It’s a phrase that almost became a joke to highlight the supposed uselessness of the distributed ledger technology. But Centrifuge, a project designed to put debt products on-chain, is making the cliche look serious. It has facilitated $252M in financing.
With $112M in outstanding loans, the platform also leads all real-world asset (RWA) lending protocols, according to RWA, an outfit which focuses on the fast developing tokenization of assets which aren’t natively digital.
Lucas Vogelsang, the co-founder and CEO of Centrifuge, told The Defiant he is seeing unprecedented interest in putting bonds, loans and other traditional assets on-chain.
“The people that are forward-looking in finance and are thinking about where this whole industry is going, are starting to understand what DeFi is, how it works, and its promise,” Vogelsang said.
Centrifuge has raised almost $16M from Coinbase Ventures and Blocktower’s venture arm, according to Crunchbase. Its native token, CFG, has soared 43% in the last 14 days compared to a 24% jump in ETH.
Vogelsang said many finance pros are open to a future where virtually all assets are represented on blockchains in some way.
Centrifuge’s strategy differs from the approach taken by Ondo Finance, another outfit working in the RWA space. Last week, it launched tokenized versions of major fixed income ETFs. Centrifuge is involved in securitizing and tokenizing previously illiquid debt.
The project is catering to small and medium sized businesses looking for credit. Vogelsang explained that small and medium size businesses don’t have the same access to credit as major corporations.
According to Centrifuge’s documentation, this easy access makes the cost of capital of those 2,000 businesses about 1%, while smaller and medium sized enterprises pay more than 15% because they don’t have a transparent marketplace that can foster competition and bring down financing costs.
Vogelsang doesn’t see tokenizing pre-existing securities as a huge value-add. He gave the example of tokenizing Tesla stock, saying a project could charge a five basis point fee on the service for a while, but if it got big enough, there would be a race to the bottom as global asset management firms such as BlackRock piled in with lower fees.
Recently, Centrifuge made a splash with a $220M deal with Maker, DeFi’s second largest protocol by assets locked, and BlockTower Capital, a hedge fund. Maker issues the stablecoin DAI via collateralization, and BlockTower Credit, the fund’s credit arm, brings loans it has made into Maker as tokenized collateral.
Asad Khan, who wrote up the announcement of the deal and is Centrifuge’s “DeFi politician,” told The Defiant, that the project is aiming to make similar moves in the future.
Centrifuge is already making inroads with Aave, DeFi’s second largest protocol with $4.5B in total value locked, according to The Defiant Terminal. Khan said that Centrifuge is working with Aave’s imminent GHO stablecoin.
The DeFi expert, who previously worked at the Bank of International Settlements in Basel, Switzerland, said that GHO will be collateralized and its implementation will use lessons learned from the approach Maker, which issues DAI, crypto’s fourth largest stablecoin.
“One of those lessons is that real world assets can be a huge enabler for [Aave],” Khan said.
To invest in Centrifuge-facilitated opportunities, investors must submit to know-your-customer (KYC) process, which nullifies some of the pseudonymity prized by degens.
Khan doesn’t see a more regulated DeFi as negative. “The world is growing up a little bit, accepting more stuff coming on-chain and in a legally regulated compliant way as well,” he said.
Vogelsang admitted that financial regulation admittedly introduces a ton of inefficiencies, much of which Centrifuge attempts to shoulder with its infrastructure designed to bring credit products on-chain.
Vogelsang said that despite the resistance to KYC and anti-money-laundering (AML) processes, many of the gains in transparency and efficiency still exist when using Centrifuge’s infrastructure.
For his part, Khan is excited at the prospect of enabling new real world markets to access deeper liquidity.
“The real challenge is like trying to do something really value-add, right?” he said. “[Something] that’s bold and disruptive versus just trying to create more speculative use cases.”