The narrative surrounding Centrifuge’s leadership in the realm of Centrifuge CFG Real-World Assets is currently undervalued, potentially making it a concealed gem poised for growth in 2025.
Centrifuge constitutes an institutional environment dedicated to on-chain credit. The firm’s primary mission revolves around onboarding tangible real-world assets onto the blockchain, with the overarching goal of enhancing the financial system.
Its services encompass comprehensive transparency, reduced capital costs, inclusive and transparent participation, accessibility to DeFi liquidity, portfolio diversification, and heightened security.
What are Centrifuge CFG Real-World Assets?
Centrifuge serves as a blockchain platform designed for the tokenization of tangible, real-world fixed-income assets, including invoices, royalties, and mortgages. This blockchain infrastructure is constructed upon Polkadot and establishes connectivity with Ethereum through a bridge.
Q3 2023 was one of the busiest periods yet for Centrifuge.
Q3 2023 was one of the busiest periods yet for Centrifuge.
Catch up with our recent accomplishments — and what comes next — in our Q3 Recap 🌀https://t.co/jB2z8DNXrN
— Centrifuge (@centrifuge) October 4, 2023
The inaugural application operating on the Centrifuge network, known as Tinlake, introduces real-world yield to the DeFi (Decentralized Finance) ecosystem by enabling users to collateralize and borrow against their tokenized real-world assets.
Read more: What are Real World Assets? How do RWAs play a crucial role in Defi innovation in 2024?
How Centrifuge CFG Real-World Assets work
Tinlake
Tinlake is a platform connecting investors and asset originators who use real-world assets as collateral in liquidity pools. Investors fund these pools and finance the locked assets. Asset originators can borrow against the collateral directly or through intermediaries like New Silver, 1754 Factory, or Consol Freight.
Investors can choose between two tokens: DROP (lower risk, fixed yield) and TIN (higher risk, variable yield). TIN investors bear losses first if assets aren’t repaid, typically when 8% to 20% of assets default.
Each pool has a set buffer value; once reached, only junior tranche investments are allowed. TIN issuance affects investor yield, and the pool size is determined by asset originators. New asset originators must invest up to 50% in TIN tokens initially, potentially decreasing to 25% with a good reputation.
Assets financed through Tinlake range from real estate loans (e.g., New Silver) to short-term advances (e.g., 1754 Factory), working capital, Amazon seller inventory purchases, and early streaming revenue for artists and media companies.
Investors in both tranches can invest in and redeem DROP and TIN tokens each time a new epoch starts, which is usually every 24 hours.
The relationship between asset originators and DROP and TIN investors. At the end of every epoch, a smart contract calculates the NAV of the pool and accrued interest for investors.
How is Centrifuge CFG Real-World Assets different from other RWAs protocol
Utilizing Tinlake for financing offers several advantages to asset originators compared to traditional investment banks.
Firstly, once the initial pool is established, the process becomes straightforward and requires minimal administrative resources to access capital.
Secondly, capital can be obtained quickly, often with just a few days’ notice. This aligns well with the current DeFi landscape, where there is an abundance of capital-seeking yield, allowing asset originators to capitalize on favorable market conditions.
Moreover, faster access to capital reduces working capital requirements, enhancing operational efficiency.
Additionally, Tinlake financing can be more cost-effective for certain asset originators when compared to traditional investment bank options.
Lastly, Tinlake’s accessibility benefits small and medium-sized enterprises (SMEs) that may otherwise struggle to secure financing from banks, as Tinlake provides them with opportunities that would not be available through traditional banking channels.
Tokenomics
Centrifuge CFG Real-World Assets is the native token for the Centrifuge blockchain, existing on Polkadot and Ethereum. It functions in governance, staking, and transaction fees.
Initially, there were 425 million CFG tokens distributed, with a likely 3% annual supply increase. A buy-back and burn program is expected to stabilize the supply at around 450 million tokens. Future parameters will be determined through governance voting.
The system enhances its security on Polkadot by generating new tokens, which are also used to encourage platform adoption by distributing CFG tokens to investors and asset originators in Tinlake pools. On-chain governance voting can modify parameters like token distribution and Tinlake platform features.
The team’s allocation is approximately 27%, with a lock-up schedule in place. The core team has a 48-month lock-up with a 12-month cliff, beginning in July 2021. Core contributors have a 1-year lock-up without a cliff, starting in July 2021.
Early-stage investors’ tokens unlock over a 1-year period, beginning in December 2021. Rewards for protocol users have no lock-up period. Overall, token distribution appears equitable, aligning the interests of all parties with the platform’s success.
Token functionality and release schedules are well-structured to foster value alignment among early investors, the team, and platform users.
The Centrifuge blockchain leverages security from the Polkadot blockchain. In comparison to to separate blockchain solution, Centrifuge expects to pay less security and thus will have more resources to invest in growing the platform
Risk
Business Model:
In the short term, Tinlake faces potential challenges in balancing supply and demand for financing. Demand relies on partnerships with real-world businesses, while supply comes from the Tinlake community and DeFi protocols. Skepticism among traditional financial institutions may limit short-term growth. However, long-term adoption is expected as institutions recognize DeFi’s benefits.
Regulatory Environment: Tinlake’s adoption depends on the regulatory landscape. Stable and predictable regulations attract asset originators. Faster regulatory clarity reduces barriers, while delayed regulations may slow adoption.
Security: Tinlake faces security risks, but these are mitigated through audits by Trail of Bits and Least Authority.
Asset Originator and Collateral Risk: Investors must trust asset originators to maintain consistent risk profiles, which can be challenging to verify. Separating asset originator and underwriter roles may address this issue in the future.
Technical Analysis
CFG appears to be in a prolonged sideways movement, signaling an accumulation phase lasting for approximately 500 days, with prices fluctuating between $0.15 and $0.5.
Notably, the trading volume remains robust, underscoring continued interest in the token, despite its current Market Cap standing at $110 million.