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Chain news (ID: chainnewscom)
Chain news (ID: chainnewscom)
, Author: LeftOfCenter, reprinted with authorization by Odaily.
It is said that DeFi is still just a small circle game in the cryptocurrency native community, but we have found a case that has been applied in the real industry. From NFT to DeFi mortgage lending, maybe off-chain assets on-chain are not as difficult as we imagined.
For those familiar with the traditional financial credit system, DeFi (decentralized finance, or open finance) is a whole new world. For a man who dared to imagine, the emergence of open finance is of great significance.
Open finance has opened up our infinite imagination in subverting the global traditional financial system. Open finance means no permission, no threshold, and anyone who could not use traditional financial services before can be included in this brand new world. At the same time, open finance also means the possibility of improving financial efficiency. Compared with the traditional financial system, the process is more simplified, no need to go to the bank, no need to provide financial institutions with complicated mortgage compliance procedures, no need to wait for the approval of financial institutions, and so on - in theory, All these "unnecessary" save us unimaginable "friction costs".
However, all of the above is theory. Reality is merciless.
As Pan Chao, head of MakerDAO China, said, "If DeFi wants to get out of today's stock market, it needs to put a lot of physical assets on the chain. However, it is not easy to put physical assets on the chain."
However, a blockchain startup that is advised by MakerDAO Foundation chairman and COO Steven Becker intends to change that.
The startup, called Centrifuge, intends to use DeFi to liberate the liquidity of assets in the financial link of the supply chain.
Founding team photo
The company was founded in 2017 by Lucas Vogelsang, Maex Ament and Martin Quensel. One of the founders, Maex Ament, is a mathematician and serial entrepreneur. Like most of the team members, he has been engaged in the traditional supply chain finance field for a long time and has many years of industry experience and profound professional knowledge.
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Centrifuge's Advisory Team
The founding team of Centrifuge believes that there are currently some gaps that the traditional financial system cannot cover the needs of users. For example, the global SMEs face a credit gap of 2.1-2.6 trillion US dollars. Invoices are locked in the supply chain system and cannot flow. The latter is the target market that Centrifuge wants to revitalize.
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Transformation of supply chain finance business scenarios
According to Centrifuge's plan, it is hoped that by capturing real user needs and going beyond the scope of use of native encrypted assets, traditional real assets will be incorporated into the encrypted economic system. They hope to start with solving the shortage of funds in the supply chain industry as a breakthrough to realize the real application cases of DeFi products.
According to Centrifuge, invoices in the supply chain, as a collateral asset, are very mature at present, with relatively low risk. In practical applications, the risk of default is only about 1%, which can be included in open finance.
Revitalizing these "assets" means tokenizing immobile assets in this field to realize real assets on the chain. Then, asset owners realize mortgage lending based on these traditional assets without liquidity, revitalizing supply chain finance the funding gap that exists.
The reason for choosing to start from the supply chain industry is that most of the team members are veterans of the industry and have been active in the financial technology field in San Francisco before. They previously founded Taulia, a supply chain finance digital platform for enterprises. When Taulia has reached the market limit of centralized supply chain finance development, the team tried to use blockchain technology to advance it further, and moved to Berlin to establish Centrifuge, a blockchain supply chain financial solution platform, hoping to build a global The supply chain financial platform uses blockchain technology to provide a new business interaction model for complex supply chains.
In the supply chain industry, the shortage of funds is usually a difficult problem in the operation and management of enterprises. On the one hand, it is necessary to supply core enterprises, and at the same time bear the delayed receipt and payment of accounts receivable; on the other hand, it is necessary to distribute goods, Advance payment of funds to core enterprises in the form of deposits. For enterprises, especially small and medium-sized enterprises, no matter how large the amount of future accounts receivable is, if there is no cash flow at present, all economic activities of the enterprise will stop and there will be no turnover.
Supply chain finance is a financing solution for this kind of problem. It refers to a project financing method in which funds are raised by issuing bonds in the capital market on the basis of the cash flow income that can be brought by the transaction in the future. Essentially, the right to cash that an enterprise or project can obtain in the future is discounted in the present, so that the maximum cash can be obtained in the present.
