Centrifuge, a decentralized asset financing protocol, produces a comprehensive research report RWA Credit Leader MakerDAO, the super assistant.

Discovering MakerDAO A Comprehensive Research Report on the RWA Credit Leader, through Centrifuge, a Decentralized Asset Financing Protocol

Author: JUMPENG, World Chain Investment Research

Centrifuge is a decentralized asset financing protocol that unlocks the liquidity of real-world assets, allowing borrowers to finance their real-world assets without banks or other intermediaries.

Project Overview

Centrifuge is a decentralized asset financing protocol that unlocks the liquidity of real-world assets, allowing borrowers to finance their real-world assets without banks or other intermediaries. Centrifuge connects real-world assets to DeFi, reducing the capital costs for small and medium-sized enterprises and providing stable income sources independent of volatile crypto assets for DeFi investors. Tinlake is the investment application of Centrifuge, serving as an open marketplace for real-world asset pools. Investors can view the funding pools provided by asset originators and invest in pools that suit their needs to earn returns.

1. Research Highlights

1.1. Core Investment Logic

Abundant ecosystem resources: Strong support from MakerDAO, strategic partnership with Aave. Centrifuge’s biggest competitive advantage lies in its successful collaborations with most top-tier DeFi projects, laying a solid foundation for rapid user acquisition and liquidity anchoring. For example, MakerDAO has become the stable funding source for 80% of Centrifuge’s active loans, creating a positive feedback loop: MakerDAO obtains high-quality collateral assets through Centrifuge, while the substantial financial support drives explosive growth for Centrifuge. This win-win model allows Centrifuge to efficiently unlock and utilize real-world assets. In addition to MakerDAO, Centrifuge also collaborates with top DeFi projects like Aave to build exclusive financing pools for RWA, bringing more platform traffic and user benefits to the Centrifuge ecosystem. It can be foreseen that relying on such a strong ecosystem alliance, Centrifuge’s leading position in the RWA track will become more solid, establishing its biggest core competitiveness.

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Strong team behind Centrifuge: Centrifuge was founded in 2017 by three co-founders, Lucas Vogelsang, Maex Ament, and Martin Quensel. The trio are professionals in the blockchain and financial industries, with extensive industry experience. The entire Centrifuge team has grown to about 56 members, covering multiple fields including blockchain, finance, and regulatory compliance. This team of professionals serves as a solid backbone for the smooth operation of Centrifuge, playing critical roles in technical development, business operations, asset management, risk control, and more. This has enabled Centrifuge to stand out in the competitive RWA industry, serving as another major competitive advantage.

Unique technical implementation by Centrifuge: Compared to traditional mortgage lending, the RWA industry faces higher technical challenges in public chain governance and asset valuation, requiring higher standards for project development and operation capabilities. As a technological pioneer in the RWA industry, Centrifuge has conducted extensive exploration and practice in these areas. It has independently developed Centrifuge Chain, a blockchain optimized for RWA, achieving scalable and low-cost transaction settlement. In terms of the core asset valuation mechanism, Centrifuge has designed a unique risk-adjusted model that can finely reflect default losses of different asset classes. Additionally, it has achieved multi-level securitization of asset collateral, effectively dividing investment risks. These technologies are leading practices in the entire industry. It can be said that Centrifuge has achieved a leading level of mastery in RWA technology, laying a solid foundation for its future product iterations and business expansions. This “technological barrier” advantage also makes it difficult for competitors to surpass.

1.2.Valuation

As of November 24, 2023, Centrifuge’s current market capitalization is approximately $208 million, compared to a total value locked (TVL) of approximately $258 million, indicating potential for further growth. In comparison to other credit protocols in the same sector such as Maple, GoldFinch, Credix, and TrueFi, Centrifuge is leading in terms of TVL and FDV data. From this perspective, Centrifuge’s current valuation is reasonable, considering its leading position in the RWA field and its greater potential for future growth. It is possible that its valuation is currently underestimated. Additionally, the token economy model is enhancing the value transmission opportunities for CFG, and there are prospects for expansion into multi-chain and compliance consulting services, creating investment valuation potential.

1.3.Project Risks

The project risks of Centrifuge mainly revolve around issues such as the valuation and authenticity of real-world assets, lack of infrastructure and high entry barriers, difficulty in mitigating off-chain risks, and uneven development of RWA-based projects. For more details, please refer to section 5.2 SWOT analysis in the report.

2.Project Overview

2.1.Project Introduction

Centrifuge is a decentralized open-source financial platform dedicated to realizing the on-chain representation of real-world assets. By applying blockchain technology, Centrifuge solves the pain points of insufficient asset liquidity in traditional finance. Centrifuge allows individuals or institutions who own real-world assets to utilize these assets as collateral for on-chain financing. Unlike traditional finance, this financing model does not require credit ratings or complex approval processes. The entire process is transparent and does not rely on trust in third-party institutions. On the other hand, Centrifuge also provides new options for investors seeking stable returns. They can provide liquidity for collateralized financing by purchasing Senior and Junior tokens in the Centrifuge liquidity pool and receive dividend returns from the pool. This allows investors to achieve stable returns isolated from cryptocurrency market fluctuations. In summary, Centrifuge solves the problem of insufficient liquidity in real-world assets, effectively connects traditional business activities with blockchain finance, and injects new development momentum into the real economy. The security and efficiency of its model have also been verified by the market.

Source: Centrifuge official website homepage

2.2.Team Situation

2.2.1.Overall Situation

Centrifuge was founded in 2017 by Lucas Vogelsang, Maex Ament, and Martin Quensel. According to LinkedIn, the team currently consists of 56 people. One of the founders, Maex Ament, has extensive experience in the traditional supply chain finance field. Software engineer Alina Sinelnikova graduated from MIT and has years of development experience. Other core members possess strong professional capabilities in the traditional financial industry and technical development.

Source: LinkedIn Official Website

2.2.2. Core Members

Martin Quensel: Martin Quensel is a co-founder of the Centrifuge project and it is his fourth start-up company that he has founded and managed. He has over 20 years of extensive experience in the finance and IT industries. Early on, Martin created and managed the first supply chain software company called M+M Software, which provided supply chain management software solutions and was later acquired by industry leader SAP. After leaving M+M Software, Martin co-founded the leading financial supply chain management software company Taulia with other collaborators. He served as the CEO of Taulia and during his 8 years as CEO, he successfully developed Taulia into a global leader in the field. In 2015, Taulia raised $144 million in financing, marking a significant milestone for the company. After leaving Taulia, Martin focused on new technological innovations in the financial services sector and founded Centrifuge, an enterprise financing project based on blockchain technology. Centrifuge is Martin Quensel’s fourth start-up company that he has founded and managed. He brings rich management experience and technical vision to the Centrifuge project, and has conducted in-depth research on the application of blockchain technology in the financial services sector. Currently, in addition to Centrifuge, Martin also serves as a board member for multiple blockchain start-up companies and is a limited partner in a well-known blockchain financial investment institution.

