This is epicenter episode 398 with guests, look as for
building and Cassidy daily from centrifuge.
Welcome to episode of the podcast where we interview
crypto Founders, Builders and fault leaders.
I'm Ryan from Ukraine. And I'm here refrigerator Ernst.
So today we speak with Lucas Vogelsong and Cassidy gaily who
are respected, CEO and co-founder, and reading talking
sign in research at centrifuge. So, but before we talk with
Lucas and Cassidy about centrifuge, we'd like to talk
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Cool. I'm with that.
Let's get into centrifuge. Well, let's start at the
beginning. Can you share with us a bit?
Like, you know, how did centrifuge come about and what's
the vision for the project? So sorry fuge came about when we
started looking at how we expand sort of this new world that
we're building in crypto to businesses to users all around
the world and how we allow them to use their existing assets
that they have. So we looked at how we actually
allow a business to use say and in an unpaid invoice that they
have, or a real estate investor to use their property to get
liquidity. From defy instead of banks back,
when we started actually defy didn't even really exist.
We just said, okay. Well what if people could use
crypto to pay for this instead of s is defy ecosystem
developed. We sort of refined our idea and
our mission to focus really on how we tap into this liquidity.
How we allow users to use it for stuff that exists outside of the
world of truly crypto native. It's and so what, what's in your
future does today is we allow users to borrow money?
Usually stable corn. You most most often die against
any kind of real world acid. We work with, I mentioned real
estate trade Finance to bring those assets on chain.
Allow investors to invest in them, earn a year.
Earn yield on a stable asset but to do so fully in crypto
centrifuges live on maker as the first real asset.
Youth Silver's our first asset originator that got a 5 million
die. Debt ceiling that they're using
to actually mint. The first die in the world
that's backed by real estate. Basically, bringing really wide
assets to the web three. I can imagine there's a lot of
different challenges to overcome.
What were those to you? This hinges are slightly
different. But in a lot of ways is similar
to kannada on chain stuff that we do.
Well, the biggest issue for us that we started working on was
actually, how do we bring liquidity in these assets?
Unlike say ether other tokens that have liquidity that are
fully fungible. A lot of these Assets in the
real world are non fungible. Right?
Like, your house is not the same as mine, your invoice your
credit, if you want to borrow money, that's the did.
From Red credit risks. And if I want to borrow money,
and so if you try to build a build, a marketplace, where
investors and bars, come together, always, this is
something that he's much easier to do if we're all borrowing and
then do the same thing. And that's why you see like
money markets like Ave and or blending protocols like maker,
that just work with fully liquid assets, actually picking up and
becoming sort of successful building out their use cases,
much earlier than lending on, on fungible asset.
It's and so the approach we're taking there is, we allow these
real assets to be bundled into different pools.
That the word that are the concept that exists in the
traditional world is securitization.
Meaning, you take different different assets.
You put them into one, one entity one pool is what we call
them. And then you allow investors to
buy shares of that pool. And so that gives you the
advantage that now instead of having to And a borrower that A
lender that wants to invest in exactly that house.
And then at the right time, the right amount and and on the
other side, finding a bar doing this matching, you can actually
notice throw all of these assets into pool and as an investor, I
can just say, oh I want to invest in real estate and I can
buy tokens from this real estate pool or I want invest in trade
Finance. I wanna invest in companies that
are growing and knee, grep, need money for their, for operate for
funding their operations. So I put money into that pool.
Right, and then the other side, there's more borrowers.
And so that sort of solves this this coordination challenge.
So we've seen an indie fire that their problems with listing
things as collateral in terms of making sure that this is a
trusted asset and there is a good price feed for it.
And basically, a lot of people actually have to collude to
actually make this go south. I could imagine that this is
even more difficult with real word acids.
I mean, basically, as you said, my house not the same as your
house and my car's not the same as your kind, even when you
bundle things together. How do you protect yourselves
and users against spam or fraud? So there's a few things for
we're doing. We already have implemented and
there's a few things were we're still working on a mile of.
Hopefully we can talk a bit about both.
So sort of the this, the problem here is is, of course, like, how
do you know, what exists out there in the real world?
Very simple thing. We do.
I mean, it's actually rather complicated but it was the first
layer of defense is well, we do make sure that there's legal
recourse and so in case all else fails, Obviously, if you're
investing in one of these pools, you there is a legal recourse,
you can go and you can sue. The person that tries to walk
away with your money. And so like this is not Ruby,
don't live in a completely Lawless world, right?
And so like you can rely on that as an ultimate backstop, but
then really the second level of Defense, maybe that we have is I
talked about, we bundle different assets into pools and
What we give investors. As we give investors to choice
to invest in. Actually two different tranches.
It's a each pool has two different tokens where if you
want high risk High return, you can invest in what, what is
typically called the Junior? Eight, but you're protected by
the Junior and maybe to just give you a very quick example.
Say we have, we have 1 million dollars from that investors
invest 900,000, invest in the senior and a hundred thousand
invest in the junior. You have a million dollars in
assets on the other side, right? Maybe that's 20 different loans,
say one of those 20 different loans, worth $50,000 defaults.
So you now have only nine hundred fifty thousand dollars
left. That means actually, that is If
you're a senior investor, you're not suffering anything.
Because you have those Junior investors covering the first
hundred thousand on the other side.
For the junior investors. They would see a 50% loss
because there are losing 50,000 on the hundred thousand that
they invested. And so, what does that actually
gives you the gist two different kinds of investors?
