TL-DR: I want to give you a brief preview of a new product we’re launching called Tinlake, a platform built on decentralized financial infrastructure, that enables you to draw loans against conventional illiquid assets. This is done by issuing an ERC-20 token that represents a fraction of the collateral.
The Direct Path to DeFi
Decentralized finance, in its mission to transform the global financial landscape, brings transparency, cost-efficiency, speed, and accessibility to an industry that has traditionally been opaque with tough barriers of entry.
At Centrifuge, we’ve spent the last year developing the underlying protocol that will connect the global financial supply chain, allowing businesses worldwide to connect and transact on a single source of truth, solving a number of huge structural problems in international supply chains. As our CEO Maex recently highlighted at CogX in London, the nirvana of B2B is getting paid on time, and we’re in the business of facilitating this early payment bridge, for any company of any size, around the world.
Whether you’re a large business, musician or entrepreneur, you sometimes need money right now. A little extra funding for growing your business, or an advance on your invoices. In your daily operations, you generate a number of assets that could be valuable collateral for a loan. Imagine a revenue stream from future royalties, unpaid invoices or a warehouse goods receipt.
With Tinlake, those illiquid real-world assets can now be used in the decentralized finance ecosystem to access finance, and receive loans on your own terms.
First some context.
Currently, accessing loans backed by real-world assets is cumbersome, time-consuming and costly due to the involvement of intermediaries, such as banks, origination platforms, and bureaucratic legal procedures. While some of these processes are important to assess the value of the collateral and make sure that you own what you say you own, they are at times inflated, rent-seeking mechanisms, which complicate and prolong the lending process more than necessary.
Decentralized Finance opens up a breadth of peer-to-peer and collective lending products. Currently, the DeFi ecosystem enables borrowers to draw loans against fungible assets such as Bitcoin, Ether or other cryptocurrencies. MakerDAO is an example of this, allowing users to borrow DAI in return for locking up Ether. However, this platform, as well as others, like Compound, still don’t allow the use other types of assets, namely non-fungible assets, to access funds and this is where Tinlake comes in.
Tinlake closes a massive gap by turning your non-fungible assets (for example real estate, music royalties, invoices, or even decentraland land parcels) into fungible ERC-20 tokens, an easily priced and widely accepted asset in the DeFi landscape.
This means that the previously illiquid asset becomes fractionally tradeable on Ethereum in any of the open lending platforms that exist today and in the future.
How Tinlake Works
Tinlake is a smart contract on Ethereum that turns digital representations of real-world assets (Non-Fungible Tokens) into ERC-20 tokens, which then gives access to decentralized lending protocols.
Any asset that can be represented on-chain as Non-Fungible Tokens (NFTs) can be financed using the Tinlake infrastructure. Tinlake enables platforms to pool NFTs in a smart contract and use them as collateral to borrow money in a stable currency such as DAI.
In turn for locking in NFTs, the contract mints fungible ERC-20 tokens, called Collateral Value Tokens (CVTs), that each represents a fraction of the bundled collateral.
The CVTs are then used as collateral and locked into DeFi lending protocols, such as Compound and Maker, to allow instant smart contract based lending.
Centrifuge and Tinlake
If you’ve been following our work over the past year, you know we’re bullish on NFTs.
At Centrifuge we allow businesses to exchange documents of the financial supply chain (invoices, purchase orders, company master data, etc.) in a private, verifiable, and secure way while supporting on-chain document validation and notarization.
Assets, such as unpaid invoices, orders, or warehouse receipts, are represented on Ethereum as NFTs following the ERC-721 standard. Centrifuge users can mint these tokens for their off-chain documents in a standardized way. For invoices, this cryptographically signed document is used as a single source of truth for all involved parties. The document then receives all of the benefits of standard on-chain NFTs, while all private information stays off-chain.
Tinlake now allows users to lock their single tokenized assets and easily draw a loan from the connected liquidity providers.
Tinlake is the first application to run on Centrifuge. We’re thrilled to have gotten this far. We are working with a number of asset providers to utilize Tinlake to tap into the existing liquidity in the DeFi ecosystem. Invoices, warehouse receipt, music royalties, and much more to come.
The truth is, as fast as the blockchain ecosystem is moving, there are still many layers of emerging infrastructure, developer tooling, and products needed to be built. Decentralized finance still needs to develop before it can compete with legacy financial systems. We’re heads down developing the protocol layer of Centrifuge, but have a few new adventures up our sleeve. If you’re curious about Tinlake and Centrifuge or would like to build something cool on our protocol, get in touch!
Join our Journey
Thanks to Maya Byskov for contributing to this post!