A Deep Dive into Centrifuge: Real-World DeFi

Markets May 12, 2021

Decentralized Finance (DeFi) has exploded in the last 18 months. As DeFi projects like Uniswap, Maker, Aave, Yearn, and Compound became billion-dollar protocols, we saw a transition from ‘degenerate finance’ to ‘regenerate finance’ where the community set a higher bar for fiscal responsibility, user experience, and integration with mainstream systems.

Last week, we announced our collaboration with Centrifuge, one of the first protocols to connect DeFi to the real-world by bringing multi-trillion markets of real-world assets (RWA) on-chain. This week, we sat down with the Centrifuge team to break down what they are building, its use cases, and recent traction.

Let’s dive in:

1. What is Centrifuge and what problem does it solve?

Centrifuge bridges real-world assets like invoices, real estate, and royalties to DeFi. Borrowers can finance their real-world assets without banks or other intermediaries, and providing liquidity is open to everyone, investors receive a return plus CFG rewards. By opening these doors to small and medium enterprises, which have historically faced financial issues, we are enabling them to access financing securely, transparently and efficiently. Learn more in the video below and in our documentation:

2. Why did you decide to build on top of both Polkadot and Ethereum? What benefits and drawbacks stem from such a cross chain approach?

The Centrifuge Chain is built on Polkadot, but the Dapp is bridged to Ethereum. This gives Centrifuge an edge on accessing two of the biggest ecosystems in crypto: one for DeFi liquidity (Ethereum) and one for speed (Polkadot).

3. What is your target audience and existing user base? What sort of interactions are you seeing your users have with your platform?

Centrifuge is mainly looking for Tinlake (more on this below) investors, asset originators, and validators. An Asset Originator is a company that advances financing to multiple businesses or individuals. Tinlake, a Dapp built on the Centrifuge chain, allows Asset Originators to finance their assets and investors to invest in them. Tinlake investors can invest in the pools made by asset originators, and receive a stable return.

4. How does Centrifuge bring real world assets on-chain? How does Centrifuge’s approach to bringing RWA on-chain differ from other competitors? What are the pros and cons of Centrifuge’s approach? What are the challenges?

Assets are originated onto the Centrifuge chain via tokenization. This means a physical world document is replicated as an NFT, through a smart contract, and represents the document's inherent value. Asset Originators can mint privacy-enabled NFTs (non-fungible tokens) that are locked as collateral into Tinlake to access financing. Centrifuge's privacy-enabled NFTs are tokenized representations of assets/documents, keeping some or all of the assets attributes private, while a public, decentralized ledger tracks the asset ownership. Learn more here.

5. What’s the use case for having RWA in DeFi?  What is the value of bringing uncorrelated collateral to DeFi? How does that impact yield?

DeFi doesn’t interact with the real world until real-world assets are interacting with DeFi. Otherwise, DeFi becomes an echo chamber. Real-world assets make up the entirety of our physical world, and opens up trillions of value to be used in crypto.

6. DeFi summer has led to a lot of DeFi projects competing for mindshare and TVL, how has that affected Centrifuge?  What do you think are the greatest challenges for DeFi projects at the moment?

TVL is very important, and RWA TVL is probably the most complicated to bring as it needs to comply with real-world standards and regulations. In a world that is moving extremely rapidly, one of the greatest challenges is educating and connecting the real world to DeFi, as well as building decentralized applications, such as Tinlake, that make DeFi accessible to everyone.

7. Tell us about Tinlake. What are some practical use-cases that are available at this given time and who is using them?

There are a variety of Asset Originators launching pools on Tinlake, and these will become more diverse in the future. Currently, some of the companies we have in the Tinlake portfolio are collateralizing different real-world assets such as real-estate bridge loans, freight forwarding invoicing, music streaming invoices to name a few. Head to tinlake.centrifuge.io and click on any pool to see more information on how real companies are using Tinlake to finance their assets.

8. Centrifuge already has quite a few strategic partners integrating with its infrastructure. Can you share any notable examples?

The MakerDAO integration allows asset originators to use Centrifuge to automatically draw Dai on a loan on Centrifuge. We are currently working on a similar integration with Aave. Our partnership with Celo also allows cUSD to be used on Tinlake.

9. What is the use case for the CFG token? What’s the difference between CFG and wCFG?

  • CFG is used for governance, tokenizing assets, and underwriting. Learn more here.
  • wCFG is the ERC-20 version of the Centrifuge token on Ethereum. It uses the Ethereum <> Centrifuge Chain Bridge that we built together with ChainSafe.

DeFi Summer round 2! And hopefully more projects in the space connecting the real-world to DeFi, because if we want to achieve mass adoption for our decentralized products we need more accessibility to those who need Decentralized Finance the most.

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