Two different kinds of products that they both actually like
more, right? If I'm the lending protocol or
I'm just like some retail investor.
That's why wants to put money into Savings Bank.
Don't thinking much about like your Score exactly what these
assets should be then I know there's like other investors
that effectively want to leverage their position.
They want to have more risk exposure and make more money and
they're they're taking that risk for me.
And so that structure is it gives you insurance that if
there's like a single default, if there's, there's issue with
the different assets that that is covered by, by sort of these
200 Masters. And so that's that's very
crucial part. And For example, maker in the
example of new silver. They are investing in the senior
tokens. Whereas other investors that
really know that they're real estate market.
I'd like like to have these high these higher yields are
investing in the Junior. And ultimately this is sort of
where we're developing the product to it's actually that
these Junior investors become more important over time.
And actually maybe I want to hand over to Cassidy to talk a
bit about what we have in store there.
Yeah, one of the most exciting things that we have in store and
are working on, we're calling the underwriter token.
And really it's actually just these ten tokens that these more
advanced either Junior investors or Underwriters would be able to
actually give a more accurate assessment of the risk of these
assets. So more accurate because it is
distributed and they're going to be a lot of different entities
participating in this. Today in traditional systems.
This is generally either just a bank that you're working with or
a credit agency and the incentives are really not
aligned for either of those parties either.
You're a bank. That's just trying to make the
best return that you can. And so they're not necessarily
incentivize to price the risk as accurately to the borrower's
favor and the credit agency almost has the opposite because
they're just paid directly by the business in most cases.
Has. And so they're just looking to
make money and are also not really aligned with the
incentives of accurately pricing this risk.
So the idea here with this underwriter token model is that
by holding the tin token? You actually have skin in the
game as an underwriter or Junior investor here and that aligns
the incentives. A lot more closely to actually
have something to lose if you were to price this risk in
accurately. I think there's still a lot of
work that we have to do there and making that system work.
Well, but super excited to move that forward.
And I think that's one of the next big pieces that we have
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I can give a bit of an picture bit more, what the underwriters
actually will do because I do think they really tackle this
problem that you mentioned Federica.
Tariqa, which is like, how do you price these real-world
assets, right? Because they exist outside of
crypto and you need to know okay what it is, what it is?
Exactly. And so I we have what we have in
these pools is we have these investors that have skin in the
game that take first loss. And so they actually, what they
can do is they can they need to Actually decide, they need to be
able to know if this loan that were giving here to borrow that
wants to buy a house if they don't should be priced at 5%
interest per year or 8% through the mechanisms that we're
designing now is effectively. We're creating for we're
enabling these pools to actually have logic where different
Underwriters can stake some of their tune your tokens to assets
that they like meaning assets that they think are priced
correctly are valued correctly. So in the example of a house,
right, you The value of the house.
Is it worth $500,000? Or is it worth $600,000?
And should the borrower pay 5% or eight percent interest.
And so if a borrower comes and says, they want to borrow money
for us to house these different Underwriters can stay towards
that. The loan proposals that they
like, so 500,000 at 8% or 400,000 at 5%, the pool, then
we'll just sort of Select. Only the assets that get the
most. Endorsement by these different
Underwriters, the psych you have now a as Cassidy mentioned in
way to decentralize this pricing challenge, so you can now build
sort of a system where anyone can come in and underwrite these
assets. They can pull an external data
sources. They can look at historic, real
estate market data. They can look at credit rating
information. They can go and look, check out
the house themselves and see if it actually exists and like talk
to talk to the or look at which neighborhood.
You might have the most potential for development.
Right? So you have all these different
things that you can bring in and ultimately to these different
Underwriters can collaborate to then come up with the best
credit rating or the best sort of pricing of this asset and for
us, what does actually the best pricing mean?
Right? Like we're trying to build a
fairer and the more efficient Financial system, and that means
we're not overcharging the borrowers.
We're also not undercharging. And that means, it just needs to
be the price needs to be more than A deep, the risk of default
but not too much more and that's exactly where like them.
These Underwriters are incentivized to take towards
these assets. Such that such that de poule,
ultimately lends out money at these rates.
And that's sort of the idea of where we see actually solving
this. All of these challenges with
real assets, not with just oracle's and serve trying to
pull in data more but creating actually incentive system around
that. It seems that going from from
what you just said, that if an underwriter and a borrower
collude, so, basically, they, I'm, I have a house and I want
to have a mortgage on it on centrifuge, but the house is in
absolute dump. And basically, I really
shouldn't be getting any money for it.
But I have an underwriter who's willing to signal that.
They looked at the house and that it's fine.
The underwriter would never be out.
As much as I could potentially gain, right?
So do you have some sort of reputation and system to combat
that? Yeah, this is this is, this is I
think the one important part, what we do by bringing by
bringing in Underwriters that actually vote on chain, right?
Is that we start creating a track record of these
Underwriters that is verifiable on chain, right?
If you're borrowing against a house here in Germany and you're
borrowing against are you have a loan in the US and like
different people doing this stuff.
There's it's going to be impossible to to, like, build up
this, this reputation. And so, like, for borrowers,
this is very challenging but With Underwriters them being on
chain. They actually do have a
reputation that goes beyond just a single transaction.
And so you can extract, you have these, you have these
game-theoretic issues that you mentioned, and you tackle those
with reputation, and you tackle them with giving exactly that.