Lucas Vogelsang: Lucas Vogelsang is a co-founder and CEO of the Centrifuge project, and is also responsible for managing Centrifuge’s technology development team. Prior to joining Centrifuge, Lucas worked for several start-up teams for a long time, responsible for technical research and development and product architecture. He has over 10 years of experience in IT and programming. Initially, Lucas worked for a start-up company developing mobile applications and helping clients with data mining and analysis. He later joined an internet services company, responsible for designing and building service-oriented web frameworks. Through these work experiences, Lucas has accumulated rich experience in software development management. He is skilled in communicating with development teams and defining the technical direction of products. He is also an excellent programmer himself, familiar with various programming languages and development approaches. It is with this technical background that Lucas joined Martin in envisioning and creating the Centrifuge project. As the CEO of Centrifuge, Lucas is responsible for the project’s daily operations and technology development management. He leverages his technical vision and years of management experience to lead the development team in realizing the vision of optimizing enterprise financing processes using blockchain technology. Lucas actively explores the application prospects of blockchain in the financial services sector.

2.3.Funding Situation

According to the disclosed information, Centrifuge has completed 5 rounds of funding, raising a total of over 31 million dollars. Investors include top-tier VCs such as Coinbase Ventures and IOSG Ventures, with BlockTower being one of its product partners. Overall, the strong lineup of VCs brings abundant resources to Centrifuge in terms of products, funds, and compliance.

According to Crunchbase and RootData, on March 6, 2018, Centrifuge completed a financing round of 4.3 million dollars. On October 29, 2019, Centrifuge completed a financing round of 3.7 million dollars.

On February 23, 2021, Centrifuge completed a financing round of 4.3 million dollars. Galaxy Digital and IOSG led the investment, with Rockaway, Fintech Collective, Moonwhale, Distributed Capital, TRGC, and HashCIB also participating.

On May 27, 2021, Centrifuge conducted a CFG token sale on CoinList. The token sale had two options. Option one was available for purchase from May 26th, 17:00 UTC (May 27th, 1:00 Beijing time) to May 31st, 14:00 UTC (May 31st, 22:00 Beijing time) at a price of $0.55 per token. The tokens would be unlocked on July 14, 2021. Option two was available for purchase from May 26th, 23:00 UTC (May 27th, 7:00 Beijing time) to May 31st, 14:00 UTC (May 31st, 22:00 Beijing time) at a price of $0.38 per token. The tokens would be linearly released over a period of two years. The individual purchase limit for both options was $500, and the maximum supply was 17 million tokens. Additionally, Centrifuge provided a whitelist for its lending DApp Tinlake users, offering a sale of 6.375 million tokens unlocking over two years. According to official website information, this public offering raised over $15 million.

On November 2, 2022, Centrifuge completed a financing round of 4 million dollars, with participation from Coinbase Ventures, BlockTower, Scytale, L1 Digital, among others. BlockTower and MakerDAO will create a $220 million fund pool on Centrifuge.

On October 16, 2023, the Web3 Foundation announced the 19th batch of Grant funding, providing a total grant amount of approximately 1.1 million dollars to 33 projects. Centrifuge was selected.

Source: ROOTDATA

2.4.Past Development and Roadmap

2.4.1.Past Development

Date	Event
2020-05-27	Project initiation, launch of the Ethereum-based lending DApp Tinlake
2021-02-23	Completed a financing round of 4.3 million dollars, led by Galaxy Digital and IOSG
2021-09-29	Altair, a pre-existing network, won the 9th parallel chain slot on the Kusama network
2022-01-29	Won the 8th parallel chain slot auction on Polkadot
2022-03-31	Released the roadmap: will initiate and expand real-world asset pools
2022-04-06	Successfully migrated to the Polkadot parallel chain
2022-07-01	Introduced the hybrid cross-chain solution Centrifuge Connectors
2022-11-02	Completed a financing round of 4 million dollars, with participation from Coinbase Ventures, among others
2023-09-08	Aave community proposed to collaborate with Centrifuge Prime in RWA investment and allocate 1 million dollars USDC
2023-09-19	Centrifuge liquidity pool testnet launched on Arbitrum and Base

2.4.2. Development Plan and Roadmap

According to current information, Centrifuge’s future development roadmap may include the following aspects:

A. Completion of Mainnet Migration: Centrifuge plans to migrate Tinlake and other core businesses to its self-developed blockchain, Centrifuge Chain, by 2023, increasing the use cases for CFG. This can further reduce gas costs and improve business performance.

B. Launch of Institutional Consulting Services: To attract more institutional clients, Centrifuge also plans to launch compliance and consulting services tailored to institutions. This can help institutional clients establish standardized solutions in necessary legal requirements, business processes, and lower their entry barriers.

C. Cross-chain Deployment and Expansion: Centrifuge also plans to deploy its services on other public chains such as Avalanche, leveraging the advantages of each chain’s own user base and funds to rapidly expand the project’s scale. It is foreseeable that Centrifuge will become a leading brand in cross-chain RWA services.

In summary, Centrifuge is actively expanding its business scope, enhancing the application scenarios for CFG, and advancing its cross-chain layout. This will help it become a standard provider of RWA infrastructure.

2.5. Social Media Data

As of November 20, 2023, Centrifuge has been actively engaged on social media platforms, gaining widespread attention. Its main operating channels include Twitter and Discord. Centrifuge has over 66,538 followers on Twitter, with frequent updates, making it the primary promotional channel. Here are the specific data for each platform:

Media Channel	Twitter	Discord	Telegram	Medium
Number of Followers	66,538	15,177	2,812	\
Online/Active	Frequent updates	1,007	Frequent updates	\

3. Project Analysis

3.1. Project Background

Centrifuge’s project background consists of two main aspects: its origin and the current growth challenges in the DeFi market.

1) Birth Background

Centrifuge originated from the team’s years of practical experience. Previously, the founding team jointly created and operated Taulia, an enterprise-level supply chain finance service platform that provided convenient and efficient supply chain financing support to Fortune 2000 companies. Through long-term operation and practice, they were clear that although Taulia helped small and medium-sized enterprises reduce their funding costs, these enterprises still faced many financing obstacles. Specifically, small and medium-sized enterprises couldn’t directly access open liquidity resources and had to rely on traditional banking systems, with high intermediary costs. Additionally, the lack of an open and transparent trading venue also hindered their access to funding. The project team realized that leveraging blockchain technology to build an open online financing platform would help provide lower-cost funding channels for small and medium-sized enterprises and enhance their role in the economy.

2) Development Background

Today, although Defi has made significant progress, it is difficult for crypto projects alone to continue to grow. RWA, as a new track connecting the real economy, is highly anticipated. However, RWA projects face high implementation difficulties and require professional service providers to handle rule compliance and technical support. Centrifuge is exactly such a service provider that integrates compliance and technology for RWA.

