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As Composable As It Gets

Published date: April 7 2021

Piecing together trillions in assets and DeFi

Imagine a world where everyone could access finance. No matter who or where they are. Imagine that decisions for this accessibility were democratized and trustless, and not reliant on a single entity. That magical world of DeFi that we’ve all been talking and dreaming about, was in fact, an everyday reality. No one would be at a disadvantage, intermediaries and high interest rates were a thing of the past.

The current system works …ish. For some it works a bit better than for others. If your business is one of the Global 2000, easy access to capital is most likely a non-issue. For the SMEs in this world that count for approximately 90% of global business it already gets a bit trickier. And if we go more granular, to the individual, how many are truly onboarded to DeFi?

At Centrifuge we have been working towards Real World DeFi. A DeFi that is connected to real businesses and real people financing trillions in assets. We believe that, in order to be most efficient and cost effective, all global commerce will eventually run on smart contracts digitizing traditional financial structures. DeFi is the next step in the evolution of the Internet and a fundamental building block that will help real-world businesses access global liquidity. We have been working on dismantling the rigid structures of the past by building an open protocol for collaboration that is able to enforce rules on-chain, making it easier to trust counterparties — across chains and countries.

We would like companies to navigate DeFi freely without being siloed and locked into one system. Being as composable as possible allows us to pick and choose the best components for our users and build a strong financial network of networks.

This article kicks-off our composability series where we dive into the “what” and “how” of our protocol partnerships. We’ll start with a broad overview of where we already started composing, to be able to dive deeper in the following weeks.

Capturing Cost Efficiency

We work with businesses that finance their real-world assets (RWA) such as invoices, real estate, or royalties using our infrastructure. This infrastructure is powered by Centrifuge chain which is built on Parity Substrate for speed and low fees. This purpose built chain enables our partners to enter the world of DeFi and to tokenize their assets 1000x faster and cheaper than Ethereum while providing them privacy preserving properties tailored to their particular use case (find more detail on this here). Our bridge to Ethereum allows us to marry this cost efficiency with DeFi volume.

Tapping into Ethereum’s Liquidity

Ethereum is currently where the DeFi magic happens. While Centrifuge Chain is part of the Polkadot universe, our Tinlake Dapp is built to access the liquidity on Ethereum. Over the past 1.5 years we have been collaborating with MakerDAO to bring two worlds together: the multi trillion real-world asset market and Ethereum’s decentralized financial system. We have built infrastructure to back Maker’s Multi Collateral DAI (MCD) with RWA. This brings stability and volume to MakerDAO. In return, the DAO is enabling businesses flexible and instant access to decentralized credit lines at extremely low costs.

We are also bringing RWA to Aave. Centrifuge is launching the first blended RWA market on Aave V2 tapping into its 6+ Billion TVL while offering its users the opportunity to diversify their crypto portfolio while earning attractive, stable returns. This level of composability allows asset originators to move their collateral between platforms following the best rates and conditions. 24/7.

Maker and Aave integrations are just the starting point: soon, companies of any size will have equal opportunity to shop for the best source of capital. Global 2000 companies as well as SMEs will be able to swap millions of dollars in minutes, from one protocol to the next, while choosing whichever cryptocurrency to finance their pool.

Broadening the Scope

The rapid growth of DeFi is impressive but only few cross-chain synergies have been fully realized yet. Centrifuge is working towards more integrations — to become as composable as it gets. To date, most of our pools have been financed on Ethereum and funded in DAI. In the future we can accept any stable coin.

We are happy to share that one of our upcoming Tinlake pools utilizes Celo’s wrapped Celo dollar (wCUSD) stablecoin. Celo is a purpose driven blockchain that aims to solve real-world problems for the prosperity of all. Celo is focused on mobile DeFi in emerging markets. Together with Celo and Davoa Capital (owner of 1754 Factory), we identified Pezesha, a supply chain finance origination platform in Kenya. Pezesha is a fully digital mobile-based financing platform that provides much needed access to capital to SMEs.

And another cross chain partner will join the ranks soon: we are working with Acala on a first proof of concept to accept the Acala stablecoin (aUSD) in our Tinlake pools. This integration can allow assets on Tinlake to be used as collateral for aUSD in the future — increasing DeFi liquidity even further. Right now we are working with Acala to get them set up for testing on Chachacha — a parachain testnet configured and supported by Centrifuge.

Excited for what’s ahead

So far we’ve had great partners placing trust in our infrastructure. They shaped the journey with us and helped us provide our users with the best DeFi currently has to offer. We already kicked out gatekeepers along the way, complemented banks with smart contracts and undergone credit assessment carried out by a DAO. The beauty of open source composability is that the protocol will naturally evolve into what is most efficient for the user. We don’t know all our use cases yet, but we know the potential is endless — and we’re ready for the ride.

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As Composable As It Gets was originally published in Centrifuge on Medium, where people are continuing the conversation by highlighting and responding to this story.