CENTRIFUGE -
The Catalyst of Global B2B Trade?
In this article we will discuss:
1. What is Centrifuge?
2. Who is behind Centrifuge?
3. What is the problem Centrifuge tries to solve?
4. How will Centrifuge do that?
5. What does the future hold for Centrifuge?
Let’s dive right in, shall we?
What is Centrifuge?
In a nutshell, Centrifuge is a blockchain startup, based in Berlin, Germany, with the mission to change the rules of global trade by bringing real-world assets into the blockchain as collateral for loan issuance.
Who is behind Centrifuge?
Centrifuge was founded back in 2017 by Lucas Vogelsang (CEO), Markus Ament (CEO), Martin Quensel (CFO) and Philip Stehlik (CTO).
Centrifuge has raised a total of US$ 7.5 million in funding over 2 rounds[1]. Their latest funding was raised on Oct 29, 2019. The lead investors to Centrifuge’s fund rising have been Crane Venture Partners, BlueYard Capital, and Mosaic.
What is the problem Centrifuge tries to solve?
The global B2B payments market accounted for US$ 732.4 billion in 2019[2] and is estimated to be US$ 1900.6 billion by 2029 and is anticipated to register a compound annual growth rate (CAGR) of 10.1%.
Disclaimer: This data is only a representation. Actual data may vary. [3]
With payment terms at an average of 60 days, businesses, and especially small and mid-size enterprises (SMEs), need financing to bridge the gap. Existing solutions today, such as factoring and reverse factoring, only address a small portion of that need[4]. Centrifuge solves this problem by allowing businesses to exchange business documents (such as invoices, purchase orders, company master data, etc.), tokenize[5] them on the blockchain and use them as collateral for lending — thereby unlocking value that has previously been inaccessible.
How will Centrifuge do that?
The core components of Centrifuge are Centrifuge Chain and Tinlake.
Centrifuge Chain implements a hybrid on-chain/off-chain private by design blockchain, with a focus on moving the financial supply chain towards a trustless and cryptographically secured protocol. Centrifuge Chain serves as a gateway for real-world assets to the blockchain.
The building blocks of Centrifuge Chain are made up of a collection of Ethereum[6] smart contracts, that represent the identities of network participants, document anchors and non-fungible tokens (NFTs), and the peer to peer network, through which documents are sent back and forth between the network participants.
The second core component of Centrifuge’s ecosystem is Tinlake.
Tinlake is an open marketplace of asset pools bringing together asset issuers and investors. Tinlake’s pools, created by a set of smart contracts, enables borrowers to draw loans against NFTs.
Assets, such as unpaid invoices, purchase orders, or warehouse receipts, are represented on the blockchain as NFTs. Centrifuge users can mint these tokens for their off-chain documents in a standardized way. For invoices, this cryptographically signed document is used as a single source of truth for all involved parties. The document then receives all of the benefits of standard on-chain NFTs, while all private information stays off-chain[7].
Tinlake allows users to lock their tokenized as NFTs assets and easily draw a loan from the connected liquidity providers, i.e. the investors. Anything that can be represented on-chain as NFTs can be financed using the Tinlake infrastructure.
Here is an example of the explained above:
Company A uses Centrifuge to sign and send an invoice to Company B. The latter verifies receipt of the document and its correctness with its signature and sends an updated, signed version of the document back to Company A. Company A is then able to anchor the document hash with both signatures onto Centrifuge Chain. Using these elements, Company A can now mint an NFT on Centrifuge Chain that represents the unpaid invoice and use this NFT as collateral to access financing on Tinlake’s pools or other blockchains such as Ethereum. Third parties, from traditional lenders to decentralized finance (DeFi) lending pools, can verify the value of the NFT against the on-chain anchors and identities, as well as get access granted to the off-chain document whose authenticity can be verified against the on-chain anchor as well.
Centrifuge Chain and Tinlake are already functioning products. At the time of writing, there are six pools of assets that are open to the investors on the platform. A total of US$ 4,031,587[8] have been processed so far through the platform, with the current value locked sitting at US$ 1,329,104.
Source: https://tinlake.centrifuge.io/
What does the future hold for Centrifuge?
In the blockchain space, Centrifuge is in a league of its own. If more and more users gain access to Centrifuge, they will bring more value to the network. The future development and improvement of the Centrifuge Chain and Tinlake shall attract new users to connect and do business with each other. If Centrifuge experience such an increase in interest, it will offer more value, leading to a cross-side network effect[9] and potentially — exponential growth.
Centrifuge main competitors are the well-established, well known and trusted by their clients, legacy supply chain finance provides such as Citibank, Orbian Corp., DBS Bank in Singapore and many more[10].
Disclaimer:
All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment or financial advice. While the information provided is believed to be accurate, it may include errors or inaccuracies.
[1] https://www.crunchbase.com/organization/centrifuge/company_financials
[2] “Global B2B Payments Market: Innovations in the Way Businesses Transact — PMI”
[3] https://www.prophecymarketinsights.com/market_insight/Global-B2B-Payments-Market-4378
[4] Reverse factoring and other Supply Chain Finance programs were predominantly implemented in companies with revenues bigger than €1bn, according to SCF Barometer 2018/2019, https://www.pwc.com/vn/en/deals/assets/scf-barometer-2018-2019.pdf
[5] Tokenization is the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, that has no extrinsic or exploitable meaning or value.
[6] Ethereum is a global, open-source platform for decentralized applications, https://ethereum.org/en/
[7] “Tinlake: bringing individual, non-fungible assets to DeFi”, https://medium.com/centrifuge/tinlake-bringing-individual-non-fungible-assets-to-defi-f5ff0c77cadd#:~:text=Centrifuge%20users%20can%20mint%20these,documents%20in%20a%20standardized%20way.&text=The%20document%20then%20receives%20all,private%20information%20stays%20off%2Dchain.
[8] https://tinlake.centrifuge.io/
[9] Cross-side network effects are direct network effects that arise from complementary goods or services in a network with more than one side. As opposed to indirect network effects, cross-side network effects refers specifically to the direct increase in value to users on one side of a network by the addition of users to another side., https://guides.co/g/the-network-effects-bible/121735
[10] “World’s Best Supply Chain Finance Providers 2020”. https://www.gfmag.com/magazine/february-2020/worlds-best-supply-chain-finance-providers-2020