3.2 RWA Overview

3.2.1 RWA Definition

RWA (Real World Assets) refers to tokenizing all assets from the real world, in general. Unlike asset securitization, which connects traditional assets to capital markets, the essence of RWA tokenization is to bridge the gap between the real economy and decentralized finance, injecting on-chain liquidity into tangible and intangible assets. RWA is supported by a diverse range of assets, including stocks, bonds, real estate, artwork, as well as intangible assets such as cash and accounts receivable. All of these real world assets, including fiat currencies, can be tokenized and recorded on the blockchain. Currently, USDT, the stablecoin that occupies the third place in the cryptocurrency market capitalization, can be considered the most successful example of RWA, as it maps the US dollar onto the blockchain and tokenizes it.

3.2.2 Operating Mechanism of RWA

The core of RWA lies in the on-chain representation of off-chain assets, allowing them to enter the decentralized financial system and enjoy the benefits of liquidity. The basic operational process can be summarized into the following three key steps:

A. Financialization of off-chain assets. This requires clarifying the economic attributes of the assets, including asset pricing, ownership confirmation, legal compliance audits, etc. These steps lay the foundation for asset tokenization.

B. Trustworthy on-chain representation of financial data. By using oracles and other technical means, on-chain and off-chain data can be connected, allowing smart contracts to access real-time asset prices and other critical data, ensuring the reliability of on-chain pricing. Additionally, encryption techniques such as zero-knowledge proofs are used to protect data privacy and security.

C. Token issuance for asset tokenization. The corresponding protocol issues tokens or NFTs that represent asset ownership to the market and investors. Investors participate in the income and liquidity of the assets by purchasing and circulating these tokens.

It can be seen that the most challenging aspect of RWA in the operational process is not on-chain representation, but rather the steps before and after it. Native on-chain data is transparent and trustworthy, but there may be fraud involved when bridging off-chain assets to the blockchain. Additionally, the liquidation of off-chain asset collaterals is much more complicated than on-chain collateral liquidation. Successfully addressing these issues and bridging the gap between on-chain and off-chain is key to the success of the RWA mechanism.

3.3 Project Principles

Centrifuge has built an original business model that effectively connects real-world assets with Defi. It achieves the fine-tuned design of asset financing through two aspects: on-chain and off-chain.

A. Off-chain: The Special Purpose Vehicle (SPV) mechanism is used. An SPV is a special legal entity used in the process of offshore asset securitization to purchase, package, and issue securitized assets. It is mainly used for investment. Due to the strict limitations on its business scope, it is a high-credit grade entity that generally does not go bankrupt. The SPV mechanism establishes a dedicated legal entity for each financing transaction, isolating borrowing risks and protecting investor rights.

B. On-chain: It mainly includes three aspects: P2P network, tranching pool structure, and legal structure.

● P2P network: Centrifuge utilizes the peer-to-peer network principle to help asset issuers securely store data on-chain as NFTs. On one hand, it ensures the authenticity of financing, and on the other hand, it provides investors with necessary details through private off-chain data to supplement asset pricing needs.

● Use of tranching pool: Structured products using DROP and TIN effectively separate financing risks and returns, catering to different investment preferences. This lowers the entry barrier compared to direct P2P models, allowing more institutions to participate.

● Legal structure: Centrifuge also integrates a legal framework that incorporates best compliance practices, allowing more users to participate in the platform with trusted KYC compliance.

Source: @defi_drag

In simple terms, Centrifuge, as a lending platform, aims to connect two parties. Firstly, the funding parties who want to earn profits through lending, which are mainly DeFi protocols in the crypto space such as MakerDAO and Aave. Secondly, the borrowers who want to access financing, which are usually startup companies or organizations with real-world assets like real estate, accounts receivable, and invoices. To bridge the gap between the real world and DeFi in terms of asset flow, Centrifuge needs to provide legal and asset on-chain support. Centrifuge’s proposed “Real-World Asset Financial Asset Token” model effectively achieves interoperability between on-chain and off-chain financing ecosystems with its technological and legal support, providing a more efficient financing channel for small and medium-sized enterprises.

3.4. Technical Architecture

After understanding the principles of Centrifuge’s project, let’s delve into its technical architecture. Centrifuge’s technical architecture mainly consists of two aspects: the foundational support layer (Centrifuge Chain) and the product application layer (Tinlake).

Source: Centrifuge Official Documentation

3.4.1. CentrifugeChain

Centrifuge Chain is a proprietary L1 chain developed by Centrifuge, used to create dedicated infrastructure for on-chain real-world assets. The chain is built on the Substrate framework and can benefit from the security protection of the Polkadot network. Centrifuge Chain successfully won the 8th slot auction of Polkadot in January 2022.

Compared to general-purpose smart contract public chains, Centrifuge Chain has significant advantages in transaction performance and scalability. It provides dedicated block space for processing RWA (Real World Assets) transactions, greatly reducing gas fees. It can also customize transaction logic to ensure the priority order of RWA transactions and solve congestion issues. This enables Centrifuge to better achieve the digitization and circulation of real-world assets.

1) Asset Tokenization and Private Data Sharing

To transform real-world assets into on-chain representations, Centrifuge adopts the NFT tokenization approach. Each borrower will issue a unique NFT containing the basic asset information required for tokenization. These NFTs are locked in the Centrifuge asset pool and represent the corresponding assets for financing. However, the NFT information published on the chain usually only includes basic fields and cannot satisfy investors’ demand for richer asset data. Therefore, Centrifuge has designed a solution for private data layer.

A. The private data layer adopts a peer-to-peer network of POD nodes, allowing issuers and investors to securely share additional data assets in this network. The asset data is hashed and anchored in the on-chain NFTs, achieving verifiable associations without exposing the data itself.

B. Through the private data layer, participants can flexibly choose with whom and what asset information fields can be accessed. For example, institutional investors can obtain more comprehensive information, while third-party evaluation agencies can only read and write specific data, promoting the effective combination of asset tokenization and the demand for private data.

2) On-chain Securitization

Financing multiple types of real-world assets separately is not efficient. Centrifuge solves this problem by adopting a centralized securitization strategy. After tokenization, assets are centrally managed in the asset pool through NFTs. Investors provide funds to the entire pool, and the issuer uses the funds for financing various assets, gradually repaying the investors. This creates a single source of asset details – the blockchain – providing investors with transparent financial accounting. Unlike decentralized databases, the information is publicly available and trustworthy. Additionally, based on risk preferences, Centrifuge adopts a graded structure (explained in detail in the next section). This diversification mechanism lowers the threshold, attracts a broader range of users to allocate assets, and improves operational efficiency through centralized management, resulting in reduced financing costs for users.

3)Integration with DeFi

Centrifuge designs its asset pool to directly integrate with any EVM chain, greatly reducing the complexity of integrating DeFi protocols. Through standard interfaces, DeFi products such as stablecoin protocols can directly invest in Centrifuge’s asset pool, providing deeper liquidity support for issuers. This eliminates the need for many DeFi projects to integrate various sources of liquidity and their respective user bases.

