By Kate Beecroft, Governance and Community at Centrifuge

Historically, the credit industry has created significant barriers to entry for both individuals and businesses. Centrifuge started in 2018 with the goal of bringing the world of credit onchain to combat this lack of access — and the resulting limited liquidity.

Since then, with $456M total assets financed, 14 active pools and 1212 assets tokenized, Centrifuge has emerged as the reference point of real-world assets (RWAs).

A decentralized organization of active token holders and contributors enables this progress. At Centrifuge, token holders possess significant control over both offchain and onchain governance of the protocol. Participating actively, they directly impact the future development of Centrifuge DAO through discursive governance and voting processes.

Over the past year, the community has made leaps and bounds in the governance of onchain credit and RWAs including the Pool Onboarding Pool Onboarding Process V2 (POP), the credit group, as well as in-depth discussion around protocol fees.

What’s Governed and Why?

Blockchain rails for financial activity create new opportunities in the financial world, giving borrowers access to affordable DeFi capital while giving lenders access to diversified and stable yield backed by productive assets.

Despite new infrastructure, the same old financial industry challenges must be faced. Risk management is a crucial aspect of borrowing and lending. Proper governance is crucial for building a reputable place for high quality assets for users.

At Centrifuge, token holders will govern what pools (composed of assets) are brought onchain, using the POP process. After the POP, the Centrifuge Credit Group evaluates these prospective pools using the same frameworks applied in traditional credit.

By holding CFG tokens, individuals gain the ability to govern the technical development of the protocol including upgrades, roadmaps, and protocol fees.

The CFG Token

Governance

The key utility of the CFG token is decentralized governance of the Centrifuge protocol.

Token holder governance and chain security does not just ‘pay lip service’. Via decisions made by the DAO, core groups have obtained mandates and funding to provide services to the DAO, and products are being developed through such mandates. These products currently include our cross chain product (currently being implemented by the mandated team) and individual features like protocol fees.

The Protocol and Engineering Group formed with the aim of proposing the protocol’s technical roadmap according to the mission of the DAO. They also provide expert assessment of technical proposals.

The Governance & Coordination Group and the Credit Group were also formed and mandated through vote of DAO members.

The proposal to implement protocol fees has gone through in-depth community discussion and a vote, and as pools launch on Centrifuge Chain, the proposal provides that fees will be paid in stablecoins (by issuers using the protocol) into the onchain treasury.

As the progress of the DAO shows, decision making is not centralized by a team or small group. This is different from many other DAOs which can be outwardly ‘open’ (i.e anyone can join) but ultimately quite centralized (i.e. most proposals come from the team or founder).

Token Economics

The token economics of the CFG token reflect the principles of the Centrifuge project: focused on sound and long-term utility.

Block rewards are already implemented — this is continuous minting of tokens. There will be 3% of the token supply minted yearly into the onchain treasury.

There are several further ideas being discussed by Active Contributors relating to token utility.

What’s been achieved in terms of decentralization?

Achievement One: Founding Documents

In order to become a flourishing DAO, we have taken a number of steps. In November 2022, CFG token holders discussed and voted to abide by four Founding Documents.

We agreed to one shared mission, and all members of the DAO use this as a reference when governing the protocol. This mission is to bring the world of credit onchain (read more here).

Another key part of our Founding Documents is having different roles for different users. In Founding Document Three, voters decided that token holders who are actively stewarding the protocol and ecosystem should be given the role of Active Contributors and higher levels of access to information and strategy in order to continue that work.

There are 46,307 token holders and 71 Active Contributors at Centrifuge. Proportionally the number of Active Contributors should grow. People who are aligned, knowledgeable and passionate, working inside their domain expertise (via Groups) is a better way to build efficient processes, onboard more financial products and scale, rather than replicating totally open and structureless DAOs of old. 

Running beneath these interventions are principles from well tested experiments and processes from self organizing systems. Think dynamic decision types, choosing simple over complicated, and working out loud.

Active Contributors are those shaping the direction of Centrifuge. They are CFG holders as well as major contributors to the protocol. Their contribution can be across any of the following tasks:

• by being an ambassador

• by having high and quality participation in governance

• by bringing assets and capital to the platform

• by ensuring the security of the protocol

• by championing Centrifuge in various networks

• by technical development of the protocol

These two elements of Mandated Groups and differentiated roles enable the development of a highly knowledgeable and committed cohort of experts.

Achievement Two: Governance Proposal Process and Framework

DAO members also voted to use a Centrifuge Proposal Governance Process and Framework. Now in its second version, this framework makes it easy for governance proposals to be discussed, voted on (both offchain and onchain) and executed. For off and onchain voting, we have integrated OpenSquare and SubSquare, respectively, to provide a better user experience.

Achievement Three: Mandated Groups

A major differentiation of governance in the Centrifuge DAO versus other protocols is the focus on dynamic decision making. This is realized via the emphasis on mandates; token holders can give the power to small groups or obtain the mandate to govern some specific actions on behalf of Centrifuge DAO.

Groups allow for dynamic decision making by utilizing the knowledge of experts to help steer proposals. Mandated groups do not make decisions which override the voices or votes of other members, but rather make proposals and offer expert opinions which other voters are invited to utilize.

Groups link the best interests of the broader membership and the mission of the DAO with critical expertise. CFG holders give groups mandates via the Centrifuge Proposal Process (a CP 1), and they can also take mandates away if a group is not performing.

Achievement Four: Credit Group

Most notable is our credit group (CG), composed of credit experts and veterans of the industry. They provide general guidance on prospective pool applications (via the decentralized process of pool onboarding, or CP5) and grow opportunities for credit.

Achievement Five: Governance and Coordination Group

Also significant is the Governance and Coordination Group, which ensures that the governance process runs smoothly and transparently with little information asymmetry between active contributors.

What’s next?

In the last 6 months we’ve doubled down on progress, and in the next 6 months there are signs that we will speed up even more.

• As the Centrifuge Treasury has started to accumulate funds, a key discussion is treasury management, already in governance as an RFC.

• We're looking forward to the formation of more Mandated Groups to align with our principle of progressive dynamic decentralization rather than governance by committee.

• We’re evaluating the upgrade to Polkadot’s new governance system ‘Opengov’ and investigating how what we’ve designed so far can be mapped onto its particular parameters.

• The first pool has been proposed on Centrifuge Chain — New Silver NS3 — is being assessed by the Credit Group and will follow the governance steps of CP5.

• As more issuers gear up to launch pools on Centrifuge Chain, the Credit Group will be increasingly utilized to give high quality advice to the community.

• The Protocol and Engineering Group are forecast to propose the protocol roadmap for Centrifuge.

• There is a technical proposal in the works to understand how staking on pools could provide additional value.

Get involved!

You can contribute and even become an active contributor (see above) by holding CFG and participating on governance decisions. One path to active contributorship is to become an ambassador. The first round of applications has closed already, but there will likely be a second round for applicants.

To all of you who already actively contribute to Centrifuge, thank you!