Centrifuge’s technology operation encompasses a series of steps, including off-chain auditing, Know Your Customer processes, the establishment of Special Purpose Vehicles (SPVs), and on-chain creation of liquidity pools to facilitate lending and investment activities.
This is the breakdown:
- Borrowers seek on-chain financing using assets like invoices or real estate as collateral.
- Asset originators, who maintain business relationships with borrowers and manage underwriting, set up SPVs to house liquidity pools. These pools may comprise multiple collateral loans of the same type but from different borrowers.
- Asset originators initiate and validate Real World Assets, creating collateral NFTs on the blockchain.
- Borrowers sign financing agreements with the SPV, pledging NFTs in the ‘Tinlake’ pool, which generate $DROP and $TIN tokens.
- Centrifuge partners with SEC-licensed qualified investor verification provider Securitize to support investors in completing KYC and Anti-Money Laundering (AML) processes.
- Investors sign investment agreements with the SPV corresponding to the Tinlake pool, outlining investment terms and risks. They use $DAI via their partnership with MakerDAO to purchase $DROP or $TIN tokens.
- Investors supply $DAI liquidity to the relevant pool. The SPV then exchanges $DAI for US dollars and transfers them to the borrower's bank account.
- Investors have the option to redeem $DROP or $TIN tokens at any time, with specific rules to ensure a minimum $TIN token ratio is maintained.
- Upon NFT maturity, borrowers repay the financing amount and fees, and the NFTs are returned to the asset originator.
One thing I really appreciate with Centrifuge is that their innovative tech demonstrates a meticulous process which is designed to comply with U.S. securities laws while facilitating asset-backed lending and investment in a decentralized manner (even if there is currently a KYC process which restricts access to its products to some potential investors). I like that it also bridges the gap between traditional finance and the blockchain, offering efficiency and security. Overall this mechanism in my opinion does mark a significant step towards enhancing financial inclusivity and efficiency in the digital age. Show Less