Centrifuge Chain itself is based on the Substrate framework, which supports interoperability between multiple chains. This means that projects participating in the ecosystem are not limited to the same chain and can collaborate across different networks, forming a truly multi-chain open financial ecosystem. In summary, Centrifuge’s design allows its asset pool to be easily and efficiently accessed and participated in by DeFi products, greatly reducing the difficulty of combining DeFi with real-world assets and promoting deep integration between the two, benefiting asset issuers and the entire industry.

4)Legal Structure

Centrifuge has done a considerable amount of work in terms of compliance based on the legal structure of asset securitization in the United States. Its legal structure is based on Regulation D under the 1933 US Securities Act, specifically either 506(b) or 506(c) exemptions.

Every asset originator on Centrifuge is required to establish a separate legal entity, known as a Special Purpose Vehicle (SPV), for each funding pool. SPVs play a key role in asset securitization by separating the business of the asset originator from the financing activities in the pool. They serve as a conduit and do not have employees. Legally, the assets are sold to the SPV, so even if the asset originator goes bankrupt, it does not affect the assets held by the SPV, thereby safeguarding the interests of investors. Investors go through KYC and other compliance procedures and sign agreements with the SPV.

The current legal structure is developed for issuing asset securitization products in the United States, and US citizens must meet the requirements of being “accredited investors” as defined by the US SEC to invest in such products. Centrifuge is also actively working on introducing product structures for jurisdictions outside the United States, but currently, countries under US sanctions cannot invest in Centrifuge’s products.

Source: Centrifuge Official Documentation

3.4.2.Tinlake

Tinlake is an open-source decentralized lending platform deployed on Ethereum by Centrifuge. It serves as the primary product gateway for customer-facing projects and is a consumer-oriented product. It converts real-world assets such as invoices, mortgage loans, and royalties into ERC-20 tokens, which serve as collateral in the liquidity pool for financing, enabling borrowers to obtain stablecoin loans with real-world assets as collateral. In simple terms, Tinlake is a smart contract-based open asset pool that connects real-world asset originators with investors, providing liquidity through DeFi for corporate financing services.

Source: Centrifuge official documentation

1) Graded investment structure

Tinlake adopts a graded structure to meet different investment preferences and finely divide the risks and returns of the asset pool, providing users with diversified participation options. It usually has three levels: senior, junior, and mezzanine. The senior portion targets investors pursuing stable returns, the junior portion targets investors with risk preferences, and the mezzanine portion is set between the senior and junior levels, offering a certain level of return protection and profit potential. Currently, the on-chain Ethereum pool implements a two-layer solution using DROP and TIN to refer to the high and low levels, respectively.

Source: Centrifuge official documentation

A. Low-risk, low-return DROP tokens

In the Tinlake asset pool, DROP tokens represent the senior portion with a higher priority. Investors holding DROP tokens will receive fixed and stable returns first when the asset pool’s profits are distributed. This is because DROP tokens are designed as “senior” and rank above the junior TIN tokens. Its return rate is fixed and does not fluctuate, and in the event of default losses in the asset pool, the risk will be borne by the TIN tokens, and DROP holders will not bear the initial losses in the asset pool. In other words, DROP tokens have the privilege of priority in profit distribution and default risk protection, making them stable in returns with relatively low risk. Compared to TIN tokens, DROP tokens usually provide investors with a safer investment portfolio option, which is an important reason for the positioning of DROP as a “senior” product.

B. High-risk, high-return TIN tokens

Unlike DROP tokens, TIN tokens represent the floating interest portion in the junior part of the Tinlake asset pool. Compared to DROP tokens, TIN tokens have a lower priority in profit distribution in the asset pool but also bear higher risks. In particular, if there are default losses in the asset pool, these risks will be borne by TIN tokens first. Due to the higher risk of bearing initial losses, TIN tokens usually offer investors a variable, uncertain but potentially higher return investment option. It faces greater risks than DROP tokens, but also has the opportunity to provide investors with rewards greater than fixed returns when the asset pool’s income exceeds expectations. In short, as a “junior” role, TIN tokens are more variable in terms of both risk and return compared to DROP tokens, giving investors a higher-risk but potentially higher-return investment choice.

In Tinlake, investors can choose to purchase DROP or TIN tokens to invest based on their risk tolerance and return expectations. Among them, TIN tokens have a minimum subscription ratio, and if the ratio of TIN is too low, DROP tokens cannot be purchased. At the same time, the Tinlake pool can be set as a “cycle” pool or an open pool, allowing investors to join or withdraw at any time, and the funds provided by investors can be reallocated by the asset originator (unless the investor redeems).

2) Cycle Pool

Tinlake adopts a cycle pool design, allowing investors to invest/redeem at any time. Taking into account investors’ preferences (such as the risk-free indicator in the Drop pool), the decentralized solution matches the investment and redemption behaviors. This ensures that the asset originator has a stable source of liquidity funds, while investors can flexibly invest and redeem.

3) Epochs – Investment and Redemption

Centrifuge uses the Epochs mechanism to coordinate various fund inflows and outflows between investors and borrowers, ensuring the balanced operation of the fund pool.

A. Each Epoch lasts at least 24 hours, and investors can invest and redeem at any time within a cycle. These investment and redemption requests will be locked by the system and automatically executed at the end of the current Epoch according to risk indicators and priorities.

B. If it is not possible to execute all orders due to fund pool liquidity, the system will initiate a solver mechanism. This mechanism tries to execute as many orders as possible while maximizing investor rights. Anyone can submit solutions to the system.

This periodic execution mechanism can effectively respond to various fund change requests, ensuring the smooth operation of the fund pool. It achieves flexibility for investors and provides a stable source of liquidity for asset originators.

Source: Centrifuge official documentation

4) Centrifuge Prime

Tinlake is currently operating on the Ethereum mainnet, but there are plans to migrate completely to Centrifuge Chain, and related functions have been verified on the testnet of that chain. With business development, Centrifuge is actively promoting a safer and more user-friendly upgraded product to replace Tinlake, and this platform will continue to provide underlying support for RWA business. In June of this year, Centrifuge announced the launch of the RWA infrastructure product Centrifuge Prime, a comprehensive set of services and technologies developed by Centrifuge, which helps DeFi native organizations (such as DAOs, stablecoins, and protocols) easily join and expand real-world asset (RWA) portfolios. Its tools include compliance legal frameworks designed specifically for DAOs and DeFi protocols, a sophisticated tokenization and issuance platform, decentralized and objective credit risk and financial reporting, as well as diverse asset classes and issuers. Aave approved a proposal to invest in US Treasury bonds through Centrifuge Prime in August this year.

3.5. Project Roles

The Centrifuge network mainly consists of four types of roles: issuer, asset originator, investor, and compliance party.

