trading efficiency and enable real-time settlements. The Treehouse protocol is dedicated to bringing transformation to the fixed income market based on these blockchain advantages.
2. Treehouse's Integration and Innovation Practices
(1) Innovative Interest Rate Mechanism Connecting to Traditional Interest Rate System
Treehouse's Decentralized Quoting Rate (DOR) mechanism is a key innovation for interfacing with the traditional financial interest rate system. In traditional finance, interest rates are primarily set by central banks or large financial institutions, which have a degree of authority but lack widespread market participation. Treehouse's DOR allows numerous stakeholders to participate in interest rate predictions through a carefully designed consensus mechanism. Participants include professional financial institutions, experienced market participants, and ordinary users, who submit interest rate predictions by staking TREE tokens or tAssets. Those with accurate predictions will receive economic rewards, while those with significant deviations will face corresponding penalties.
This mechanism is similar to the process in traditional financial markets where multiple parties negotiate to form interest rates, but it is more transparent and fair. It provides the blockchain fixed income market with an objective, fair, and manipulation-resistant benchmark interest rate, akin to the Libor (London Interbank Offered Rate) in traditional financial markets, offering reliable references for pricing fixed income products such as bonds and derivatives, enabling blockchain fixed income products to effectively interface and compare with traditional financial market interest rate systems.
(2) Comparison and Innovation of tAssets with Traditional Financial Assets
The tAssets system introduced by Treehouse, such as tETH, shares similarities with traditional financial assets but also possesses innovation. Functionally, tAssets are akin to yield certificates in traditional finance, where users obtain tAssets by depositing assets, representing a claim to certain yields. However, the innovation of tAssets lies in their ability to automatically participate in interest rate arbitrage strategies, capturing the price differences in borrowing and staking rates between different DeFi protocols, allowing users to earn returns that exceed traditional staking yields. This additional return is referred to as Market Efficiency Yield (MEY).
In comparison with traditional financial bank deposits and wealth management products, bank deposit interest rates are relatively fixed, providing stable but lower returns; while wealth management products may offer higher yields, they require investors to make their own choices and manage them, carrying certain risks. tAssets combine the advantages of both, offering a relatively stable return base while also achieving yield enhancement through intelligent arbitrage mechanisms, all managed automatically by the protocol, reducing users' operational thresholds and risks.
(3) Compliance Exploration and Integration with Traditional Financial Regulation
In terms of compliance, Treehouse actively explores the integration path with traditional financial regulation. With the development of blockchain finance, regulatory issues have become increasingly prominent. The traditional financial regulatory model is difficult to fully apply to the blockchain field, but blockchain finance cannot develop independently without regulation. Treehouse recognizes this and fully considers compliance requirements in the design and operation of its protocols.
For instance, in user identity verification, Treehouse adopts certification methods that comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) standards, ensuring the legitimacy and compliance of users participating on the platform. In monitoring the flow of funds, it utilizes the traceability of blockchain to track and record the flow of funds in real-time, so that it can meet regulatory review requirements when necessary. This proactive attitude toward integrating with traditional financial regulations not only helps Treehouse's own long-term stable development but also provides a reference for the compliant development of the entire blockchain fixed income industry.
3. Far-Reaching Impacts of Integration
(1) Inspiration and Cooperation Opportunities for Traditional Financial Institutions
The emergence of Treehouse brings new inspiration and cooperation opportunities for traditional financial institutions. Traditional financial institutions can learn from Treehouse's technology and innovative models to enhance their business efficiency and service quality. For example, banks can use blockchain's distributed ledger technology to optimize internal settlement systems, reducing settlement time and costs; investment institutions can refer to Treehouse's interest rate arbitrage strategies to develop smarter investment products.
At the same time, there is also a broad space for cooperation between traditional financial institutions and Treehouse. The two sides can collaborate in product development, risk management, and customer resource sharing. For example, traditional financial institutions can partner with Treehouse to issue blockchain-based fixed income products, leveraging Treehouse's technological advantages along with the brand and customer resource advantages of traditional financial institutions for mutual benefit.
(2) Attracting Traditional Investors to the Blockchain Fixed Income Market
By integrating with traditional finance, Treehouse has opened the door for attracting traditional investors to the blockchain fixed income market. Traditional investors often have doubts about the blockchain field, mainly stemming from a lack of understanding of the technology and concerns about risks. Treehouse's innovative model has made blockchain fixed income products more similar in form and function to traditional financial products, reducing the cognitive threshold for traditional investors.
Its compliance exploration also reassures traditional investors, alleviating their concerns about legal risks when participating in blockchain investments. When traditional investors enter the blockchain fixed income market, they not only bring substantial funds to the market but also mature investment concepts and risk management experience, helping to promote the maturity and development of the blockchain fixed income market.
(3) Promoting Innovation and Transformation Across the Entire Financial Industry
Treehouse's efforts in integrating traditional finance and blockchain have far-reaching industry implications. It has driven innovation and transformation across the financial industry and has promoted the inclusiveness and intelligence of financial services. In terms of inclusiveness, Treehouse's low-threshold and high-efficiency fixed income services enable more ordinary investors to participate in the financial market and enjoy the benefits of financial development.
In terms of intelligence, its smart arbitrage, automated trading, and other functions provide direction for the intelligent development of the financial industry. As more similar innovations emerge, the financial industry will gradually transition from traditional manual operation models to intelligent and automated models, improving the overall operational efficiency and competitiveness of the industry.
From the perspective of integrating traditional finance with blockchain, the Treehouse protocol brings innovation and transformation to the blockchain fixed income market. By addressing the pain points of traditional finance, it achieves innovative integration in aspects such as interest rate mechanisms, asset models, and compliance management, having a profound impact on traditional financial institutions, the blockchain fixed income market, and the entire financial industry. In the future, as Treehouse continues to develop and improve, it is expected to become an important bridge connecting traditional finance and blockchain finance, driving the financial industry towards a new stage of development.