Transparency, right? So an underwriter that has done
underwriting for months or years and has done that on many
different assets and now effectively has a reputation,
they will Will attract Capital, right?
Because we're now changing the Dynamics of as an investor.
Do I invest in real estate in the US?
Or do I invest in real estate in Germany to actually which fool
has reputable Underwriters that have a proven track record and
have a significant amount of money at stake.
Right? And so now actually, if they
start doing these kind of, if they did one of these deals
where they were colluding with the borrower, then they would
give up all of that, all of that reputation.
Would would ultimately lose out another important part of how
you can counteract. That is, of course, you don't
want to have just one underwriter in the pool.
That's sort of the single point of failure that you don't want,
right? The minute, you have to
Underwriters and generally they agree on which loans should be
added. But then there's one lone.
That doesn't, that doesn't get the boat or sort of slight
signal of confidence by the second underwriter.
That would be very detrimental. Right?
Like they would clearly signal something's wrong.
And so that this, so So by actually allowing Underwriters
to sort of do their work independently, verifying all of
this off. Chains stuff themselves.
We add this second protection here besides reputation.
We also add redundancy. And just to build on that the
second, third or fourth underwriter there, they're
incentivized to check that information from that first
center writer because they would stand to lose first if those
assets were to default. So having that skin in the game
provides that incentive to really deter, the sort of
collusion in both of those ways that Lucas mentioned.
And then on the flip side of it, one could actually question.
How do we make sure that there's enough?
Enough competition as well that they're not overcharging these
borrowers as well. And I think that's where having
a transparent system comes into play as well because you then
have borrowers that are able to look at lots of different
sources for financing and actually having the underwriters
be able to compete on a good rate for the borrower on the one
side, but also being the first to lose on the other side.
And if some acid were to default, Is it minimum value on
which I can borrow on? I mean, we just talked about
houses, right? So basically, houses, I can, I
can see how alone on a house would sustainably, Finance
Underwriters, a couple of Underwriters to actually keep
the system stable. But I'd say, I want to take out
a loan on my car or say even my reputation or, you know,
something else. Would that work as well?
So you can take out a loan on your reputation.
If someone's willing to trust it, right?
There are, I mean, there in the real world, there are many
places where where you do that, if you're building a company and
you convince, you convince people to give you money to
build that company. Sure.
They're investing in there, getting shares in that company.
But ultimately, they're trusting that you actually want to build
this. And so that does happen in the
real world. I think sort of the what we want
to get to is a place where it's Always easier to to lend money,
to two people to users when there's some like data
available. So like in the case of real
estate, you can verify and check what's in the land register or
like what real estate pot forms say that certain properties are
very Worth. Right?
Sort of looking at all that. I generally wouldn't say.
We want to limit it to anything. I'd love to.
I'd love to find a way that this can be done safely and I do
believe It can write because if if, if you assume that people
are generally honest and you price the dishonesty correctly
and then you can actually make money lending to dishonest
people. This is a bit of a, not to
generally honest, but maybe some dishonest people and that's
that's the truth in every, in every asset class.
I mean, even in crypto, right? Like by the point, by the time,
your onboarding and ERC 20 token of a major D5 project into
another defect protocol. Well, like there's a fair amount
of Rest in that leadership or the sort of the team behind that
certain D5 project is actually not just kind of disappear the
next day, right? And so like heading get, there's
obviously they will never work completely without trust and
that, that, and or some some amount of honesty and some
amount of good intention, but you need to price it and do need
to make sure that you protect yourself as much as possible
from fraud here. In terms of a strict minimum,
the other part of your question Federica, we don't have strictly
speaking a minimum of how much you you need to borrow per se
but that said and 10 like is live on aetherium right now and
guess these are fluctuating, but sometimes too high prohibitively
high for, you know, lower than a certain amount.
So, I don't know if we've seen any fine assets Finance for Less
than a thousand. Yeah, 2008.
But makes sense already. Yeah.
Now, let's talk about Solana. We all know that scalability is
one of the most important issues facing the blockchain industry
today. The Solana blockchain has been
engineered from the ground up optimizing for performance and
scalability to network supports thousands of transactions.
A second with 600 milliseconds block times and over 500
different validators. It's not a shorter blockchain
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the apps on Solana. So they work together.
Seamlessly the salon ecosystem is growing at a rapid pace and
it's a great place to build your project and get involved with
the community to go this Lana outcomes episode to learn more.
We've talked a little bit sort of like on like what type of
acid but I would actually love if you're going to zoom out a
little bit here and talk a bit about, you know, like to use
case and the problem, you know, how big of a problem is this
like globally in like Where is the problem?
Is it in particular types of assets?
Particular Industries? Is it like geographically
distributed? And like what do you think are
the? The use cases were like
centrifuge can make the biggest difference?
Yeah, so I mean the Global Financial system right?
Is if is quite the monster and I think for a lot of I mean at
least when I entered the space that was a very big motivation
was to say, okay. Well actually we can build this
better and and I think I mean the idea of Bitcoin and and then
also like if you're em and I think it's that's pretty much a
shared ideology. I think sort of, and this is
really what? Excites me so much.
Much about defying where I see like very much, the idea and
sort of a vision aligned is with what's any future is doing as
well. It's like defies transparent and
it doesn't have any barrier of Entry is, right, like the code.