1) Issuer

The issuer is a special purpose vehicle (SPV) corresponding to the Centrifuge funding pool. The SPV is an independent legal entity whose function is to issue Senior and Junior tokens representing the asset pool to raise funds. The SPV will provide the raised funds to real-world borrowers corresponding to Centrifuge’s asset pool. The SPV operates independently and has independent legal status, effectively isolating the credit risk of the parent company.

2) Asset Originator

The asset originator is the link between real-world assets and the Centrifuge smart contract pool. The asset originator maintains a business relationship with the borrower and is responsible for conducting due diligence and legal compliance on the collateral assets in the real world (such as invoices, property loans, etc.), and tokenizing these assets on the Centrifuge’s technical framework. The asset originator also participates in Junior investments to demonstrate recognition of the risk associated with the originated assets.

3) Investor

An investor refers to a participant who provides liquidity to the Centrifuge funding pool. Investors can choose to purchase Senior or Junior tokens after completing the KYC process. Senior tokens have lower risk and stable returns, while Junior tokens have higher risk and greater fluctuation in returns. Investors earn income and CFG mining rewards by providing liquidity for these tokens.

4) Compliance Party

Compliance mainly refers to the KYC and AML work conducted by Centrifuge in cooperation with third-party institutions. This includes investor identification and authentication, as well as anti-money laundering monitoring. Currently, Centrifuge primarily collaborates with the securities issuance compliance company Securitize to complete the relevant processes, which helps the Centrifuge pool comply with legal requirements and attract more institutional investors.

3.6. Project Process

The general process of fundraising is usually as follows:

1) Establish SPV and complete legal asset division

First, the asset originator will establish an SPV (Special Purpose Vehicle) for each funding pool. The SPV is an independent legal entity that separates the collateral assets from the originator’s other businesses to reduce credit risk exposure. Then, the relevant parties will sign a series of legal documents to clarify the ownership, usage rights, income rights, etc. of the assets.

2) Asset originator mints NFTs for the real-world assets as collateral

The asset originator will use the Centrifuge Chain and P2P messaging protocol to mint NFTs representing the relevant data of the real-world assets on-chain. This NFT serves as the unique identifier for the asset on the blockchain. The asset originator then locks this NFT in the Tinlake smart contract on Ethereum as collateral.

3) NFT Mortgage Issuance of DROP and TIN Tokens

Tinlake issues DROP and TIN tokens with different risk-return profiles for the mortgage financing based on locked NFTs and rating models. These tokens represent ownership of different portions of the risk-return in the financing.

4) Investors Purchase Tokens to Provide Liquidity to the Asset Pool

After completing KYC verification, investors can choose to purchase the higher-yielding but riskier TIN tokens or the lower-risk but stable-return DROP tokens to provide liquidity to the asset pool.

5) Borrower Converts Repaid Funds to Stablecoins for Redemption

Upon maturity, the borrower needs to repay the financing principal + interest. The on-chain operation will unlock and return the collateralized NFTs. At the same time, the repaid funds will be exchanged into stablecoins by smart contracts for token redemption by investors.

Source: Centrifuge Official Documentation

3.7. Project Data

According to the information displayed on the official website, Centrifuge currently has 16 asset pools, with a total of 35 tokens consisting of senior and junior tranches. The total value locked (TVL) reaches $246.096 million.

Source: Centrifuge Official Website

Users can directly connect their wallets to complete KYC and sign the agreement documents, then choose a pool for investment. The pools are currently using DAI and USDC, with BlockTower Series 4, co-built by Centrifuge and MakerDAO, having the highest deposit of 961.05M DAI and an APY of around 4%. The other products accept DAI as the deposited asset, with APY ranging from 4% to 8%. Tinlake pledging also provides a 3.13% CFG reward.

3.8. Project Ecosystem

Centrifuge has built a comprehensive RWA business ecosystem that covers compliance, technology, and funding. On the technology front, Centrifuge collaborates with leading DeFi projects like MakerDAO and Aave to bridge real-world assets into the blockchain space, creating a win-win situation.

1) MakerDAO: Promoting Centrifuge as the Top Leader in On-Chain Credit

Among the major DeFi protocols, both MakerDAO and Aave are actively involved in RWA business, and it is through Centrifuge that these businesses are conducted. Centrifuge is actually one of the earliest on-chain lending protocols and focuses on lending against traditional real-world assets, distinguishing itself from Maple, TrueFi, and other credit protocols that cater more to crypto financial institutions. As early as 2020, Centrifuge, as a technology service provider, helped MakerDAO build an RWA vault backed by collateralized loans from real estate development project 6s Capital. The rapid growth of Centrifuge’s on-chain lending activities this year is largely attributed to MakerDAO’s positioning in RWA assets.

2) MakerDAO related pools

Out of the 16 lending pools disclosed on the Centrifuge official website, 8 are related to MakerDAO. For example, there is the New Silver series, which invests in real estate bridge loans, the BlockTower series, which invests in structured credit, and the Harbor Trade Credit series, which is based on accounts receivable lending. MakerDAO is a priority investor in these pools. Statistics show that currently, there are approximately $200 million of funds related to MakerDAO in these pools, accounting for 80% of Centrifuge’s total TVL (approximately $250 million).

Source: Centrifuge official website

According to data from MakerBurn, the BlockTower S3 and BlockTower S4 vaults, which are integrated with Centrifuge, were set up this year and currently supply $57 million and $65 million of DAI, respectively. In other words, MakerDAO has provided Centrifuge with over $120 million of loan funds this year.

Source: MakerBurn

3) Collaboration with AAVE

Aave and Centrifuge have jointly established a lending pool dedicated to RWA. Depositors can deposit USDC and not only earn interest income but also receive mining rewards from Centrifuge. Borrowers can use various DROP tokens as collateral to borrow USDC and increase capital utilization. The total deposits in the RWA market in Aave currently amount to $7.62 million, with $3.41 million of USDC deposits and $2.78 million of total borrowing, which is not high compared to MakerDAO.

On the operational level, Centrifuge collaborates with third-party KYC, rating, auditing, and other institutions to provide services such as asset evaluation, investor onboarding, and compliance circulation, forming a complete support system. This lowers the operating costs for DeFi organizations and enhances the compatibility of RWA assets in the DeFi space. It can be foreseen that Centrifuge will further expand its scope of collaboration in the future to attract more DeFi organizations and institutional funds. The wide demand for RWA assets in DeFi will also support the securitization of more high-quality real-world assets on the blockchain.

4. Market Space and Potential

4.1. Overview of the Market Space

4.1.1. Market Positioning

Centrifuge belongs to the RWA (Real World Asset) space, specifically the private credit sector within the RWA space.

4.1.2. Track Size

Although the RWA market is still in its early stages, it has shown signs of rapid growth. According to DeFiLlama statistics, as of the end of November 2023, RWA’s total locked value (TVL) in various DeFi categories has risen to sixth place, up four places from its previous rank of tenth half a year ago. This significant growth indicates that with the acceleration of tokenization of U.S. government bonds and other mainstream assets, the TVL has been continuously increasing. This fully demonstrates that as new projects continue to emerge and traditional financial assets are increasingly being applied to the blockchain, the market demand is growing, and the RWA track is gradually entering a period of rapid development, especially with the significant impact brought by the tokenization of mainstream assets. This will continue to elevate RWA’s position in the DeFi ecosystem.

