The Centrifuge Protocol is a blockchain platform designed for the tokenization and financing of real-world assets within the decentralized finance (DeFi) ecosystem.
- What is Centrifuge
- Mission of the Centrifuge Protocol
- Evolution of the Project
- Features of the Centrifuge Protocol
What is Centrifuge
Centrifuge is an infrastructure that facilitates decentralized financing of real-world assets directly on the blockchain, creating a fully transparent market that allows borrowers and lenders to transact without unnecessary intermediaries. Asset pools are fully collateralized, liquidity providers have legal recourse, and the protocol is asset-class agnostic, including pools for assets such as:
- mortgages;
- invoices;
- microloans;
- consumer finance.
Ultimately, the protocol aims to reduce the cost of borrowing for businesses around the world, providing DeFi users with a stable source of collateralized income, uncorrelated with the volatility of crypto markets. By transferring the entire structured credit market onto the blockchain, including security, tokenization, privacy, governance, and liquidity integration, Centrifuge creates a more transparent, accessible, and unlimited financial system.
Mission of the Centrifuge Protocol
The Centrifuge Protocol is created to harness the capabilities of blockchain technology and ensure financial accessibility for all. Credit is an integral part of the functioning of the economy and a key driver for business growth. However, only the largest companies have direct access to liquid capital markets, while this access is closed to small and medium-sized enterprises (SMEs).
The Centrifuge Protocol uses blockchain technology to solve this problem.
Financing real-world assets currently requires multiple intermediaries. All these intermediaries increase initial and ongoing expenses, raising barriers for small and medium enterprises compared to large corporations.
Evolution of the Project
Centrifuge conducted a series of experiments with several versions of the previous version of the protocol, known as Tinlake, on the Ethereum platform.
| Year | Event | Description |
|---|---|---|
| 2019 | Start working with the first version | Work began with the first version of the previous version of the protocol, known as Tinlake. |
| Early 2020 | Adding static pool and simple tranche support | Following the first version, static pool and simple tranche support were added. |
| End of 2020 | Launch of revolving pools | The launch of revolving pools on the Ethereum platform was carried out. |
| Mid 2021 | Integration of the first pool with the MakerDAO protocol | The first pool was integrated with the MakerDAO protocol. |
The experience gained in these iterations was used to develop the first version of the full-fledged Centrifuge protocol. Each iteration underwent thorough scrutiny by recognized firms specializing in smart contract audits.
Features of the Centrifuge Protocol
There are several features of this protocol that distinguish it from other projects.
- Transparency
Users receive fully transparent process from start to finish, as the entire capital structure, security, and servicing of debt obligations are transferred to the blockchain — multi-level tranches, net asset value (NAV), privacy-first tokenization, reporting, and much more.
- Lowering the Cost of Capital
A decentralized infrastructure that reduces the cost of traditional off-chain securitization and uses open-source services to decrease expenses and complexity of traditional financial operations (TradFi).
- Equality and Open Participation
Decentralized blockchain governance provides equal, open access for all participants in the securitization process — new issuer proposals, underwriting, servicing, and more.
- Access to DeFi Liquidity
Users can use the entire spectrum of capital, gaining access to general and main capital of leading stablecoin DeFi protocols.
- Diversification
Users can diversify stablecoin and treasury collateral with income correlated to real-world assets, stabilizing long-term value and health of the protocol.
- Security
A protocol with legal recourse and strict regulatory and compliance requirements — client conformity checks (KYC), sanction screenings, accredited investor checks, as well as thorough technical audits.
The protocol allows issuers (borrowers) to issue non-fungible tokens (NFT), each of which represents a specific asset or a portfolio of assets. These tokens can then be used as collateral to attract liquidity from investors in the DeFi ecosystem. Centrifuge aims to make the process more transparent and efficient, reducing the role of intermediaries and overall financing costs.