Centrifuge Looks To Help DAOs Invest In Real-World Assets

Centrifuge, a DeFi protocol for investing in real-world assets, launched Centrifuge Prime, a platform for DAOs seeking to manage a portfolio of RWAs, in beta on June 6.

“Centrifuge Prime empowers [DAOs] to extend their runway and create new revenue streams." Lucas Vogelsang, Centrifuge’s CEO and co-founder, told The Defiant. “Protocols can set up the legal, technical, and operational infrastructure needed to adopt and scale real-world asset investments in a safe and compliant way.”

Centrifuge is an on-chain credit protocol enabling users to provide financing to real-world businesses. Users gain access to a variety of assets, including asset-backed securities, real estate, and invoice financing. Centrifuge said real-world assets offer DAOs a source of “predictable and sustainable yields”

Investors earn both a stablecoin yield and rewards in the form of Centrifuge's CFG token. Centrifuge has a total value locked of $200M, according to Messari.

Centrifuge’s CFG governance token is down around 7% in the past week, according to CoinGecko

Centrifuge Prime

Centrifuge’s CEO said that DAOs have previously struggled to access assets that do not live natively on-chain, due to complex legal issues, technical infrastructure requirements, and other operational headaches.

“DAOs need specific legal structures to be able to access real-world assets [to] provide legal recourse and safety when investing in RWAs,” Vogelsang said. “The heart of Centrifuge Prime is a technical and legal infrastructure that allows DAOs a reliable and efficient way to invest in RWAs.”

In September, Boston Consulting Group predicted that on-chain credit markets could grow to a $16T market by 2030.

Centrifuge’s partners, Blocktower Credit and Steakhouse Financial, also provide financial reporting, credit risk analysis, and portfolio management services to Prime users.

DeFi Partnerships

Centrifuge is one of the leading protocols looking to bridge the gap between traditional assets and on-chain finance.

Centrifuge previously inked partnerships with Aave and MakerDAO, the second and third-largest DeFi protocols. It teamed up with Aave to launch a diversified RWA market on Aave v2 in December 2021.

Centrifuge also began negotiating with MakerDAO to onboard support for RWAs back in 2019. That initiative came to fruition in 2021, with MakerDAO allowing Centrifuge’s liquidity providers to mint Maker’s DAI stablecoin against five different Centrifuge pool tokens that year.

In December, MakerDAO and BlockTower Credit teamed up to deploy $220M on Centrifuge. Maker provided $150M of senior capital while BlockTower fronted $70M of junior capital, marking the first time an institutional credit fund migrated its collateralized lending operations on-chain.

Vogelsang said BlockTower Credit’s Maker vault has already facilitated $140M worth of investments, with the $220M expected to be fully deployed by the end of 2023.

“Just as we did the first time, we are actively collaborating with BlockTower to tokenize this vault and bring these operations on-chain, providing a significant improvement in transparency and efficiency of this investment,” he said.

Endgame Impact

However, MakerDAO is now embarking on its controversial Endgame overhaul, with its founder, Rune Christensen, advocating for the project to reduce its reliance on RWA collateral last year.

Yet despite Christensen’s position, Maker continues to expand its exposure to real-world assets, with the protocol allocating a further $750M for investment in U.S. treasuries and bonds in March.

“While the Endgame plan has many constraints and risk mitigation approaches, we believe that it actually creates a significant opportunity to expand the scope of RWA operations within Maker,” Vogelsang said. “We’re excited about the opportunity to support prospective RWA SubDAOs with our infrastructure and continue expanding DAIs reach in the RWA space.”

Last November, Sebastien Derivaux, a MakerDAO contributor, estimated RWAs were driving 75% of Maker’s revenues.