Source: DeFiLlama

Specifically, the current crypto market primarily relies on on-chain activities for income generation, lacking stable and sufficiently diverse real income sources. The rise of RWA can fill this gap. RWA can continuously bring new liquidity and users to the crypto market and provide stable income supported by various asset types. These real-world collateral assets also bridge the gap between the crypto market and traditional finance through DeFi, promoting the widespread adoption of digital assets. According to research by BCG and ADDX, the tokenization market for illiquid assets is projected to reach $16 trillion by 2030, close to 10% of global GDP at that time. Even considering market changes, the most conservative estimate still leaves a space of $3.5 trillion. In comparison, the current total market value of the entire cryptocurrency market is only about $1.2 trillion. Considering the total global assets amounting to $900 trillion, the potential for RWA tokenization is still immense. If the RWA industry can capture around 1% of traditional financial assets, it would mean approximately $9 trillion in additional liquidity and real income sources for the DeFi system. Not only can it bring financial and user dividends to the crypto market, but it can also drive the digitization upgrade of traditional finance. Its potential impact on the market is revolutionary.

Source: New BCG report: Asset tokenization projected to grow 50x into a US$16 trillion opportunity by 2030

Meanwhile, according to Coingecko data, as of November 23rd, the total market value of RWA track tokens has exceeded $1.2 billion, which is approximately 1/50 of the $65.6 billion market value of DeFi tokens. From this perspective, the potential for the RWA track is still immense.

Source: Coingecko

4.1.3. Race Track Landscape

1) RWA Race Track Landscape

Because RWA is broadly defined, the RWA race track involves a wide range of projects, such as Layer1, stablecoins, lending, real estate, public bonds, carbon credit trading, and other directions, involving over 60 specific projects. Below is a simple introduction to each specific category:

A. Stablecoins: This is the earliest and largest field that adopts the RWA concept, but it is often overlooked. It includes mainstream stablecoins such as USDT and USDC.

B. Private Credit: These projects use collateral and rating models to achieve risk stratification. Centrifuge is an outstanding project in this category.

C. Public Bonds: Top DeFi projects such as MakerDAO have made large-scale investments, obtaining stable income through highly liquid public bonds. Representative projects include Ondo Finance and BondbloX.

D. Stocks/Private Equity: Some tokenized projects of stocks and funds that comply with regulatory requirements have been launched, but the scale is still relatively small. Representative projects include Backed and Swarm.

E. Real Estate/Carbon Credit: The tokenization of these high-value low liquidity assets is also steadily advancing. Representative projects include Propy and Toucan.

F. Precious Metals/Collectibles: Some stablecoin projects support the issuance of tokens collateralized by assets such as gold, and the traceability of collectibles is also using blockchain technology. Representative projects include Codex Protocol and LianGuaiX Gold (LianGuaiXG).

Source: @ximi_eth

In addition, there are some infrastructures in RWA that may not belong to any specific category of RWA. Layer 1 blockchains: Such as Polymesh, an institutional-grade permissioned blockchain specifically designed for RWA tokens; MANTRA Chain, built on the Cosmos SDK to allow users to issue and trade RWA tokens; Realio Network, focused on the issuance and management of RWA tokens; Provenance, built on the Cosmos SDK to enable financial institutions to issue and trade financial asset tokens; Intain, focused on financing and credit. Overall, RWA is more widely applied in stablecoins, bonds, and stock assets, and applications in other areas such as real estate, carbon credit certificates, artworks, and precious metals are also increasing. Maker, one of the top DeFi projects, has invested $700 million in RWA.

2) Private Credit

According to the above classification of the track pattern, Centrifuge belongs to the sub-track of private credit, and we will analyze this track in detail. Private credit is an important part of the RWA track. According to data from the rwa.xyz website, the total loan scale in this field has reached about 4.7 billion US dollars, mainly serving small and medium-sized enterprises in emerging countries. These enterprises have obtained additional financing support outside the traditional financial system through the democratized services of the on-chain lending platform. However, from the data, it can be seen that the current participants in on-chain private credit are still mainly institutions and large enterprises, with a total loan amount of several billion US dollars and only over a thousand loans. The high demand for large-scale credit in some countries in Africa and Asia is the main driving force at present. These phenomena indicate that there is still a lot of room for improvement in the liquidity and participation of RWA assets in the field of private credit. With the opening of the regulatory environment and the continuous optimization of projects, ordinary investors will also have more opportunities to share in this rapidly growing industry.

Source: rwa.xyz

Specifically, in terms of the protocol for private credit, on-chain lending has grown by 84% this year, with an increase of about 350 million US dollars from January 1st to November 23rd, and Centrifuge is responsible for 70% of this growth. Several leading on-chain lending protocols a year ago have now gradually faded away in 2023, such as Maple, which once claimed to have nearly 1 billion US dollars. However, Maple is the second largest contributor to the growth of on-chain lending, and as of the third quarter, the value of its active loans has only increased by about 60 million US dollars.

Source: rwa.xyz

4.2. Competitive Analysis

4.2.1. Core competitive factors

A. TVL scale: TVL is an important indicator reflecting the attractiveness of project funds and the effectiveness of ecological construction. The higher the TVL, the more customers and funding support the RWA project has, and the better the effect of ecosystem construction.

B. Team strength: RWA projects require professionals in multiple fields such as research and development, finance, and operations. The team’s integration capabilities in technology innovation, business expansion, and asset operation directly affect the development potential of the project.

C. Institutional penetration rate: If it can obtain recognition and support from leading DeFi organizations and institutions, it is beneficial to the rapid accumulation of liquidity and users for RWA projects. This reflects the brand effect and credibility of the project.

D. Token economic model: The token should have sufficient application scenarios and value capture space. This can create strong economic incentives and enhance the risk resistance capabilities of the token and its protocol.

The competitiveness of the RWA project’s market position and future prospects are determined by a comprehensive consideration of the above factors.

4.2.2.Competitive analysis

Based on the analysis of the private credit landscape mentioned above, Maple, GoldFinch, Credix, and TrueFi, four influential projects in the credit field, are compared with Centrifuge for competitive analysis.

Source: rwa.xyz

1) Maple

Maple currently has a total loan amount of $1.8086 billion, active loans of $139 million, default loans of $48.85 million, and a token market cap of $105 million.

Maple integrates the traditional CLO financial model into the blockchain to guide more businesses to obtain on-chain funding.

