Real World Assets: Stealing TradFi's lunch - Lucas Vogelsang (Centrifuge) - TOKEN2049 London

hello everybody my name is lucas i'm the co-founder and ceo of centrifuge i have a very abbreviation heavy talk title i realized uh real world assets in d5 stealing traditional financial finances lunch uh i'm here to unpack this a little bit um and uh before i do that though i want to give you a bit of a personal backstory of why i'm here why i talk about tradfy real world assets and so on so in my long tech career i uh spent or sort of randomly got into fintech in 2014 working with sort of businesses all around the world like some of very large large largest businesses but also some of the smallest ones and really the the thing i learned there is just how backwards our financial system is how you upload ftp files on a daily basis to get some payments triggered how you then reconcile that in excel and you hope that nothing gets lost along the way and so this is sort of stuck in my mind um when a couple years later i started looking into um ethereum um but really what also stuck in in my mind at that point was sort of just how our financial system works um we have on the one hand the blue chips the largest sort of players in this world a google that can go out into the bond market and sell 10 billion dollars worth of paper at half a percent they're stuffing their war chest with basically free money and the fed will come and say yeah quantitative easing right we'll we'll buy that at the same time looking at sort of your small business the joe the plumber um wanting to grow their business to buy buy new tools sort of like needs liquidity solid business but just uh only looking for a couple hundred thousand well like your bank of america or whatever other options they have um they'll charge 15 apr and you can't really actually explain why they're charging that much more just with credit risk so what you see is there's like obviously huge uh inefficiencies in here like problems with liquidity problems with just sort of like if you don't fit into one of these pre-existing boxes you're mostly out of luck of like how you access finance and so these there's a huge part of our financial system today that does not have access to the the kind of cash that google has access to um and i think sort of that is an ex a motivation and sort of an initial uh thought behind a lot of what crypto was early on and sort of is defy today um it was for me in 2017 when i sort of started looking into ethereum more in depth there were icos there was programmable money so this these ideas existed but it was always about openness about everybody being able to do something with this system it being transparent and it being accessible to everybody and for me what i saw in this is actually like the financial software that i built in the past like you could actually build it as real financial software programming money and making codes do these decisions making code actually run this instead of people trying to deal with antiquated processes like spreadsheets and ftp uploads um but where are we today with ethereum well ethereum has been growing up and therefore also defy has been growing up and i think we're sort of at a point where maybe the internet was in 1999 um like amazon selling books like people trying to understand what this e-commerce thing was going to be but it really hasn't hit the the banks the finance world today what it will actually mean right like people won't just buy books but people will have an online account with a company and they'll just do everything with it um and ethereum and d5 has been on a huge run right we're sort of seeing where this is going um but i think it's mostly people in this room that are seeing this like there's we're really not quite sure these banks out there traditional worlds they're not they're not sure what's going to hit them when it will hit them but yeah so that's that's why um when i started looking into this i thought back at this like experience of seeing how small businesses struggle to borrow how like small asset classes that are really attractive or just too small to do an ipo or too small to do a bond issuance like two they don't have 50 suits just working on making sure you have the cheapest cost of capital and um these businesses like they can see they can use defy today to unlock the liquidity that they need so d5 how i look at it and this is maybe a bit of a an edgy statement especially in the recent weeks i think it's more than just jurisdictional arbitrage right i talked about all these technological benefits the transparency the uh the openness the disintermediation which is a big is it's it's something that in itself has a lot of values that is much more than just what you read on twitter today when gensler goes after uh tokens or when you when you see um people talk about like this wild west of tokens right the underlying fund foundation that we've built for these tokens that didn't have any place to trade um they they are actually also useful for the traditional world for regulated assets for sort of like real assets that exist out there and by the way my timer is not working so i will have to look at my watch um yeah so the real real world assets in d5 is it is a literal trillion dollar opportunity and i think i'm not exaggerating here we all know that right and sort of bringing these assets into into this world is what i've been working on what our team has been working on in the last couple of years and so we are literally trying to open the floodgates for real-world assets to get into um into this ecosystem right where you can sort of imagine uh real estate being used as collateral in maker we're actually already doing that today for about the last six months now starting in april we've had maker accept one of our collateral fix and flip mortgages as collateral people have been sort of these asset originators have been borrowing uh money from maker minting die and then giving it to real users who will buy a house renovate it and sell it right so like you have money from crypto going into into the hands of the average joe the plumber joe so how are we doing this because real world assets are very complicated scary like maybe in some ways way more abstract than like a simple erc20 governance token like uni what we do actually we focus on a particular asset class we don't we're not trying to bring apple stock or tesla into d5 because like really if you want to buy apple you should go to robinhood or if you're slightly more sophisticated you have a brokerage account and you buy it on the market there's a liquid market for that d5 is not the right not right to compete but where we are able to compete as an ecosystem is with those smaller asset classes the ones that uh don't have the the the reach that google has the size that google has right and so what centrifuge does is we basically allow asset originators to create very simple on-chain credit funds that can that are essentially collateral-backed