Real World DeFi with Centrifuge: Our Protocol Roadmap

Key enhancements for investors, borrowers, and community members to solidify Centrifuge as a DeFi pioneer

Lucas Vogelsang


With the launch of our parachain underway, I wanted to share key themes and ideas about the future functionality of Centrifuge and the utility of CFG.

The last couple of months have been extremely busy for our engineers as we’ve been simultaneously preparing for the parachain launch, growing Tinlake on Ethereum and building Pools for Altair and Centrifuge (which will eventually replace Tinlake on Ethereum).

But enough of where we are. Let’s talk about what’s next. Our number one focus is to scale Real World Assets and turn DeFi into the best infrastructure to borrow and lend money against these assets.

To deliver on this goal, we believe the Centrifuge community should focus on four main themes:

In the following paragraphs I will go into more detail on the different ongoing projects and ideas we have for the protocol addressing these key themes.

1: Launch and scale Real World Asset pools on Centrifuge Chain

Over the last nine months, we built Centrifuge Pools from scratch on our chain. This version will ultimately replace the Tinlake smart contracts on Ethereum, and it incorporates several improvements:

  • Scalability: Pools on Centrifuge Chain will use the purpose-built and highly efficient runtime on Centrifuge Chain. This will eliminate the costly transaction fees of Ethereum mainnet.
  • Multiple tranches: Centrifuge was first to implement tranching on chain, and with Pools, you can now structure multiple tranches to serve different types of investors. Tranches support different interest-rate models and are extremely flexible.
  • Bridging liquidity to Polkadot and Ethereum: While the Pool issuers use Centrifuge Chain to create pools and originate loans, Pool tokens can be bridged to wherever there is a need for liquidity. This means we are building bridges to Ethereum, Acala, Moonbeam as well as other DeFi ecosystems to give users on any chain the ability to purchase Pool tokens.

2: Build more liquidity in Centrifuge for RWAs

Growing TVL on Centrifuge requires two things: investors who want to buy Pool tokens in the protocol and issuers who can issue these tokens. The protocol should make it easy for investors to provide liquidity. There are three important topics we must think about to increase investor demand:

  • Index investing: Very few people actually want to actively manage their portfolio and invest in individual pools. This quickly becomes a very time consuming job. An index would allow a user to buy a single token that gives them exposure to a broad range of pools on Centrifuge governed by CFG holders. Investors get diversification into many pools without the hassle of managing individual investments.
  • Legal upgrades, KYC & onboarding: There are improvements on the legal structure, faster KYC providers and overall UI improvements we can do to simplify the process for signing up for a pool. We should work hard on removing all barriers of entry for new users to access Centrifuge.
  • Secondary markets: Creating liquid secondary markets allows for market-based price discovery of pool tokens and for token holders to liquidate tokens immediately.

3: Build trust in assets

Building trust in Real World Assets comes by building both governance know how and tools for Centrifuge ecosystem members to accurately assess the risk of the assets in the protocol and to ensure interest rates are set correctly.

  • Risk assessment: Centrifuge ecosystem member “DeFi Capital Markets” published a proposal to form the Credit Group, a group within the DAO to support the risk assessment of pools on Centrifuge. Their idea is to use this initiative to attract real-world credit experts to Centrifuge and to help better structure the pools that go live on the protocol.
  • Underwriter token model: The current underwriting model in traditional finance is as broken as the broader financial system. Misaligned incentives result in the big underwriters today merely acting as a rubber stamp and investors not knowing who to trust. We presented our first design proposal to incentivize the valuation of real-world assets and the assessment of risk through a decentralized system of underwriters on the forum. We believe this is the way to turn this antiquated industry into a new, decentralized, transparent, market-driven underwriter economy.

4: CFG Token Utility

The launch of pools on Centrifuge Chain is both a major milestone and a pivotal moment for the CFG token. The following ideas are just some that will strengthen the utility of CFG.

  • Origination fees: With the new pools, borrowers will pay protocol fees that will go into the on-chain treasury.
  • Staking to launch pools: As new pools go live, token holders will be able to indicate trustworthy pools by staking to them. The stake serves as pool insurance in case of default, but also earns part of the transaction fees of the pool it insures.
  • Rewards to incentivize users of the protocol: As we build out a community of token holders, they can perform important functions in the protocol. The protocol can offer incentives not just to liquidity providers as is the case today with Tinlake, but also in the future to other actors such as underwriters and oracles.

With these four themes in mind, we’re thrilled for Centrifuge to become the best infrastructure protocol for borrowing and lending money against assets. This is a trillion dollar market in traditional finance, and we’re building for it with more transparency, decentralization, and fairness.