The First DROP for DeFi

ConsolFreight Begins Investment Financed by DeFi

Lea Schmitt
May 13, 2020 · 4 min read

Decentralized asset financing takes a lot of coordinated effort (and smart contracts) to work. But last week, it all paid off as we successfully financed the Genesis Tinlake pool with ConsolFreight. Tinlake is our asset-backed lending Dapp that connects borrowers with investors; the pool is where the assets get financed. Our partner ConsolFreight used Centrifuge to bring their freight invoices on-chain to get financed through the Tinlake pool.

The pool size is DAI 280,000 and advances the invoice payment of 4 freight forwarders on the ConsolFreight platform.

Helping small and medium freight forwarders get competitive at a global scale, ConsolFreight is building out a lending product that grants businesses in the freight forwarding industry access to low-cost capital — via DeFi. Their invoices made for great collateral in this Genesis pool as they were already digital assets, and proved to be low-risk (How can that be proved? Read this).

Active loans drawn by ConsolFreight using Tinlake

One of the main advantages we’ve found attached to borrowing from DeFi is the financial inclusion that it creates for small and medium-sized Freight Forwarding businesses looking to improve their liquidity and access to capital. As these companies don’t usually fit the criteria required by traditional financial institutions, DeFi could become the game-changer they need to increase their competitiveness and focus on growth.

— Alejandro Gutierrez, Co-Founder

ConsolFreight deals with assets that represent future revenue; assets that guarantee future payment for goods or services that have already been purchased. The loans are short-term and are paid back at the end of an average 45–60 days maturity. This makes the ConsolFreight Tinlake pool an attractive low-risk option for interested investors to earn stable yield. 8 investors took the opportunity and invested in Tinlake’s DROP token which guarantees them a stable return of ~10%.

The second token, TIN, represents the residual tranche, will take first losses, and makes up 10% of the total asset pool (Read more detail about TIN and DROP here). ConsolFreight and Centrifuge equally purchased the TIN tokens to have “skin in the game” and demonstrate confidence in the asset pool.

In the future, the TIN token tranche will also be open to investors that seek higher yield and are willing to take on more risk for the next allocations in the months to follow.

Tapping into DeFi as an alternative liquidity source allows Asset Originators to source capital at a cheaper rate and at a much faster pace. Asset Originators with the size of ConsolFreight (servicing customers with $500,000–2,000,000 in revenue a month) are oftentimes disregarded by traditional liquidity providers due to cost inefficiencies. In order to service their borrowers, they would usually negotiate lines of credit with banks and non-bank lenders, which can get overly expensive due to cumbersome overhead and lack of transparency.

DeFi lending protocols, such as MakerDAO, can offer attractive alternative liquidity sources. On MakerDAO users lock up their assets as collateral and receive newly minted Dai in return. For Asset Originators like ConsolFreight, this mechanism opens up an entirely new way of extending credit: their protocol offers the opportunity to tap into a decentralized line of credit with transparently negotiated terms and conditions based on community consensus. Instead of lending from a legacy bank, ConsolFreight can directly generate new Dai in return for tokenized invoices following the rules baked into the protocol.

Beginning of April this year, we tested the mechanism of MCD together with ConsolFreight and the Maker Foundation in a successful pilot transaction. This allowed us to gain invaluable experience with the system and prepared us to propose a sustainable way to fully integrate with MCD; using our novel, tried and tested approach.

The Maker community voted to introduce a new process for onboarding collateral. We’re doubling down on our stance claiming that real-world assets will help MakerDAO grow its global Dai supply while making the system more resilient. We submitted two applications, one for ConsolFreight’s freight invoices and one for Paperchain’s music streaming invoices. Throughout the next couple of months, we will be working with the Maker community and the Maker governance domain teams to safely onboard real-world assets on MCD.

Share your thoughts with us, and join the discussion about these novel assets.

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Centrifuge

Decentralized Asset Financing

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