Your code doesn't doesn't care about where who you are or what
you do. If you have one, he's you can go
to maker and you can borrow. If you have one use you can go
to oven borrow like right same rate, same terms.
Sorry, everything is accessible if you they actually sort of
before even defy came, right? Like Ico's in 2017, very much
where it's sort of it was the same idea.
It was like, you can do an IPO. You can sell your company on
NASDAQ or New York, Stock Exchange.
You can spend millions in legal fees and go through this entire
like system with. But a bunch of intermediaries
all trying to extract value and likes a bunch of Regulation and
mostly unnecessary paperwork to sort of get to having your
company be traded and everyone being able to buy it on Robin
Hood. And I co said no actually all
you need is you need to do Point Arc 20 token.
Convince people that this is like a token that will become
something cool and people will want to buy and and I think sort
of them like continuing defies to richest like trying to build
sort of apply the same idea of no barrier of Entry is no
transparency. Like radically lower cost to
like all these different Financial products that exist
right? Ico's yoga, first ones, lending,
protocols, all this stuff. What 10 you should just doing,
we're trying. To build the same thing we're
saying. Okay.
Well now we have this defy ecosystem.
How can we apply to other assets?
That are not truly crypto native to real-world assets and the but
the benefits are ultimately the same, right?
And so, who do these benefits, who profits most from these
actually, it's the smaller borrowers, right?
If you're and this is, these numbers are actually pretty
mind-blowing. But if Google Google last year,
borrowed money, ten billion dollars at half a percent
interest rate per year. Ear.
So they issued a bond and sold it on the market at the same
time, small businesses were paying around 10 to 15% apy on
their sort of short-term loans. So that means that Google is
paying 30% blessed for their Capital, right?
And capital is like it's one of the most important ingredients
to building a business. So they have like a 30X
Advantage here at the same time. If you look at default rates
smes in the u.s. Like they, there's like a
default rate of about 2% per year.
So if Look at that, you're like wondering, like why?
Why is an SME paying ten to fifteen percent when the risk of
default across? The whole us is like 2% and
likewise Google paying so little.
And like, where's where's this? Fred going?
And so like this financial system that we live in today,
right, is really just geared towards making it very efficient
for the largest players and is a sort of put this in place.
Where, like, now Bang We're not really incentivized to try to
lower the cost of capital, make this system cheaper to use and
make it fair to use for others. And I think that's what, what
defy can do for a lot of our users.
And so who we we see, like, using centrifuge and, and it's
super exciting to see, is a lot of, like, what you call, what we
call fintech startups. So companies that want to build
new lending products, and don't want to rely on these banks that
screw them over on fees are not really interested in negotiating
with them. So they're like themselves worth
billions of dollars and they look to defy as a solution that
gives them more optionality. It gives them like different
sources of capital and it allows them to sort of get rid of this
whole Legacy world. Yeah, I know if he knows how
great a great explanation and of course, you mentioned, as a
comparison, your Google and at u.s., you know, SME that can
borrow ten to fifteen percent. But then I think in, you know,
in a lot of the world, it's way more.
Yeah, I did Flame or even even it's just not available, right?
Like, you just cannot get access to credit.
Yeah, I think that's another large problem that we're trying
to Target is access to credit at all.
And I don't think it's necessarily Bad Intentions by
the Global Financial system. And a lot of cases with banks.
It's more of an issue of whether this would be profitable for
them or not. It's just so much leg work for
them to do the kyc. Terry do the analysis necessary
to give a loan to one of these smes, especially in different
areas of the world. And I think bringing that on
chain and bringing the level of transparency that we can with
web three changes. The game there.
It makes it a lot more, this information, a lot more
available that not only banks, but any investor could actually
start financing these different Assets in a way that just did.
And feasible before. Yeah, I mean before before
crypto. I one point worked for about
eight months for this Commodities Trading Company and
I think that that is sort of like it's remember remained very
much as a use case. That seems like such a good fit.
And I mean just there were several reasons for it.
You know, one was just the execution of this thing of like,
you know, some company buys from the other company and then, you
know, they would have some banks that would go in between and you
know, they use this archaic instrument letter of credit and
mail documents around and it was it like Refik process, but the
other thing that stood out to me is that this was a pretty big
company medium-sized to large companies.
So they might have had like, you know, 500 million dollars worth
of like, you know, Goods shipping around and or like
invoices receivable for these Commodities.
They would be like selling across the world, but they could
only go to like their bank and they could say, look I have this
like huge pool of things and you know, it's like Five hundred
million dollars worth of that. We will receive.
So can you give working? Can you like give some credit
facility? And then the bank would be like,
okay. This is like 500 million Euros
so we can give you like, 300 million or something like that.
But actually, it wasn't granular at.
All. Right, you could only go to
their Bank to give like, you know, it kind of all of it and
you couldn't collateralize T individual receivable, right?
Because I think that was just impossible to do from a, from a
process perspective. And, you know, they wouldn't
Live long enough, but I think the idea when you can actually
turn each of them in, in doing it, in an individual asset, and
then allow anybody to go in and finances.
It's just like, it's extremely powerful.
Yeah, I mean this is where like I think when we talk about a
bank underwriting, the risk of like an individual asset like
that, like like if you don't fall into one of their like
hundred product lines, like you're you're an individual
wanting to buy a house and you getting a mortgage here, like
one of their large corporate clients and you have an existing
relationship and they're just going to put you into this risk
bucket here, right? Like this is how I get bank will
work. And so the same way like Google
can go and say we're Ten billion dollars, secured Bond issuances
will get the money on the market and people will be bidding for
it. But if I'm the, if I have this
like one invoice that is giving me even a hundred million
dollars in like money in the next couple of months, right?