It establishes representative relationships with financial institutions and enterprises, acting as the first loss provider and assessing loan requests. This gives it a strong centralized nature, as representative selection is controlled by the Maple team. Currently, 62% of the active loan amount is represented by its 11 investment companies, which may increase overall risk. In addition, Maple has a default rate of 2.935%, especially considering the significance of the 11 companies, the quality of its credit needs to be observed. Overall, Maple fully exploits the convenience brought by the blockchain for corporate financing, but its risk management capability and the decentralization level of its financing model need to be strengthened, which will affect the platform’s long-term stability.

2) GoldFinch

GoldFinch currently has a total loan amount of $113 million, active loans of $103 million, default loans of $5 million, and a token market cap of $44.88 million.

GoldFinch is a decentralized protocol that allows lending without collateral. It establishes a unified senior asset pool, so all participants face the same risks, and the pool’s liabilities and returns remain consistent. Borrower risk is managed by diversifying across different types and industries. GoldFinch has a fully decentralized decision-making mechanism, and project financing and scale are collectively decided by supporters. Its leverage model and incentive mechanism enable loan pools with high support to receive more capital support. So far, the project has performed well with low default risk, thanks to its innovative credit assessment mechanism and unified fund management mechanism. Overall, GoldFinch achieves true decentralization in unsecured lending through technological reforms. Its credit management and liquidity design can inspire the industry.

3) Credix

Credix currently has a total loan amount of $44.02 million, active loans of $35.53 million, no default loans, and no tokens.

Credix aims to create a credit ecosystem for institutional borrowers and investors. It adopts a centralized structure, with a team responsible for managing various aspects of the investment process. This is similar to traditional financial models. It designs non-transferable tokens for each market separately, which may make it difficult to achieve good liquidity. At the same time, strict requirements may also block some investors. As a remedy, Credix sets up a three-tier default prevention mechanism for senior assets, including additional collateral and fund support within secondary guarantees. Overall, Credix explores blockchain’s reform of the credit model, but its centralized features and strict design limit the breadth of participation, and the effectiveness of the remedial mechanism design still needs to be observed in operations. It needs to seek further optimization of liquidity and openness while ensuring compliance, mitigate certain concentration risks, and enhance future operational potential.

4) TrueFi

Credix has a current total loan amount of $1.738 billion, active loans of $19 million, default loans of $4.43 million, and a token circulating market value of $48.88 million.

TrueFi is an uncollateralized lending protocol in the TrustToken ecosystem, jointly managed by users holding TRU tokens. It adopts a precise but centralized architecture, with portfolio managers responsible for making loan project decisions, but it does not clearly state its views on default schemes. Currently, although the default rate of TrueFi is relatively low, it mainly depends on the quality of decisions made by individual managers. It has not fully utilized the advantages of blockchain, such as using on-chain credit information to improve credit assessment. Compared to other projects, TrueFi consistently performs well in KYC compliance and transparent information disclosure. However, its uncollateralized model carries higher risks, and liquidity management is relatively simple. Overall, TrueFi has not fully realized the potential of blockchain technology, and the improvement of default mechanisms and decentralization level is urgently needed, which will determine whether it can truly become a mature decentralized credit product. It needs to integrate more technological elements and delve deeper into on-chain information to achieve sustainable mechanism design.

4.2.3. Competitive Advantages

Based on the analysis in the previous sections, combined with Centrifuge’s network characteristics and starting from the above core competitive factors, we will analyze Centrifuge’s competitive advantages. As a pioneer in the RWA track, Centrifuge’s business model and technological architecture have strong representativeness. Let’s briefly analyze the differences between Centrifuge and other projects such as Maple and GoldFinch:

A. Centrifuge adopts a dual-layer architecture of on-chain and off-chain, which can better manage compliance risks, while most competitors rely more on centralized institutions for verification.

B. Centrifuge supports collateralization of various types of real-world assets, while competitors have relatively single types of collateral assets.

C. Centrifuge has implemented Senior and Junior securitization, dividing risks, while only GoldFinch among similar projects has adopted a similar design of a senior asset pool.

D. Centrifuge has a relatively high credit default rate, which is a result of its business model and not a signal of failure. In comparison, Maple and GoldFinch have more mature default control.

E. Centrifuge is committed to building RWA infrastructure and closely collaborating with multiple top DeFi projects, which is its biggest competitive advantage.

Overall, as a technological pioneer, Centrifuge has accumulated rich experience in the securitization of RWA assets. This makes it an ideal partner for many DeFi projects, and this advantage is difficult to surpass by competitors in the short term.

4.3. Token Economics Analysis

4.3.1. Token Supply and Distribution

1) Token Information

Token symbol: $CFG

Market ranking: 180

Current price: $0.657

Current market cap: $235,684,664

24-hour trading volume: $2,038,217

Fully diluted market cap: $292,432,668

Circulating supply: 360,263,043

Total supply: 447,006,951

It is worth noting that 81% of CFG’s circulating supply is already in the market, which means that most of the tokens are circulating in the secondary market, and there is not much selling pressure from the project team or institutions.

Source: Coingecko

2) Token Performance in the Secondary Market

According to data from Coingecko, the current price of CFG is $0.66, which has increased more than 4 times compared to around $0.15 at the beginning of the year. However, there is still a significant gap compared to the record of over $2 during the bull market in 2021.

Source: Coingecko

3) Initial Token Distribution of CFG

The initial issuance of Centrifuge Network’s native token CFG is 4 billion. This token distribution is handled by the Centrifuge Foundation. In addition, as the Centrifuge Network goes live and operates, an additional 50 million CFG tokens have been minted for on-chain security incentive rewards to participants who contribute to network operation and maintenance.

According to early network snapshots, the total supply of CFG tokens in the Centrifuge Network is 425 million. This allocation ratio and mechanism ensure wide distribution of tokens in the initial stage, laying a solid foundation for the participation structure of the network, which is in line with Centrifuge’s design philosophy of decentralization.

Source: Centrifuge Official Website

4.3.2. Core Demand for the Token

A. Centrifuge Validators: CFG is the native token of Centrifuge Chain, and running the Centrifuge Chain network requires CFG as gas fees. Additionally, becoming a validator node requires staking a certain amount of CFG, making validators an important demand source for CFG.

B. Centrifuge Chain Governance Participants: CFG holders can participate in the decentralized governance of Centrifuge Chain through locking and voting their CFG. Governance matters include parameter adjustments, upgrade plans, issuance mechanisms, etc., which also drives the demand for CFG due to the sharing of governance rights.

C. Tinlake Users: In products like Tinlake, users can obtain loan eligibility and priority usage rights by pledging CFG. Additionally, purchasing and using Tinlake also requires paying CFG fees. This is also an important use case for CFG.

D. Liquidity Providers: Some exchanges and liquidity platforms incentivize liquidity provision through CFG mining, enhancing CFG’s circulation. This portion of CFG liquidity comes from miners and traders.

Overall, the demand for CFG comes from the participants of the Centrifuge system. As the business scale expands, the use cases for CFG will become more diverse, and the demand will continue to grow.

4.4. SWOT Analysis

4.4.1. Project Advantages (Strengths)

For project advantages, please refer to section 1.1 Core Investment Logic.

