Centrifuge and the Real-World Assets Market by PromoTeam
In this article, we’re going to review Centrifuge, one of the first projects that connect real-world assets and DeFi. We personally think that bringing such assets to Polkadot is very important to give it more traction, because it will attract more users to blockchain technologies, and hence, to Polkadot itself. Right now there aren’t many use cases that involve both real-world assets or businesses and blockchain technologies. That’s why we hope Centrifuge will be able to get a parachain slot in the near future.
What is Centrifuge in a nutshell and how does it work? Historically, Centrifuge was a Substrate-based standalone blockchain built in those times when the parachain auctions were nowhere in sight. It was launched in May 2020. Centrifuge has its own set of validators, producing blocks and validating its security. However, for greater security, the project has to get a Polkadot parachain slot, outsourcing validation to the Relay chain. Until then, it works on its own.
The Centrifuge ecosystem consists of the Centrifuge chain, the Altair parachain and Tinlake. Centrifuge is the oldest chain, and it’s going to be connected to Polkadot when it gets a slot. Altair is the Canary network on Kusama, and it’s going to be treated like that — the team plans to experiment with new types of assets and to launch new features on it before deploying them on Centrifuge.
Tinlake is a dapp to pool different assets. Tinlake is working on Ethereum, and currently, it has more than 30 million dollars of total value locked in it, which doesn’t seem so mind-blowing, but we should remember that all these assets aren’t blockchain-based, they are real. Mortgages, bills, real estate, music royalties — all these kinds of assets can be added to and tokenized on Centrifuge.
- validators, that produce blocks and stake their own CFG tokens
- nominators that choose validators by delegating them CFG tokens and receive a staking fee
- borrowers that provide their tokenized assets
- investors providing liquidity
- underwriters that assess the risks of different pools setting interest rates
- asset originators
Asset originators are real-world companies that interact with users and gather the assets together. To add an asset to Centrifuge, the document representing the real asset needs to be anchored on the blockchain. Centrifuge stores the hash of the document, and the asset originator can mint an NFT representing this asset and lock it in the Tinlake dapp. After the underwriter’s evaluation, this NFT can be added to a specific pool for its class of assets and users can provide liquidity to it in DAI and USDC. In some cases, borrowers can mint DAI directly by locking assets in MakerDAO which is integrated with Tinlake.
Assets on Centrifuge
DROP and TIN tokens on Tinlake represent the senior and junior tranche for investors that provide liquidity, the share in one of the pools, and they have different risks attached to them. The DROP token has lower returns but it’s secured from losses by the holders of the TIN token, which receive higher returns if everything goes well. Those are security tokens and in the future, it will be possible to sell them only on security platforms, but it will give much more flexibility to investors in dealing with a liquidity management issue. All asset originators are responsible if any of their assets were to default. All of them and even the Tinlake platform as well participate in junior tranches, so they will always take the first loss. In the last two years, none of the assets has defaulted so far, even during the 2020 crisis.
As we said, Tinlake is working on Ethereum and it’s integrated with two of the biggest DeFi protocols there:MakerDAO and Aave. In the future, Tinlake will migrate from Ethereum to the Altair parachain and then to the Centrifuge chain. It will be rewritten from Solidity to Rust, and it will get access to all Polkadot features, making it cheaper and faster. In addition to DAI and USDC, users will be able to provide liquidity in Acala dollar (aUSD), Karura dollar (kUSD) and all the new stablecoins that will be launched on Polkadot and Kusama. Also, it could access the liquidity providers on other parachains, such as Moonbeam and get access to users on SushiSwap, Uniswap and many other pools. Tinlake is 100% regulatory-compliant, all users providing liquidity to real-world assets have to pass KYC/AML verifications and sign a subscription agreement.
The CFG token is used as a governance token to provide security to the blockchain, to pay fees, anchor documents and mint asset NFTs. Once Tinlake moves to the Centrifuge chain, the financing fees will also be paid in CFG. The more the protocol is used, the more the demand for the CFG token will be.
Type: Utility, Governance
Supply: 425 MLN
Reward: % per DOT
Allocation: 15% of the total token supply
Inflation: 3% per year
Recently, Centrifuge launched RWA Market in partnership with Aave. Previously, Aave users were able to lend against crypto native assets, and now, using Centrifuge, they can earn yield against stable, uncorrelated real-world collateral. So, the idea is similar to Tinlake, it’s another dapp, using the Centrifuge chain. The RWA Market already has seven pools and is allows liquidity providers to deposit USDC. It’s another step in the right direction for Centrifuge.
Centrifuge gives businesses access to DeFi financing, bringing users from Traditional Finances, and it’s a very important mission. It’s a solid project with good history and the team of 38 members. To become more efficient, Centrifuge has to win a parachain in the next batch of auctions that already started on the 23rd of December. If you want to participate and help Centrifuge win a slot, you can use our referral link which will give you a 5% bonus.
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PromoTeam is a diverse team of specialists and blockchain activists with various skills that actively promotes the Polkadot ecosystem in the English-speaking and Russian communities.
Our main activity is content production, offline and online event organization, community management and creation, product marketing, development of ambassador programs.
We also run validator nodes for Polkadot and Cosmos blockchains and participate in the Polkadot ecosystem projects as investors, advisors and contributors.
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