And it's relatively small for the financial system that sort
of that we know of today, people miss out or sort of our don't
fit into one of these buckets all the time.
And this system today is not really operating at that scale.
And I believe that defiance Sort of getting sort of defining all
of this in code building the underwriter system, right?
We're like now, an underwriter can actually come and look at
your hundred million dollar invoices for that may be because
they are very tech-savvy and they're very efficient.
They use data sources that may be banks will never use.
So they have this. They have the system in place
that they can be made more aggressive at underwriting
assets. That may be a banquet, never do,
and this will then, open up give these assets the quiddity, which
they wouldn't have seen before and giving these The quiddity
means. Now, there are able to tap into
similar pools of liquidity with similar cost of capital that
like some of these very large businesses can tap into it
today. And that, that is then, what is
truly changing? The system we have today where
Google pays 50 basis points and and is SME pays ten, twenty
percent to like this difference, being being much, much smaller.
And ideally really just the closer to the risk of default
right instead. Said of the paying for this rat
tail of processes, that your legacy financial institution has
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I think I somewhat understand the borrower segment now, so
let's talk about the lender segment.
So, who do you expect to lend to these institutions?
I heard the word investor many times.
Now, even heard securitization is their regulatory barrier
here. Because it seems like this
should be caught under SEC dose. Yeah, so these assets are
clearly Securities and we've always, we've always operated
under that assumption and made sure that sort of each pool is
issuing. A regulated security, is this
done with a legal framework that we have that is based out of the
u.s. So you go through kyc you go,
you sort of make sure that you followed your path anti-money
laundering laws. Then you can get approved a way
to invest in these pools and participate by supplying by to
the contract. But there is there's mandatory
kyc which is unfortunately unavoidable until we can start
lobbying the the the Global Financial system to maybe become
a bit more sane about kyc laws. That's that's really out of our
control. Oh, yeah.
So so there is there's a bit of a barrier of Entry.
I think ultimately this is Not really making crypto making or
breaking for crypto. I fundamentally believe that.
I mean, if crypto really deal, if the only Advantage was that
you didn't have to do kyc that, I think it would be a very, very
bad you sp for crypto because there's really so much other
cool stuff and so many other benefits that I think totally
make worth it right outside of that.
So, yeah, we have facing a camera.
See framework, you go through, go through that.
Once you pass it. Then you're really free to
operate in that as you wish to cancer.
Liquidity. You can remove liquidity and and
then also sort of one thing we are doing.
And this is a bit where now it gets unfortunately, really
complicated. But of course they are goal.
Is that investors are not just individuals like you and me, but
we also want to bring this at these assets to other D5
protocols because these other defense, Protocols are very much
unknown to the law as of today. There's obviously there's a lot
of work that has to be done to make sure we find Find a legally
compatible set up so far, we've done that with maker where we
actually are now on boarded. And in the coming weeks.
You should have four more going for more assets going live.
There. We are just announced.
So if to the or he's just published it obvi request for
comments in the Ava Community to launch a money market.
Where investors can supply liquidity to real-world assets
and borrowers. So these different pools can
then borrow depending on where there's Instead of having to
pick whether you want to invest in real estate or invoices and
you need to manage the liquidity in one pool and another like the
oven Market will basically just give you will be by supplying.
The quiddity to that, you will give it to whoever has the
credit needs. Acquitted you right now instead
of this, the benefits of the the out of money market concept.
Yes, you're right. So so those are the next steps
and server sort of on this mission of like making working
out these compatible legal Frameworks like make working
out. A technology to go and sort of
extend D5 with these real-world assets.
Can you explain a little bit of like how does this work under
the hood? Like, what are the processes
that nasty goes through in the steps that somebody has to take
to issue and borrow against such an asset using centrifuge.
The simplest description of what?
What each pool is. It's like a non chain credit
fund, right? So, you have assets on one side,
you have investors in another side.
And what we do is we actually taught we couple a legal
structure to the smart contract. So we deploy the you deploy pool
along that you actually create a legal, SPV special purpose
vehicle. That's a company a Delaware
company that then effectively signs the paperwork with all
these different borrow. Hours and gets the legal
recourse against these different assets.
And investors that invest in this pool is a sign.
Some general terms for subscription document.
That means that when they Supply and die to that pool, they get
certain rights, right? The rights to receive the
payments from from those real-world assets.
And so, that's the basic legal setup that has to happen both
Technical and legal setup and then sort of based on that.
The acid originator does a lot of work.
Of explaining the kind of assets, they want originated and
how they want to structure the pool.
So in case of new silver, new silver talks about how they make
sure that all the borrower's that they want to work with
that. They are actually going to
repay. What the credit risk is that
they're going to take on what the interest rate is.
How much the junior token holders.
So what this incident this buffer is a 10% is a 20% and
then sort of once that step is done.
Then investors can come in and starts.
Applying liquidity to the pool. And so, as the liquidity basic
Isis goes into the reserve and the pool.
That money is then made available for gas originator to
borrow. And to, then they can start
issuing loans, to different people that have that, that want
to borrow in new Silver's case to buy to buy a house renovated
house. And so then what the asteroid
inator does is they take this, they take the die that they can
borrow from that pool, turn it into dollars and wire.