● Rich Ecosystem Resources: Strong support from MakerDAO, strategic partnership with Aave.

● Strong Team: Comprised of blockchain and finance professionals.

● Sound Regulatory Framework: Emphasis on compliance and investor protection.

● Centrifuge is unique in its technical implementation.

4.4.2. Project Weaknesses

Lacking infrastructure and KYC and compliance being a passive requirement for customers. While we acknowledge the many advantages of using blockchain, the handling of lending cases involving the real world and different jurisdictions will affect lending risks. In the real world, settlement of RWAs and other financial and compliance services are time-consuming and expensive, making it difficult for RWA projects to achieve scalability in the short term. Additionally, existing KYC and compliance services are more geared towards meeting legal requirements and not truly integrating customer fund security, making it challenging for the RWA industry to attract more non-institutional individual users. It can be seen that the RWA industry has significant development potential, but currently faces obstacles such as unclear regulatory policies and inadequate infrastructure, which pose challenges to the rapid progress of the project. As a typical pioneer, Centrifuge must also address these systemic challenges, otherwise its long-term development may be affected, representing the main threat faced by Centrifuge and the entire RWA ecosystem.

Valuation and Authenticity of Real-World Assets: For most real-world assets, market transactions are not frequent, making it difficult to determine fair value. This poses a huge challenge for the asset valuation of RWA projects. At the same time, the project has achieved on-chain and off-chain data connection through technological means. However, ensuring the authenticity of off-chain data is also a challenge. Data manipulation is not uncommon in traditional financial markets. Even after designing a unique risk-adjusted asset valuation model, Centrifuge still faces the risk of valuation bias and data manipulation. If there is a significant overvaluation of assets or data manipulation, it will seriously harm the interests of investors. Therefore, the fairness and authenticity of asset valuation are major risks that Centrifuge must face. This is also a common problem in the entire RWA industry. Centrifuge must make every effort to solve this risk in terms of technology and institutional arrangements. For example, introducing third-party audit mechanisms and using privacy computing technology to protect data authenticity. Otherwise, real-world assets will have difficulty smoothly and sustainably entering the wonderful vision of DeFi.

4.4.3. Project Opportunities:

Broad Prospects for the RWA Industry: There is tremendous potential for the transformation of traditional finance. This is not just a good business, but a huge business. The real-world financial system is much larger than DeFi, and the decentralized world is still in its early stages compared to traditional industries. Even if only a small portion of traditional finance turns to blockchain, it will be a huge success for DeFi and its infrastructure. The rise of RWA fully leverages the imbalance in the global financial system. In many emerging countries, the general public and small and medium-sized enterprises face insufficient financial services, which creates broad growth space for RWA-like on-chain credit projects. These projects can take advantage of the decentralized advantages of blockchain technology, bridge the gaps in the financial system, and provide convenient financing channels for more ordinary users. It can be foreseen that as more and more real-world assets are digitized, the impact brought by Centrifuge will be even more profound.

New Opportunities from Cross-Chain Technology: Deploying across multiple chains expands access to more public chain ecosystems. Blockchain technology is rapidly evolving from the era of single chains to the era of cross-chains. This also brings new opportunities for Centrifuge – through cross-chain technology, it can more easily access the ecosystems of more public chains and collaborate with top DeFi projects on different chains to achieve interconnection. On the one hand, this benefits Centrifuge by further reducing transaction costs and improving system performance. On the other hand, it enables Centrifuge to leverage the traffic advantages of different chains to expand project influence and user base. As cross-chain technology continues to mature, users will not only be able to use Centrifuge on Ethereum, but also access Centrifuge services on other chains such as Avalanche and BSC. This undoubtedly multiplies Centrifuge’s market space. It can be foreseen that the further development of cross-chain technology will drive the entire blockchain industry into a new pattern of multi-chain coexistence and cross-chain collaboration. By then, cross-chain capabilities will become a necessary strategic layout for projects, and this is exactly the direction Centrifuge is actively expanding into.

4.4.4. Project Threats

Imbalanced Development of RWA Track: Currently, in the RWA track, the scale of projects in the stablecoin and bond sectors far exceed those in other branches. This structural imbalance increases the systemic risk of the entire industry. Once the macro environment changes and decentralized financial markets regain popularity, the attractiveness of these mainstream RWA projects may decline significantly. Without other strong support for growth, the entire RWA market will face the dilemma of confidence and fund withdrawal. As a pioneer in RWA technology and applications, Centrifuge must face this potential threat. It needs to continuously innovate in product iterations, expand the application scenarios of RWA models, enrich the types of assets, and broaden the user base. Only by forming multidimensional stable growth drivers can RWA truly become an essential foundation for DeFi, and Centrifuge and the entire track can prosper. To achieve this goal, there is still a long way to go, but opportunities and challenges coexist. If Centrifuge can break through the existing bottlenecks first, its position in the industry will be more solid.

Difficulty in Avoiding Off-Chain Risks: Despite getting the favor of top DeFi protocols like MakerDAO and Aave, Centrifuge, like the previous Maple and TureFi on-chain protocols, cannot avoid defaults and bad debts. This year, Centrifuge has been hit by a series of defaults, and currently, it has accumulated over $15.5 million in unpaid loans. Off-chain asset review and risk assessment have always been systematic problems that blockchain projects find difficult to solve. While attempting to reduce the financing threshold for real-world small and medium-sized enterprises and organizations, how can on-chain credit agreements avoid being exploited by malicious actors and establish investor protection mechanisms through legal and technical means? This might be a long and arduous path. Centrifuge also faces the same dilemma, as it has not fully resolved this core conflict yet, which is a potential weak point for its rapid expansion. It is both a technical challenge and an ethical and institutional challenge. Only by ensuring the long-term sustainable development of the project and actively and steadily promoting it can a balance be found among multiple stakeholders. This requires the joint efforts of the community and regulatory authorities.

Lack of Retail Investors in the RWA Industry: Perhaps in the current environment, the next bull market will emphasize compliance and practicality in the real world. However, it is worth noting that, based on past experience, most explosive moments in the cryptocurrency industry have been caused by bottom-up forces. Currently, participants and audiences in the RWA sector are primarily institutions and enterprises, and ordinary investors do not have appropriate entry points. As a leader in RWA infrastructure, Centrifuge’s products and services primarily target institutions. However, from the perspective of traditional finance’s history and playbook, it is difficult to create a thriving industry without active participation from a wide range of retail users. Therefore, inclusive and accessible services for ordinary users are challenges that Centrifuge urgently needs to address. Currently, Centrifuge faces high compliance requirements, and the threshold effectively excludes a large number of retail investors, which is a systemic problem that is difficult to overcome in the short term. Centrifuge must continuously explore in product iterations and find ways to maximize user accessibility while ensuring safety and compliance, truly achieving financial inclusivity. This relates to the long-term development prospects of the entire RWA space.

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