pools of loans that investors can buy tokens in and earn interest on a asset class such as real estate trade finance and so on we then work very hard very closely with other d5 protocols to not just allow individuals institutions to buy and hold these tokens but also to then make those assets really truly define native and sort of start using these other d5 legos money legos like maker or navi so what are our asset originators we've launched about 18 months ago with tin lake which is this securitization framework we have now about eight asset classes eight asset classes live there's asset originators that bring real estate uh revenue-based finance like sas revenue we have trade finance so electronics being shipped from china to to the us and being financed while they spend their month on a boat emerging market consumer loans gig economy workers that need to finance their i'm okay they're uber revenue and so on so these companies are sort of the the fintechs of the world they're like new startups smaller smaller borrowers and by small i mean like 10 to a couple of hundred million dollars and they see the benefit of of defy they see it because they're tech companies themselves they see it because they actually get screwed by those banks the same way we at the same way the average plumber gets gets very little access to finance right what we allow them is we allow them to connect to other d5 protocols get liquidity and in turn these d5 protocols get volume yield stability and i think stability is a really big one right because stability today and d5 like if you look at correlation bitcoin bitcoin goes five percent down everything else will go go down five percent as well and that's i think the the thing we need to get out of to really build a stable system um sort of thinking about what's happening next we want more assets more d5 protocols and i'm maybe a little bit giving a little bit of a teaser we have both extremely exciting new asset originators blue chip fintechs like unicorns sort of looking at defy as a place to build out their capital sourcing strategy but also doing things like launching an ave market which is gone through the community vote and is going live in in due time and very very soon um so this is this is where we are today um and this is where we're where we are at this time where we're selling books today right but um in the future we're going to be doing much much more and i'm very happy to share that journey with all of you um and really the the core message here for me is like defy has proven it can build codes it can build we can build code that will build these that runs these financial products we've we've proven this out with markets extremely volatile crazy assets but actually also we've gotten to a point now where this is actually something that fintechs will use right and so when going from uh letters to facts to internet i think d5 can be the internet to what fintech is maybe facts today and the things that are exciting here is like instant settlement we have a huge liquidity premium right like assets that are traded today for a fraction of the cost we have automation and transparency and so when thinking about what's going to happen in this space those are the the trends that i focus on um this is really the very brief overview of what semi future does sort of how we envision tradify really being replaced by defy at some point if you want to actually see all of this in action uh go to tin lake.centrifuge.io and you'll see different asset originators creating these pools you can play around with it you can you can become an investor you can go through the process you can also check out in maker where we have now i think over 10 million die in real world assets and hopefully soon uh head over to avi where as well you'll be able to sort of provide liquidity to these new exciting asset classes yeah thank you are there any questions lucas thank you so much that was an excellent presentation really appreciate it uh maybe we'll have one or two minutes open the floor if there's any questions for lucas we'd be happy to go through it no questions gentlemen over here excellent let me come over to you sir so we can uh we can all here thank you do you do you really think that defy can unlock a lot more value for for this for these guys versus fintech and traditional finance what's your pitch for for all these asset originators to use defacto it seems complicated for them but but what's your main pitch in terms of uh so the main thing is actually surprisingly uh if you talk to i and i talk to a lot of these asset originators a lot of times rates are almost secondary the thing the thing they really struggle with is having a diversity in the in in sources of funding it takes a very long time to get your line of credit with a major bank and if you have a line of credit with this one major bank this other major bank is not going to try they're not going to share information they're not going to like say oh just because you have a line of credit here you can get another one right so you're really just like always locked in to where you get your money today and so this liquidity premium that you get once you're in d5 once you sort of have a token with liquidity that can be used in collateral both in ave and maker is extremely attractive to them right because you get the same liquidity that you can within a block uh move your move your money from abbe to maker just because the rate suddenly got more interesting here versus there that is really a big part understood thank you maybe one more back there anybody else so should we let this fine man go yes sir um do you have any how do you uh assess the risk do you have any manual intervention and how do you think about the decentralization in that process yeah so um oracles for real-world assets are extremely hard um and so there's sort of one thing we do when we create these pools is we require the asset originators to put up some of their own money in the like equity piece so this these pools are actually structured it's a bit uh too much too in-depth to go in now but what it means for for those that do understand the term um asset originators can sort of take a leveraged exposure so they provide the first loss capital um in these pools meaning like only if offices go over this insurance threshold do other investors get hit so we have this like junior senior structure in the long run actually this and this is on our roadmap we've been talking about this publicly a little bit and we'll be doing more uh the idea is actually to take these junior investors and create a decentralized underwriting body that will then be able to essentially bet on loan performances and sort of underwrite by putting up their own stakes sort of staking to loans and indicating what the credit risk is that they think it should have awesome lucas you know i'm a big fan of you boys at centrifuge and uh let's get another big round of applause and thank you for that presentation great job mate