That's to the And that in many cases actually they don't even
know about the fact that their that their loan is findings by
crypto or that. There's like some maker Vault
minting die to actually generate the money that is used to pay
for that loan. But so they're sort of
completely abstract that they're like the very sophisticated
wallet or like a non Fiat on off-ramp.
Right for these borrowers on the other side investors.
They they can then just as they like either like supplier
redeem. So put more money into the Or
take money out and sort of the smart contracts and manage.
All these payments from borrowers to investors.
Both interests and principles are making sure that that
everyone gets the share of the the interest return and so on.
Well, let's talk a little bit about, so centrifuge has also a
token. Right?
A CFG token towards the function of the, I mean, you know,
besides we talked about dropping 10 tokens, which is different
tranches, but then there's also a centrifuge another token
called CFT. Can you explain like, how does
this whole thing work? And how does it relate to, you
know, this process? Yeah, so we have centrifuge
token CFG. That is the token that power
center views chain. So, centrifuge chain is the
special purpose chain that we built using substrate and that's
really specialized to this centrifuge specific use case.
So, the centrifuge token is used there for paying for transaction
fees. So, sort of, like, guess on the
theorem is also used for the chain security.
So right now that's Staking by validators and dominators as
well as as a governance token. So see if G is used to Photon
things from runtime. Upgrades to probably eventually
a lot more features up coming in the future.
Well, I guess you just mentioned also the polka dotted Arrow, the
substrate chain. Actually, I should also mention.
I forgot to mention this in the beginning but that like, you
know, of course, one company. I co-founded to be false, been
running, validator on that chain and supposed to sort of
participate in some of these Arabic 10, like fools and like
invested in the project as well. So mention that.
But so, can you talk about this right now?
I'd be talking about maker. And you know, there's things
that are happening on aetherium where you can take some of those
assets, but then there's also this independent at the moment,
Sovereign substrate chain. So like, you know, how do those
interact and how is that going to change in the future?
So right now, this tin leg tap that we've been talking about is
live on aetherium that's been great and also given us access
to the defy ecosystem, that's grown there, but gas fees are
quite prohibitive. And so the plan with centrifuge
chain is to be able to move 10 leg onto synergies chain from
aetherium, to make it a lot faster cheaper and just
generally make the DAP more accessible for even now
potentially. The lower values of loans as we
talked about earlier. So the first major use case
there is really powering the tin linked up for centrifuge chain
going forward, adding. This functionality will also be
easier. Now that we have this chain that
we can really specifically cater to this use case.
So we don't have to wait for E 2.0 which we're still excited
about. But it makes it us a lot more
Nimble in terms. As of dealing with the different
use cases that come up for us, that might not matter as much to
the etherium community, for example, and so, as, as you
mentioned, you know, were built on substrate and that connects
us to the polkadot ecosystem. And so we'll be launching
centrifuge chain as a pair of chain on polkadot.
And as sort of a precursor to that, basically a live test
ahead of launching centrifuge chain as a pair of chain.
We'll be launching a different network, a different chain
called Altair on kusama. And that's really for us.
The most important thing there is, is having this sort of test
bed with live value. Sober.
Launching Altair is a pair of chain first, which since then Fu
Shan has been live for one year. It's a we see it as pretty
important to test that and make sure that everything goes well
with Altair first before we do. Do this lunch for centrifuge
chain? And then with that next step of
moving tin Les contes interviews chain, that would go on to
Altair first and if any kinks or to come up, I am those out on
Altair before we move that over to send a few shame.
So I think it's going to become a really important part of this
sort of testing process for us. I assume you've also looked at
if your room layer truth and in the end then opted for a polka
dot stashed. Substrate.
What was this decision process behind that?
So, actually, when we started a centrifuge chain, there were no
layered twos that were accessible.
So we were already starting to build Center for use chain at
the end of 2019. And so at that time, really, the
only viable alternative was to build either using substrate and
the cosmos SDK was something that was available but not quite
as accessible for us to really start moving forward on at the
time. So, it was actually really.
That we needed to move ahead. We didn't want to wait for
anything else to become available.
And so, we went ahead and built centrifuge chain.
Now that layer twos are accessible on aetherium.
I mean, that's that's great for other defy projects, and excited
to see how those develop. But I think at the moment, this
is going to be a really great way for us to scale faster.
Are there problems with being on another blockchain entirety?
So basically you've got, you know, Integrations to make and
most of the defy ecosystem is only Theory.
Mm. It does it pose problems for
you. One of the things that we've had
to think about that, I would say was a complexity maybe not
necessarily a problem is building this bridge.
So right now we do have part of the tin linked up that lives on
centrifuge chain. So those are the anchors for
these assets and then that is using our Chain Bridge,
centrifuge chain to Theory and Bridge to Mint and of t's on
aetherium and then Finance. Those with the tin linked up.
So that bridge was definitely a complexity that we've had to
worry about. About and part of launching
centerpiece chain, as a pair of chain on polka, dot will be to
access the bridge that other teams are working on there and
sort of Outsource that work, so that our team doesn't have to
worry about those specific functionalities.
And instead, we can focus on our specific use case.
Taking a bit of the like longer view.
I believe like defy definitely started any Theory.
