In the past two years, DeFi (decentralized finance) has ushered in a period of rapid development. Whether it is the number of projects or the amount of funds locked on the chain, the increase has reached hundreds of times.

But now the development of DeFi has reached a bottleneck period. It is the right way to expand outward, get out of the encrypted native small world, and embrace real world assets. From the perspective of development prospects, the world scale of global real estate financing alone has reached trillions of dollars, not to mention other credit and financing needs. The future of encrypted finance, especially DeFi, should be linked with traditional finance to introduce real assets into the encrypted market in order to achieve industry growth.

A project called Centrifuge is committed to bridging real assets such as invoices, real estate and royalties to DeFi, providing enterprises with convenient and low-cost financing channels, reducing financial intermediary obstacles; at the same time providing investors with high-quality investment categories and obtaining stable income.

On December 23, Sammi, head of Centrifuge Asia, visited the Odaily Chaohua community to explain in detail how Centrifuge introduces real assets into encrypted finance and expands the boundaries of DeFi."

"Centrifuge's mission is to connect asset sponsors and investors, making financing activities transparent and efficient, creating new opportunities for borrowers who have not been able to access DeFi liquidity so far, and getting rid of the middlemen, inefficiencies and problems in the traditional financial industry. High cost. We provide DeFi investors with a stable source of income and can obtain a safer and stable rate of return.” Sammi said.

The following is a record of the community dialogue, organized by Odaily:

Odaily: As an industry pioneer, as early as 2017, Centrifuge began exploring the introduction of real assets into the encrypted market. In view of the fact that some users know little about Centrifuge, first of all, I would like to ask you to introduce the development and purpose of Centrifuge.

Sammi：Centrifuge is a project on Polkadot that connects real-world assets and DeFi liquidity. Centrifuge is committed to bridging real assets such as invoices, real estate and royalties to DeFi, providing enterprises with convenient and low-cost financing channels, reducing financial intermediary obstacles; at the same time providing investors with high-quality investment categories to obtain stable returns.

Since its establishment four years ago, Centrifuge has integrated with multiple DeFi protocols such as MakerDAO and Aave, and will be launched in the Polkadot ecosystem to truly realize the barrier-free flow of DeFi and real assets.

Our own Centrifuge Chain has been launched since May 2020. The Centrifuge Chain has been bridged to Ethereum and will enter the Polkadot network in the future. We obtain the liquidity of Ethereum through the Dapp Tinlake of Ethereum, and now there are nearly 50 million US dollars in TVL. There are currently 11 asset pools on Tinlake for investors to choose from and invest in to obtain stable high returns.

At the end of September, our leading network, Altair, won Kusama’s ninth parachain slot, and now Centrifuge is participating in the second round of bidding for the Polkadot parachain.

Although Centrifuge has achieved some results, it has not stopped. We recently cooperated with AAVE to launch the real-world asset market on the chain (https://rwamarket.io/), which created a precedent for DeFi. Centrifuge will persist in connecting real-world assets and Defi for a long time.

Odaily:: At present, the vast majority of Defi products are based on crypto-ecological native asset lending, such as compound and AAVE. Why did Centrifuge choose to take a different path-connecting real assets to Defi? What do you think of the development prospects of this track?

Sammi：Connecting real assets to Defi has always been Centrifuge's mission and DNA. Our founders are serial entrepreneurs who have been engaged in entrepreneurship in the TradeFi field and have accumulated years of experience. And Centrifuge is the bridge that brings real-world assets into DeFi. Our mission is to connect asset sponsors and investors, make financing activities transparent and efficient, create new opportunities for borrowers who have not been able to obtain DeFi liquidity so far, and get rid of the middlemen, inefficiencies and high costs in the traditional financial industry. cost. Centrifuge provides DeFi investors with a stable source of income and can obtain a safer and more stable rate of return.

In our opinion, DeFi is a major trend of future changes in the financial field, and its essence is to solve all trust problems. The future of Defi should also be linked with the traditional financial industry and introduce trillions of dollars of real-world assets into the encrypted market. The prospect of this track is very bright.

Odaily: Since you just mentioned the founder, could you please give us a detailed introduction to the basic information of the entire team and its current development.

Sammi：The Centrifuge team comes from many world-renowned companies and organizations, including Consensys, Electro Coin Company, Parity, Goldman Sachs, Credit Suisse, SAP, Microsoft, Deloitte, the United Nations, the Federal Reserve, and more. Our founders are serial entrepreneurs who have been engaged in entrepreneurship in the traditional financial field and have accumulated many years of experience.

CEO Lucas Vogelsang has been working at the intersection of technology and business since graduating from university. He is CTO of Swiss e-commerce startup DeinDeal and co-founder of Centrifuge. After the successful sale of DeinDeal, he helped German startup KaufDA expand internationally. He then joined Taulia as Engineering Manager. He later co-founded Centrifuge with Martin and focused on real-world asset DeFi.

