DeFi protocol Centrifuge raises $4 million in strategic round: Exclusive

Decentralized finance protocol Centrifuge has raised $4 million in a strategic round from backers Coinbase Ventures, BlockTower, Scytale and L1 Digital.

The Berlin-based project enables real-world assets — such as real estate, consumer credit and invoices — to be tokenized and leveraged within DeFi services. Such tokenization has been seen as one of the core use cases for blockchain technology, as it allows for more transparent and liquid markets.

The startup’s most recent publicly announced raise occurred in February of last year and secured $4.3 million from investors that included Galaxy Digital, IOSG Ventures and Rockaway Ventures. It also announced a $3 million strategic partnership with BlockTower in May. 

"Tokenizing very liquid, very well-established assets is only a marginal increase in utility,” Lucas Vogelsang, CEO and co-founder of Centrifuge, said in an interview with The Block. Hence the startup focuses on the private credit market because it's “largely illiquid" and "very untransparent."

Centrifuge is one of BlockTower’s first investments in its new $150 million fund. BlockTower’s backing is more than just a simple VC investment, Vogelsang said. The BlockTower credit team has secured initial approval to be onboarded as a collateral provider to MakerDAO. BlockTower is set to provide $70 million in junior capital alongside Maker's contribution of $150 million to create a $220 million pool on Centrifuge. 

What's next for Centrifuge?

Centrifuge has two core users, Vogelsang said. The issuers, which are a small group that do the heavy lifting and will bring the assets on chain, and the investors who will passively hold these assets. 

Right now, investors interact with these assets through Centrifuge's marketplace Tinlake. This will likely be wound down at the end of the year, when users will begin to be switched to a multi-chain experience.

“The Centrifuge parachain on Polkadot, that's what the issuers use to create these assets and then we're going to bridge them to wherever there is liquidity,” Vogelsang said. “Meaning the issuers can just go and put the assets where there’s the lower cost of capital.” 

“From a product perspective, if I told you that you have to change banks to buy Apple shares you wouldn't buy Apple shares, right?” he added. 

Bridging helps to solve this problem but it's also a huge candidate for hacks. More than $2 billion in cryptocurrency been stolen across 13 different bridge hacks, according to data from Chainalysis. Most of these cross-chain thefts have taken place this year. 

Centrifuge will leverage Polkadot’s trustless Snowfork bridge as well as XCM to connect to parachains. 

“I think in the long run, those bridges will be the only ones that survive,” Vogelsang said. 

This story has been updated to clarify the timing of user migration from Tinlake and the approval status of BlockTower's onboarding to MakerDAO.