Mm. I think at this point I would
say we're not going to the world is not going to be exclusively
on his here and many more. And so sort of for us as I need
defy project. I think it would be a not in
your interest to sort of focus on one ecosystem and you already
see like so many purchase coming up between different.
Systems where you ultimately just want to make sure that you
go where the liquidity is, right?
And unfortunately, like violence was seeing a lot intention.
I don't think that's going to sustain, but but I think other
protocols. Other layer ones will build will
bring interesting Concepts and ideas that I think sort of
similarly, to how Bonnie theorem, there was just insane
when defy became really what it was before through the
interoperability. Right, like nerc 20 token work
with any other and that meant you could use lava lava deposits
as collateral in another Landing protocol.
And you could vice versa. I mean everything work together
extremely. Well, right?
And I think in the same way like crypto and blockchains are going
to succeed by focusing on exactly that, making sure the
quiddity moves where it needs to end.
It is available wherever necessary.
And for centrifuge, that means acid, Originators and
Underwriters sort of create these Spools on sending food
chain, but then the investors right the investors they are
really just wherever they want to be and if that's and if
there's a need for collateral and Maker only theorem, then it
can be bridged to a theorem. If it's if it's a money market
on Solana, it can be on Solano or it can move to another power,
train and polka dot. And so sort of from, from that,
from that view, for us. I believe polkadot or substrate
was like, Very good technical solution at the time we started.
And I still see, I still believe and I mean, extremely exciting.
Now, sort of the point ecosystem is that we're just about to find
out like what what the parent chains are going to look like in
production in the coming weeks. One of the interesting thing is
has been to see in the polkadot ecosystem.
Is that kusama seems to have taken on like a much more
significant role over time. Then maybe initially was
envisioned and now you also starting this Altair.
So this other kind of centrifuge like chain on pajama, some
Curious like how is that going to work?
And how do you think the the centrifuge pair of chain and
touka-sama para llenar going to Play together.
It's been super interesting to see how much excitement has
built around kusama as a project.
And like you said, I don't think the polkadot team necessarily
for saw that coming, but it's supposed to really great
opportunity for a lot of projects to get excitement
around their precursors to what they would launch on polka dot.
So I do think at least most of the projects that I've spoken
to. Do.
You see kusama as More experimental.
Sort of test, bed, where things can go wrong.
They can push the limits really of what's possible before it
goes live on their polkadot pair chains.
And so, that's exactly what we see.
All Tara's is really a place for experimentation pushing the
boundaries of what sort of things are possible.
So draw back to something that that we talked about earlier
today, financing, for example, your reputation.
That's something that's maybe pushing the limit a little bit
of what's possible today and asset financing.
And so that's something that I would see as a use case that
would go live on Altair first and really test it out.
See what happens before it moves over to send refuse chain.
So I think for me, it's really exciting to use Altair as that
sort of test bed and try things out that maybe we wouldn't
otherwise be able to on centrifuge chain.
Super interesting. I have a question around the
economic guarantees of having a governance token and basically,
the market cap of that governance token and the values
that It ultimately controls. What are your thoughts as to
this? I mean, I think it's super super
difficult to estimate any sort of market, cap for governance
only token and I've seen a lot of feces and projects out there,
trying to do this. Usually they try to back into
it, based on some other sort of understanding of the token.
Like another use case that it has or how this has worked for
other projects. And then just using that, as a
comparison, which is really an accurate.
So I think it does add value. That's for sure.
What sort of value dad's I think is heavily dependent on how it's
used for the project specifically.
So if that governs token is instrumental to upgrades for
that product. It's going to be a lot more
valuable of a governance token. That something that's really
just voting on minor. Things like members of the
council or transaction fees that of a product that barely gets
any use at all. So, I think There are a lot of
differences there that can be looked at and compared, but in
terms of a quantitative assessment, I think that's still
super difficult to determine right now, but that said, I
would say we've definitely looked at valuation models for
the centrifuge token. Not looking at the governance
aspect of it. So really just looking at the
transaction fees on centrifuge chain and modeling.
What those could look like over time and really giving this
token a use case. In addition to that.
So adding future functionality, but I won't mention today just
so that we don't get ourselves in a hot place but it's
definitely something that we're thinking about that.
This token needs to have future use cases, future utilities.
And certainly not just governance.
I would think The most common way that governance tokens on
ethereum in defy seem to have kind of gone towards having
value, right? Would be that there's some sort
of I guess in this case right there could be like some kind of
small percentage of the interest going not to the investors but
to some sort of like, you know, CFC holders in the, you know, I
think we see that with something like your own Finance or like.
So, is that something that's also like possible?
You think that Desirable at all. I don't think it makes sense to
have something akin to what I would call a dividend for stocks
for token holders. So for example, having a
percentage of the token Supply, go to token holders just for the
fact that they hold the token to me, doesn't make sense because
this really should be an incentive for providing value.
And it just holding the token is providing value.
Well, I think, I mean, I don't think that actually makes sense.
Maybe someone disagrees, but I really think that Scent of
should be built in that are rewarding actual active
participation in the protocol. So whether that is being a
council member and participating in governance in a very active
way, or running a validator node, or providing underwriter
services for art in, like, pool as an example.
These are things that are active participation in the protocol
that I think should be incentivized for the health of
the entire system, but just holding The token in and of
itself. I don't think that deserves any
sort of incentivization. That said, one thing that a lot
of projects are doing that sort of mimics this, but in a
different way, is a burn rate for the token.