CFO Martin Quensel, a serial entrepreneur in fintech, crypto and financial supply chain automation, started his career at SAP as a software developer and architect. Before Centrifuge, he was the co-founder of Taulia. Martin has a keen interest in how software impacts the real world and how to make it better.

Odaily: As the first to try Centrifuge, Centrifuge must have encountered many practical obstacles in the past few years. Can you share the most impressive ones?

Sammi：In connecting the regulated TradFi world to the trustless DeFi world, we encountered challenges that only a few in DeFi have encountered so far. We have done a lot of work in the process of product launch to comply with AML regulations and US securities standards, because this is an emerging industry, and our team is willing to explore this new field with the industry.

Odaily: Next is the highlight of this AMA, about the operation process of the Centrifuge real asset solution. How does Centrifuge convert real-world real assets into encrypted assets for financing? Can you please introduce the detailed process with specific examples.

Sammi：Next, we take the music streaming platform Paperchain as an example to explain the operation logic of Centrifuge in detail.

First, music creators register on Paperchain and upload their music integration data on various platforms (currently mainly Merlin, Spotify, Apple and YouTube); Paperchain uses its own data model to price and predict its future streaming revenue every 24 hours ( tentatively referred to as "Accounts Receivable").

Then, Paperchain packages and sends the account receivable to the Centrifuge platform to generate a non-homogeneous token (NFT) with legal effects; then convert the NFT into an interest-bearing ERC20 token, and Paperchain can set the income of the token rate and number of releases. Investors use the encrypted stablecoin DAI to purchase these interest-bearing ERC20 tokens for investment; these stablecoins are sent to Paperchain, which converts them into fiat currencies.

At this time, although the accounts receivable have not yet arrived, music creators can directly advance their copyright income from Paperchain. When the accounts receivable arrives, Paperchain gets the music creator's income, and then redeems and destroys the ERC20 tokens purchased by previous investors, thus forming a complete closed loop.

A brief summary of the Centrifuge financing process: the asset promoter packages and uploads the assets, and generates a legally effective NFT on the Centrifuge chain; the NFT is mortgaged, the price is estimated through the model, and bridged to Ethereum to generate interest-bearing ERC20 tokens; investors buy with DAI These interest-bearing ERC20 tokens; promoters get financing, redeem after maturity, and investors get income.

In addition to accounts receivable, various real-world assets such as invoices, car loans, and royalties can be converted into tokens for loan financing through the Tinlake platform; by simplifying the financing process and reducing costs, thereby improving the liquidity of physical assets and Investment transparency.

Odaily: With regard to asset promoters, Centrifuge’s idea is that anyone can become an asset promoter, so how to determine the promoter’s ownership, authenticity and legality of assets?

Sammi：Yes, in the traditional financial system, small businesses cannot efficiently obtain low-cost funds. Centrifuge hopes that these SME borrowers can become asset sponsors and obtain Defi liquidity through the Centrifuge platform.

By providing documentation proving ownership of a financial asset, asset originators can mint NFTs that are locked into Tinlake as collateral for financing. Information on these assets will be shared with third parties in Centrifuge's secure network, including asset valuation companies, audit companies, underlying asset end borrowers and service providers. Originators can optionally share asset details with these third parties, who can evaluate the data and provide feedback to minted NFTs.

Odaily: In some cases, real assets may not be standard assets such as cars and houses, but non-standard assets such as copyright taxes. For asset pricing, what methods does Centrifuge take to ensure reasonable valuations? Who will act as the pricing party? Will there be any changes in the future?

Sammi：Determining the value of illiquid assets is notoriously difficult because there is no secondary market to determine their value based on active trading records. Valuation methods for illiquid portfolios will typically be based on fair value valuations using financial models. This valuation method evaluates the future cash flows expected to be received by the mortgaged asset and discounts the cash flows to reflect the present value of the cash flows - the so-called discounted cash flow ("DCF") method. Of course, we will also make risk adjustments to the expected cash flow to reflect the risk of the asset pool and the possibility of investment recovery. We have been continuously optimizing our products and pricing system, and we are also willing to listen to the opinions of the community on this point.

Odaily: Even if the asset sponsor passes the review, the encryption market may not recognize some real assets very much. How to ensure that the real assets obtain enough liquidity to successfully complete the financing?

Sammi：The Centrifuge Protocol is now integrated with the two largest DeFi protocols (MakerDAO and Aave) and will be live on the Polkadot ecosystem, thus connecting DeFi across Polkadot and Ethereum to an infinite market. Real World Assets (RWA) have huge potential in terms of volume, adoption and risk diversification. This partnership between Centrifuge and Aave is the first of its kind in DeFi financing, and will greatly change the rules of the game for millions of corporate financing, providing instant, unbanked liquidity for real-world assets.

Odaily: For default, the liquidation of real assets may not be as simple as on-chain assets. The liquidity of non-standard real assets such as copyright may not be good, and it is difficult to find a counterparty for liquidation. How to solve these problems?

