Untangled Finance has raised £11 million to bring institutional-grade credit to blockchain via a built-in liquidation mechanism.

The multi-year strategic funding was led by Fasanara Capital, a FinTech investment platform and lending pioneer.

Established in 2020, London FinTech Untangled was founded by professionals with a decade-long background in finance, asset origination and emerging markets. The platform’s protocol focuses on tokenising real-world private credit assets, such as invoices and SME loans, into on-chain structured credit pools. 

Tokenisation offers fractional ownership, allowing for borderless access and reduced investment thresholds. It also offers enhanced transparency and security on the performance of the assets and keeps an immutable record of transaction history.

Untangled Protocol concentrates on private credit markets. Through its partnership with Fasanara, the protocol will have access to more than 130 verified asset originators spanning 60 countries, offering investors the opportunity to access institutional-grade assets, traditionally exclusive to major financial institutions. 

According to an individual investor’s risk appetite, they can choose between originator-specific pools or opt for consistent, passive gains via automated lending pools.

Untangled Finance will be launched on the Celo blockchain in early October, followed by Polygon and Ethereum via Chainlink’s Cross Chain Interoperability Protocol (CCIP), making Untangled among the first multichain and interoperable RWA credit protocols. 

In the DeFi realm, liquidity is paramount. Unlike crypto, RWAs in the private credit sector are typically illiquid. With no secondary market available, trading these assets becomes challenging, limiting investors’ exit options, especially in the event of asset defaults.

The real-world asset DeFi markets have already witnessed a wave of defaults, with liquidity also drying up. Much of this stems from the early days of DeFi enthusiasm when many RWAs were on-boarded without adequate due diligence, robust legal structure and effective on-going monitoring. The absence of a strong legal structure failed to safeguard or ring fence these assets adequately.

To bolster investor confidence, it’s essential to onboard high-quality RWAs backed by sound legal structures, reducing the risk of defaults. Equally important is establishing an effective liquidation mechanism, ensuring that even if issues arise, investors have an exit strategy.

Untangled has developed a RWA liquidation framework coupled with a liquidity safeguard. If the quality of loans in an asset pool deteriorated below set benchmarks, the liquidation process would be triggered. At this point relevant collaterals would be auctioned – either on-chain or off-chain – to revitalise the pool and bring it back up to the right grade. When assets are performing and investors would like to exit for liquidity reasons, the protocol facilitates a on-chain Dutch auction that helps new investors take over the exited portion.

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Harnessing machine learning, Untangled is also creating a forward-looking credit assessment model. This evaluates a borrower’s future default risks, factoring in previous loan behaviours, borrower standing, and critical macroeconomic indicators. Investors will have an interactive dashboard at their fingertips, helping them to make better informed investment decisions.

Manrui Tang, Untangled Finance’s co-founder, said: “Since 2017, our focus has been on real-world asset tokenization where we see growing interest. Our partnership with Fasanara is a step towards developing reliable DeFi yield mechanisms, broadening the investment possibilities in crypto but also helping to mitigate its inherent volatilities, all while striving to make finance more accessible around the world.”

Quan Le, Untangled Finance’s co-founder, said: “From the outset it has been important for us to have liquidation as a built-in feature of our protocol, not an afterthought. Together with institutional-grade assets, we hope to contribute to the RWA ecosystem by further developing its liquidation infrastructure that will help this new market to scale.”

Francesco Filia, CEO and CIO of Fasanara Capital, added: “We see an upcoming merging of worlds, on one side, fintech lending which fills the gap in underserved SME and consumer markets and, on the other, the way values are being transferred within the new world of digital assets. The Untangled team has a rare combination of being rooted in real world finance and yet has acquired deep expertise in blockchain and DeFi. We are looking forward to working with Untangled to engineer these entirely new financial rails so, for the first time, being able to handle users at scale.”

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