As the blockchain and Web3 space evolved, we’ve gotten to a whole new world of financial services with Decentralized Finance (DeFi). From seamless lending and borrowing to reducing fees from middlemen, DeFi has drastically evolved how we deal with money. However, Traditional Finance (TradFi) also has its own merits with its established institutions an.d regulations that offer a sense of security. Some investors from either side may want to try the other, and some simply want to blend both. Fortunately, Centrifuge is here to act as a bridge between the two! Let’s dive in to learn how! 

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What is Centrifuge?

Centrifuge is a revolutionary platform that breaks down the walls between TradFi and DeFi by allowing investors from both sides access to the other. It allows traditional businesses to unlock new possibilities by transforming real-world assets (RWAs) like invoices, mortgages, loans, and even machinery into a format compatible with DeFi: Non-Fungible Tokens (NFTs). These NFTs of RWAs can then be used as collateral for loans. This allows people from TradFi quick access to funding without all the paperwork and fees. Investors from DeFi can also gain exposure to TradFi through these RWAs, thus diversifying their portfolios. Win-win for all, right?

Right now, Centrifuge operates as a parachain on the Polkadot network, a leading blockchain project designed to foster interoperability between different chains. However, it also operates on its own secure blockchain, Centrifuge Chain, which was used to operate its associated decentralized application (dApp) Tinlake protocol on the Ethereum network. Leveraging its development from both major blockchains, Centrifuge is compatible with both the Ethereum and Polkadot ecosystems. Apparently, Centrifuge also breaks barriers between blockchains! 

The Centrifuge network’s token is the $CFG token. It allows users to increase network security through staking, participate in governance for the future of the network and is used to pay transaction fees. 

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The Centrifuge App 

At the heart of Centrifuge lies the Centrifuge app, which allows businesses and individuals from TradFi to tokenize their RWAs. Using the Centrifuge app, they can create an NFT that represents their assets. Since it is coded into the blockchain, their assets remain transparent and verifiable for anyone to claim should a smart contract allow it. Once the RWAs become an NFT, TradFi investors can offer them as loan collateral. In turn, investors from the Defi who may be interested in providing a loan can then lock up capital in the Centrifuge app through the form of stablecoins which then are provided to the TradFi investors as the loan. The lenders from DeFi can then earn profits through the TradFi business ventures. Should the TradFi borrower default, the RWA collateral will then be liquidated.  Blockchain and smart contracts ensure the ease of this process and fairness for both parties. This would normally take way more time and cost way more fees in the real world. Amazing, right? 

The Centrifuge app used to be Tinlake protocol, which operated on the Ethereum network during Centrifuge’s early days. Following Centrifuge’s migration to the Polkadot ecosystem as parachain, Tinlake has integrated into the Centrifuge app. Since then, it has made significant developments such as integrating the required KYC (Know Your Customer) and KYB (Know Your Business) procedures into the website to remove the hassle of opening other lengthy links. They’ve also heightened interoperability by allowing users to connect from a variety of networks and wallets (including many from the Ethereum and Polkadot ecosystem of course). Lastly, they’ve also onboarded all the previous pools from Tinlake. 

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Advantages of Centrifuge for Different Parties

Centrifuge offers several advantages to players in the financial field. Here's how different parties can make the most of its potential!

• TradFi Businesses: Centrifuge gives traditional businesses increased access to capital. These businesses can unlock new funding sources through DeFi, improving their financial flexibility. By tokenizing assets, businesses also unlock liquidity for their holdings, potentially allowing them to raise additional funds. This is especially useful for medium-sized startups with fewer options available. Traditional loan applications can also be lengthy and bureaucratic. Streamlined transactions on Centrifuge and reduced reliance on traditional financial institutions can lead to significant cost savings and faster transactions. 

• DeFi Users: The Centrifuge app gives DeFi users a wider range of investment opportunities by giving them access to real-world assets which gives them a chance to diversify their personal portfolios. DeFi lending platforms built on Centrifuge can also offer sophisticated risk management tools. These tools could allow lenders to assess the creditworthiness of borrowers based on real-world data, potentially mitigating risks associated with lending in a new asset class. RWAs also give these investors the opportunity for even larger or more stable returns (depending on the asset). Centrifuge also allows fractional ownership of RWAs through tokenization which allows investors with varying capital amounts to participate in real-world asset financing, increasing accessibility.

• DeFi Developers: Centrifuge's infrastructure can be integrated with other DeFi protocols. This allows DeFi developers to build complex financial applications, like leveraging real-world assets as collateral for derivative products. This existing infrastructure can also lead to faster development speed of similar DeFi products since they no longer need to start from scratch. 

• Overall Financial Ecosystem: The overall financial systems benefit from Centrifuge by gaining access to a more efficient way of bridging both financial sectors. It becomes easier for TradFi investors to access DeFi products and vice versa. Centrifuge also fosters innovation by paving the way for new financial products and services that combine the best of both worlds. Furthermore, the blockchain technology, which Centrifuge is built on, ensures a transparent and immutable record of transactions. This can increase trust and accountability within the financial system since transactions can be audited more easily as compared to TradFi

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Centrifuge stands as a powerful connector between TradFi and DeFi. By enabling real-world asset tokenization, it unlocks a universe of possibilities for traditional businesses, DeFi users, and the entire financial ecosystem. It shows us that there doesn’t necessarily need to be a divide between the old and the new, and leveraging both can actually improve the financial world as a whole. Give Centrifuge a shot, if you want to experience the wonders of both financial worlds!