Sammi：First, when taking out a loan, the borrower must provide collateral. We will have an over-collateralization mechanism to reduce risks for investors, that is to say, the value of the collateral needs to exceed the amount invested in the asset pool. If the price plummets and the amount of collateral no longer covers the amount they borrowed, they can use the overcollateralization as a safety buffer to liquidate their collateral. If the asset pool defaults, the investor has recourse against the borrower. In the event that the borrower is not bankrupt, the borrower is obliged to liquidate the assets and repay the investor. If the liquidation value of the asset is insufficient to repay the investor's investment amount, then the borrower is responsible for making up the shortfall itself.

Odaily: At present, there are some emerging protocols in the market, trying to replicate the Centrifuge model. In your opinion, what are the differentiating advantages of Centrifuge's solution? How does Centrifuge build its own moat and not be surpassed by competing products?

Sammi：Centrifuge was one of the first projects to launch Parachain on Polkadot. Centrifuge is built on Polkadot for speed and low fees, while its financing Dapp Tinlake is used to access the massive liquidity on Ethereum. This gives Centrifuge an advantage in accessing two of the largest ecosystems in the crypto space: one for DeFi liquidity (ETH) and the other for speed (DOT).

Centrifuge is the first ever real-world asset backed into MakerDAO's DAI, we are the largest real-world asset project on Maker, 3 asset pools attracted 15 million DAI, and are the first real-world asset on Aave work in the market. Direct integration into other DeFi protocols gives Centrifuge users instant liquidity and makes DeFi protocols safer against destabilizing events by adding uncorrelated collateral. Centrifuge currently accepts DAI and cUSD (Celo USD) in its pool, and may accept any stable token such as Acala, DAI or Celo in the future. The team is also working on building money markets on Compound and Aave.

Odaily: There are currently 11 fund pools available for investors to choose from on Tinlake. Can you introduce Centrifuge’s achievements in the past few years? Which traditional projects have you reached cooperation with?

Sammi：Currently, Centrifuge has about 50 million DAI locked up. A total of 11 asset pools are in the financing period, and more than 70 companies/asset sponsors have created pools for mortgage loans.

Taking Paperchain as an example, the traditional music copyright payment cycle is generally 90 days. Through Tinlake, Paperchain successfully completed a pilot transaction on September 11, 2019, and prepaid customers $60,035 in Spotify revenue at an annualized rate of 7%. The initiation time of the entire pilot transaction prepayment is less than 30 minutes, and the initial cost is less than 3 US dollars (Ethereum Gas fee cost), which greatly accelerates the payment cycle, and creators can focus more on music creation and create better works.

Taking the cargo company ConsolFreight as an example, the payment cycle of its freight invoices is generally 30 to 45 days, which is also shortened to within one day; the shortened payment cycle is conducive to improving capital utilization and helping ConsolFreight expand its scale.

In addition, Centrifuge has established long-term partnerships with financial companies such as: New Silver (technical non-bank lender), ConsolFreight (trade finance and factoring provider), Harbor (supply chain finance).

Odaily: I learned that Centrifuge has also issued its own native token CFG. Can you introduce its main functions and economic model in ecology?

Sammi：Our current total amount of tokens is 439 million CFG, increasing at a rate of 3% per year. CFG can be used for staking, paying transaction fees and participating in on-chain governance.

CFG holders participate in governance through on-chain voting. Token holders have the ability to make decisions about upgrading the chain, including adding new features or modifying the fee structure. This includes determining the risk management model and liquidity terms in Tinlake.

Users pay transaction fees on the chain through CFG: including minting NFT, financing transactions on Tinlake, and more functions. Part of the transaction fee will be distributed to the collator node, and the rest will be destroyed at the rate set by the governance mechanism on the chain, so that the token supply will be stable for a long time.

CFG will be used to reward asset promoters and investors in Tinlake. We hope that these rewards can encourage more asset promoters and investors to come to our platform, make the real-world asset pool on the chain stronger, and make the investment choices of DeFi users more diversified.

The current issuance of 439 million CFG and its lock-up period reflect the long-term commitment of each relevant group to build and develop the network. The largest allocations are reserved for ecosystem and community participants.

Odaily: In terms of financing, what institutional investment has Centrifuge received? Could you please introduce it in detail?

Sammi：In terms of financing, since its establishment, it has received nearly 20 million US dollars in financing, and its investment institutions include BlueYard Capital, Mosaic, Crane Venture Partners, Galaxy Digital, IOSG, Rockaway, Fintech Collective, Moonwhale, Fenbushi Capital, TRGC and HashCIB, etc. enterprise. Most recently, Davoa Capital raised a $25 million debt fund to invest exclusively in Tinlake asset pools.

Odaily: In the next step, what are the development plans of Centrifuge? Can you introduce them in detail?

Sammi：(over)

(over)