Defactor Labs: Building a bridge between traditional finance and DeFi

9 Oct 2023

Alejandro Gutierrez. Image: Defactor Labs

The Dublin-based Web3 start-up was recognised as the best crypto, blockchain or digital assets offering at the National Fintech Awards last month.

Decentralised finance (DeFi) has been gaining attention as a viable alternative to traditional, centralised finance in recent years. While money is traditionally held by banks and other financial institutions, the peer-to-peer DeFi system uses blockchain technology to eliminate the need for a third party during transactions.

And even though the emerging technology has the noble objective of democratising finance and speeding up the world of business transactions, a major hurdle in its uptake among investors has been a lack of confidence in DeFi, which uses ledgers like those used by cryptocurrencies.

“A substantial divide has persisted between conventional finance and decentralised finance,” says Alejandro Gutierrez, co-founder and CEO of Defactor Labs, a blockchain-based credit marketplace that links financiers with investors seeking opportunities in DeFi.

“Our primary focus lies in bridging the gap in working capital provision within the trade receivables sector, particularly in trade finance.”

Gutierrez, who co-founded Defactor Labs last year and has 15 years of experience in supply chain management, procurement and finance, argues that many investors are interested in the DeFi space but also seek the “security and familiarity” provided by traditional assets – also known as “real-world assets” in DeFi-speak.

“As a marketplace, we serve as the conduit between two distinct yet interdependent parties. On one side, we connect traditional financiers in search of alternative liquidity sources. On the other side, we facilitate engagements with investors who have a keen interest in the DeFi space,” he explains.

“We take pride in our pioneering efforts in this space over the past four years, actively working to bridge the worlds of traditional and decentralised finance.”

Based in Dogpatch Labs, Defactor Labs was founded by Gutierrez along with Ernesto Vila, Brian Elders, Stephen Browne and Sharif Bouktila. Born into a family of entrepreneurs from Colombia, Gutierrez came to a “turning point” when he met an Irish woman who “convinced” him to move to Dublin.

“I’ve now called Dublin home for the past six years, actively participating in the start-up and Web3 communities for the last five,” he goes on.

“During this time, I co-founded multiple start-ups and played a pivotal role in fostering the growth of the Web3 ecosystem working with companies like MakerDAO and Centrifuge.”

‘A new, more equitable financial system’

The idea behind Defactor Labs is to build a bridge between traditional and decentralised finance by tokenising real-world assets. The start-up creates a “digital representation” of an asset such as an invoice, which signifies ownership. It then crafts a “wrap” that contains essential information for credit transactions, such as loan terms, interest rates and risk assessments.

“Importantly, these digital asset representations and credit transaction data are designed to operate independently, offering flexibility for potential future developments such as secondary markets for both the assets and loans,” Gutierrez explains.

“Once these digital representations are generated, they can be utilised to access liquidity within DeFi pools, which are funded by investors. Additionally, our technology incorporates protective measures for investors, embedding covenants within smart contracts and the platform itself.

“These covenants mitigate concentration risk and ensure full transparency regarding the allocation of funds and repayment timelines for users.”

Gutierrez says that his ultimate goal is to create “a new, more equitable financial system”.

“We want to help SMEs, we want to help individuals, we want to help the people and companies that are underserved by the current system. We believe that decentralised finance will serve as the backbone of future financial services.”

To that end, Defactor Labs has launched a flagship product, Alpha, which Gutierrez describes as an “institutional grade, fully regulated” DeFi product that represents a $100m tokenised bond that is one of the first of its kind in Europe.

The start-up was also selected as Enterprise Ireland’s first-ever high-potential start-up in the DeFi space and recently was recognised as the best crypto, blockchain or digital assets offering at the National Fintech Awards last month.

“But it is not enough to optimise what is currently there,” Gutierrez adds. “We need a profound and transformative shift as the current financial system is fundamentally flawed and in need of a radical overhaul.”

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Vish Gain is a journalist with Silicon Republic