How Centrifuge Is Paving The Way For The Next Wave Of On-Chain Institutional Funds

One of the big stories in the blockchain industry today is the tokenization of real-world assets. The nascent market promises unbound liquidity, new financialization opportunities, permissionless access, reduced transaction and intermediation costs, and greater transparency.

For Circle's CEO Jeremy Allaire, the tokenization of illiquid assets is "so obvious that tokenized property and contracts will be the norm in the next 5-10 years."

Traditional finance companies like BlackRock and Franklin Templeton are taking steps to dominate the market, but decentralized protocols are not exactly lagging behind.

Centrifuge is one company working to create a future where all financial products, real estate, private credit, commodities, and other assets are represented on a public decentralized and community-governed ledger.

In the last few months, the DeFi project has positioned itself as having a defining role in the on-chain real-world asset market by forging partnerships with industry leaders, securing million-dollar funding rounds, and launching novel products and services.

What Is Centrifuge?

Founded in 2017 in Switzerland by Lucas Vogelsang, Maex Ament, and Martin Quensel, Centrifuge is currently the second-largest protocol in private credit tokenization, with around $270 million in active loans.

Centrifuge acts as a gateway to on-chain liquidity, enabling institutional investors to turn their assets into non-fungible tokens, which can be used as collateral in the protocol's pools. Its pools are revolving, meaning that investors can lock and redeem their investments at any time, and they offer one to five risk tranches.

The layer-one blockchain protocol is organized as a decentralized autonomous organization (DAO) that allocates governance rights based on the ownership of the platform's native currency, the $CFG. Currently, its market cap is $241 million, and the price of each token is around $0.50.

When bringing real-world assets on the chain, liquidity is as much about moving the asset to a public digital ledger as it is about allowing its digital representation to exchange seamlessly between chains, which is why the project focuses heavily on building multi-chain products.

Centrifuge has launched funds in several blockchains, including Aave, Arbitrium, and Celo. It plans to develop a product for Ethereum and is working with Base in an institutional-grade lending market for RWAs, leveraging Coinbase Verification for easy onboarding.

The CFG tokens live natively on the Centrifuge Chain, but they can be bridged to Ethereum and any other chain where a protocol's product is launched.

Setting The Pace For The Industry

Centrifuge is making rapid progress in bringing the world on-chain with new partnerships.

On June 6, the DeFi protocol confirmed that Arbitrium's STEP committee has shortlisted its Liquid Treasury Fund. If accepted, its Web3 native Anemoy asset manager will become Arbitrium Treasury's go-to pool for investing in stable and liquid RWAs.

The news came just a few days after Credbull, an asset manager that allocates funds to small and medium enterprises, announced it had secured an investment of $10 million from L1 Plume's off-chain institutional investors to initiate a private credit fund on Centrifuge available through the Plume network.

The protocol is also tirelessly working towards improving its product.

In March, it introduced a fund management platform that connects all service providers and data into a central control panel so investors can easily onboard funds into public blockchains with reduced operation costs.

One month later, Centrifuge secured $15 million in a series A funding round led by ParaFI and Greenfield, which brought in investors such as Arrington Capital, Bloccelerate, Borderless Capital, and Circle Ventures, among others.

According to Vogelsang, the funds will be devoted to "creating new, interesting opportunities never before possible," regarding products and on-chain utility. As it has been doing recently with the organization of RWA summits worldwide, Centrifuge will continue to foster ecosystem growth through events and advocacy groups.

Regulation: The Hardest Battle

The tokenization of off-chain assets is advancing fast, and by 2030, Boston Consulting Group estimates that the on-chain RWA market will be a $16 trillion business opportunity worth nearly 10% of global GDP.

In the first five months of the year, the value of tokenized U.S. securities more than doubled, from $752 million in January to $1.5 billion on June 7. Nonetheless, at $156 billion, most tokenized assets on the chain are still mainly fiat-backed stablecoins (around 97%.)

Despite the growth, the RWA market faces significant regulatory challenges. In the case of financial assets, such as national currencies and securities, when only the technology they are wrapped in changes, it is easier for regulators to adopt a stance of "same risk, same regulation." However, as tokenization moves to more illiquid assets, the digital representation of ownership must be recognized by law.

Centrifuge's development in product offering and its efforts towards multi-chain liquidity won't suffice in the face of technologic-conservative regulators. Bracing itself to face regulatory challenges, the protocol offers legal recourse to investment funds, follows vital regulatory and compliance requirements, and has robust technical audits.

Together with other industry leaders such as Coinbase and Solana Foundation, the project has founded the Tokenized Asset Coalition (TAC). This group focuses on educating, building RWA tokenization products and services, and advocating for industry growth and comprehensive regulation.