Specifically, in the field of supply chain, the reference standard of cash flow income is the accounts receivable of the enterprise that is owed payment. Data show that a company has to wait an average of 60 days to get paid back, and about $30 trillion is currently locked in unpaid receivables. Of course, the methods available to bridge this liquidity gap include traditional factoring, loans and credit card lending, however, this solution is not available to most providers globally.
Decentralized financial systems can unfreeze funds in a more flexible way, which is exactly the target market that Centrifuge is trying to use blockchain to provide solutions.
The Centrifuge team believes that the rise of blockchain and open financial infrastructure provides a possibility to put these assets on the chain, convert them into digital assets, represent and trade them on the global network, and obtain DeFi through over-mortgage. loan. In this way, DeFi can finally get out of the limitation of cryptocurrency native asset mortgage.
How to achieve real asset on-chain borrowing?
Take a look at how Centrifuge achieves this goal.
To put it simply, Centrifuge mainly implements real asset on-chain borrowing through the following two steps.
First, the real assets are converted into non-homogeneous token standard token format NFT through the Centrifuge platform. In this way, related notes representing real assets can obtain a certain value performance, and at the same time, holders can also have ownership of digital or physical assets, which can be transferred and traded. Need to explain, the so-called "NFT", the full name is "Non-Fungible Token", that is, non-homogeneous tokens, it is a token standard, representing a unique, indivisible token, to represent the digital or physical ownership of assets.
In the second step, you can over-collateralize various NFT assets through the application Tinlake on Centrifuge, and lend Dai to realize the possibility of obtaining liquidity funds based on NFT mortgage.
Tinlake is a DApp released by Centrifuge. It is a smart contract on Ethereum, which is mainly responsible for issuing ERC-20 tokens to represent part of the mortgaged assets (which means over-collateralized). For example, you can borrow “money” against future revenue, including unpaid bills, or unrecorded copyright revenue on the streaming platform Spotify. Since Tinlake has opened up various protocols in the DeFi ecosystem, in addition to the stable currency Dai, it also supports the lending of other supported tokens in the DeFi ecosystem.
As shown in the flow chart above, Tinlake’s smart contract will lock all kinds of NFTs imported into it representing real assets under the chain in a fund pool, and then mint ERC-20 tokens. In the Centrifuge network, this newly minted The token is called CVT (collateralized value token), which supports locking CVT in various DeFi lending protocols integrated with Tinlake (such as Compound and Maker) and lending stable coins.
To sum up: the main innovation of Centrifuge is to represent real related bills and other assets as NFT tokens through the Centrifuge platform to obtain a certain value performance, and then mortgage such NFT assets on various open DeFi protocols to obtain liquidity. In this way, real assets can be mortgaged and borrowed on the chain.
Non-fungible tokens represent a unique class of things that exist widely in real life. Compared with homogeneous tokens, most things are actually non-homogeneous, such as various works of art including movies, music, paintings, etc., tickets in different viewing positions and different game sessions, and various bills.
As mentioned above, Centrifuge OS can convert various documents including bills into unique NFTs. Once converted into NFTs, it acquires the characteristics of NFTs, which represent a certain value performance and cannot be tampered with. At the same time, owning the asset A private key means ownership of the digital or physical asset, which can be transferred and traded.
However, the unique attributes of NFT make it a low-liquidity asset. For this reason, Centrifuge uses Tinlake to open up various DeFi lending agreements, thereby unlocking NFT to release liquidity.
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Starting from supply chain finance, looking for more use cases
At present, Centrifuge, in cooperation with the MakerDAO Foundation, has launched a series of pilot experiments in various industries and fields with funding gaps for a variety of different asset classes. There is a large funding gap” and other issues.
In October of this year, Centrifuge joined hands with the decentralized logistics platform dexFreight and the MakerDAO Foundation to launch a pilot project. After tokenizing the freight bills, they mortgage them on the Maker MCD platform and then obtain funds to allow the carrier to operate in the business. Get paid within minutes of delivery.
