Centrifuge Protocol: making NFTs available on the DeFi market

Centrifuge is an open blockchain PoS protocol built on the Substrate that focuses on real-world assets and converts them into NFTs (non-fungible tokens).


How does Centrifuge work?

This project is a gateway for accessing the liquidity of decentralized finances using an open-source toolkit: Tinlake, Centrifuge Chain, and P2P Protocol. As you know, DeFi is focused on streamlining the financial sector in a decentralized form.

Centrifuge allows companies to exchange their assets for NFT (non-fungible tokens) which can then be traded on the decentralized finance market. This opens up a variety of ways for participants to use their tokens — turn them into the stablecoin (and for example provide liquidity), invest within DeFi, borrow them at higher interest through MakerDAO, run yield farming, and many others. This will not only increase the liquidity of these financial market participants but also give them access to everything DeFi has to offer today. In other words, their assets are tokenized. Centrifuge achieves this by creating NFT tokens worth the assets which can then be used throughout the Polkadot ecosystem.


But this is only a temporary solution, the company is now building its own blockchain “Centrifuge Chain” based on Substrate which they are planning to run as parachain on Polkadot. Centrifuge Chain will also be able to share its off-chain asset data with the newly formed Bridge to Ethereum, giving it access to existing DeFi projects.

Through the Polkadot ecosystem, Centrifuge will provide users with digital identity, immutable and controllable data ownership, the ability to create and transmit standard business documents, and connections to the DeFi world.

Together, these features will enable a new type of financial trading document: a combination of non-fungible token (NFT) standards with private off-chain trading data to create unique marketable assets which we call Business NFT.

How does Centrifuge solve the problem of the traditional financial sector?

DeFi, as we know it now, has existed here for several years. It works in parallel to the traditional financial system where cryptocurrencies such as Ethereum act as principal (see MakerDAO). However, DeFi resources are mostly used only for speculative purposes of buying other cryptocurrencies. At the same time, DeFi has so far been here only for cryptocurrency participants because only cryptocurrencies could be used as principal but no assets from the physical world.

Centrifuge, therefore, creates a bridge between physical asset holders and cryptocurrency lenders, opening up the potential to promote a decentralized economy and business viability. All this takes place without the involvement of banks and other traditional financial institutions that play the role of intermediaries.

Centrifuge Protocol Tokens

In addition to the RAD token, Centrifuge uses two types of investment tokens — Tin and Drop — to run its system.

Tin is a highly profitable digital investment asset but of course with higher risk. On the other hand, the profit at Drop is lower but not so risky. It is the creation and subsequent sale of these tokens that creates liquidity in the Centrifuge ecosystem.

Centrifuge tokens Drop & Tin

Imagine that you can get a stable return on your investment. Or you take a risk, and sometimes your yield will be lower than in the case of a stable one, but sometimes several times higher. Which investment do you decide on? I think the answer will be different for each of you.

For a sample, see how much income there was in the past from these two investment tokens. Drop had a stable yield of 10%, with Tin hovering around 32%.

Source: https://medium.com/centrifuge/the-first-drop-for-defi-23e5240cadf2

Liquidity pools

Both investors and liquidity applicants got their benefit, which can immediately receive the required resources at a decentralized level. By not entering the game by any intermediary, these funds are treated immediately and at relatively low-interest rates. Repayment terms are usually flexible and comfortable for borrowers.

Investors, in turn, have two types of investment opportunities at their disposal. The one with high yield and high risk (Tin) and low yield and risk (Drop). Investors can also directly monitor their assets and invest in different asset classes.


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Czech bloggers & community builders. We are validators of Polkadot, Kusama, Darwinia, Crab, Bifrost, HydraDX, StaFi, Centrifuge under the name: POLKADOTTERS