So transaction fees that are collected on chain certain
percentage of those being burned.
That is an effect on the opposite side of it, sort of
like giving out tokens to every single token holder because the
value of their tokens is going up effectively.
You're burning a percentage of the token Supply every year.
So I think for me that's a much better way of sort of addressing
not just the token holders and their individual value.
But the value of the entire system and I think to me that's
more fair than just giving out a sort of blanket dividend to
every single holder. For this is this is the we're
getting into rent-seeking, right?
I mean, there's maybe some of it is Justified to like, basically
payoff reward early backers, and That's I mean that's the idea of
like like how investors by tokens and then you want some
value cruel in it. But yeah, generally I would I
would agree with what you what you said Cassidy.
I think when, when looking at a value of a specific token and
how that's going to change over time, one should really be
looking at the value that the protocol is providing.
And if that token has real utility that, it's being used
for in that protocol. Then it will take on the value
that the protocol is providing. So I think it's really about the
use case of the token and how much it's really being utilized
to perform the functionality that is of value to the Users,
so if it's really capturing that, then it will capture the
value of that utility. And so that should really be
what investors look at when they're looking at holding a
token, is what is the growth of this protocol going to be?
Is it going to provide real value?
And as the token going to capture that value rather than
looking to some sort of blanket dividend just for holding the
token. Yeah, I see that.
That makes a lot of sense. Unfortunately, we have were bit
strapped for time, but I would like to zoom out again a little
bit. So if you look at centrifuge as
a whole, what it allows you to do is it allows you to sell debt
or package and sell it at. And basically if you frame it
like that, it sounds a lot. Like one of, you know, what, one
of the contributors to the 2008 financial crisis was namely that
debt is being paid. Packaged in less than
transparent ways and people buy it without necessarily doing the
due diligence. They should have.
So how do we avoid replicating, you know crisis.
We've gone through on defy. And where do you see centrifuge
in the very long term? So like, say, in 10 years?
I think one of the one of the goals with giving Underwriters
and economic incentive, right? Is exactly addressing that
standard and poor and Moody's. They majorly screwed up in in,
in the 2008, prices and walked away, not unscathed, but they're
still around, right? And they didn't have really did
it. They had the reputation a bit at
stake, but they had nothing really monetarily at stake.
And everyone and this whole like Financial system open in like
rating agencies could pay to give ratings and they just they
stamped their ratings on whatever they could as fast as
possible. And that combined with like no
transparency at all. Right.
Is what what I think very much, let led to the situation that we
found ourselves in and so like thinking about how we're
approaching this. We we have to be cognizant of
this issue and make sure that We don't don't design something
accidentally, that will end will sort of end in this in this
Behavior. I think this is where we're
crypto and sort of open block. Chains are exactly a huge
positive. A huge opportunity because it's
one of the core ideas of centrifuge is to give that
transparency, right? And have exactly those
Underwriters be competing for the best.
The best way to underwrite and sort of make make money on that
instead of just having this system with like established
players, just sort of Work on work.
However, they like, and that is sort of how we hope hope to
address this. And I think that sort of, in
general what defies trying to do, but that was the thing that
stood out to me a lot us when it came to this mortgage back
Securities, right? That, you know, you'd have
people by this pool of assets without having this ability of,
like, what or actually the components and where did it come
from? And I think having that stuff
all on chain seems like a huge opportunity.
You have much more efficiency and transparency, and like,
better risk management, but maybe before we wrap up.
So we've talked about a bunch of stuff, you know, as a pair of
chain launch and Altair, but can you tell us a little bit like,
you know, what does the road map look like in the next?
I don't know like year two years and like what can people expect
when? Yeah, so the roadmap in the next
two years. I've hinted at a few things.
We're live on maker with the first ask the class, but we want
to bring many many more and we believe that, I mean, defy as a
whole is gonna it has this huge opportunity to scale with
real-world assets, right? Like real assets are hundreds or
thousands of times bigger than crypto is today like we're
cryptos trillion a trillion, but like that's that's nothing
compared to 2 R 2. The real economy.
So we want to bring these as many of these assets into D, Phi
and start sort of scaling TBL, right?
And that's going to be on maker on Ava on every other Landing
protocol. That is interested in sort of
expanding their, their use case. There is second priority for us,
is really building this purpose-built chain of and
wealth building out the the Tinley functionality to sort of
make 10 Lake, truly multi chain. Meaning Underwriters and acid,
Originators sort of use the chain two, then channel the
liquidity to, wherever it's needed and really building out
the underwriting system because that is where we can go and
really attack the cost of capital that is like very high
and very unfair towards the smaller businesses and where we
can actually create create these incentives to to address that to
bring it down programmatically and that's that's hopefully what
will spend the coming months. Months on super interesting.
So before we close, where can people find out more about
centrifuge in 10 Lake? What kind of resources do you
have available for them? So you can go to centrifuge
today. Oh, but merely the most
interesting part. I think to start with is tin
like Dots and a huge dot IO, which is adapt.
You can look at all of the pools, the different loans.
They have you can see sort of what's happening there.
We have documentation that you can read through as well as like
a discourse server that you can join and while telegram Twitter
saying fuge on Twitter, that's I would where I would go.
You'll see some of us speaking at ECC in a couple of weeks.
And yeah, just reach out. If you have any questions.
Super cool. Thank you for coming on.
Thank you, both for having us. Thanks for having us.
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