If the pilot program goes well, the project will expand tokenized notes to multi-collateral Dai operations.
In real estate, Centrifuge provided US non-bank lender New Silver with a $70,000 real estate mortgage with a maturity date of March 2020. Also partnering with FutureFin, a private capital liquidity provider for residential finance, to launch standardized collateralized tokens to reduce issuance costs, data transfers, and friction in services, saving approximately 35% in fees.
In addition to the traditional logistics supply chain industry, Centrifuge also tries to explore some emerging digital media industries.
In October of this year, at the DeFi Summit held in London, Centrifuge teamed up with music data analysis technology financial company Paperchain and the MakerDAO Foundation to demonstrate how to pay in advance to an unnamed music label on the Spotify platform through its Tinlake financial application. $60,000 in royalties.
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On-demand streaming media consumption has become a mainstream music consumption model, but the revenue and payment process of the entire industry has not changed. This is a big problem for music creators, that is, they have to delay income.
For music labels, it usually takes an average of 3 months to receive revenue from Spotify streaming media, while for musicians, the time will be longer, about half a year. In other words, if you are a musician on Spotify, the August income will not be received until February of the following year. From the perspective of the entire industry, about 100 billion US dollars of assets are locked in various digital media platforms around the world and cannot achieve liquidity, with an average lag period of 90 days.
According to Centrifuge, this time, through the cooperation of Paperchain and Makerdao Foundation, through Centrifuge's Tinlake financial application, it is the first time to pay a certain brand almost instantly the Spotify platform revenue of 60,000 US dollars. The whole process takes less than 30 minutes, and the transaction cost is low. To 3 dollars, 45 days earlier than expected, the interest rate is 80% lower than the current income payment solution in advance.
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Everything sounds beautiful? However, there are still some unresolved problems in Centrifuge.
The first question is, how is risk assessment addressed? Due to the different asset classes in reality, each asset class has different risk parameters, which will lead to different issuance processes. In Centrifuge's latest series of pilot projects, it is mainly the partners who perform this function to evaluate assets. For example, in the case of streaming music copyright fees, the partner Paperchain performs the asset evaluation function. In the future, Centrifuge will Introduce a series of decentralized underwriters (underwriters) in the decentralized network to perform risk assessment functions.
The second problem is liquidation. The collateral assets in the Tinlake NFT pool are over-collateralized, which provides a certain degree of buffer against the default of a basket of illiquid asset NFTs. In addition, these mortgage assets are fully transparent to the secondary market, so their risks and prices can be publicly assessed accordingly. In a worst-case scenario, these debts would be sold to off-chain debt collection agencies, with proceeds flowing back through the Tinlake platform to on-chain lenders in the form of Dai.
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Blockchain applications that do not issue coins
As a DeFi team, Centrifuge currently has no plans to issue tokens, and all operating funds come from equity financing.
On October 29, 2019, Centrifuge received a new financing of US$3.7 million led by Crane Venture Partners. In addition to the previous round of participating investors Mosaic Ventures, Berlin-based investment institutions BlueYard Capital and Semantic, this round of financing Also added are Atlantic Labs, Inflection Capital, Robert Leshner of Compound, and new investors from Fabric Ventures. Centrifuge received a €1.4 million grant earlier this year from Berlin and the European Regional Development Fund (ERDF), all of which will be used to increase the size of the team to tackle future challenges, including the upcoming release of Centrifuge Chain in 2020.
So far, including the last round of financing, Centrifuge has raised a total of $7.5 million in financing.
A serial entrepreneur who came from the Internet pivot and has been deeply involved in supply chain finance for many years, when he realized that the previous solution had reached the development limit of centralized supply chain finance, he turned to use blockchain technology as a solution, and in every possible way The bold pilot attempts in the field of blockchain technology have allowed us to see the potential of blockchain technology in transforming traditional industries and solving practical problems beyond the application of encrypted native assets. This is the greatest value of Centrifuge, a DeFi project.
