How do you find a 100x gem? I get asked this question all the time. Even though we go over our Gem Research philosophy often here. But today, We look at 12 important aspects of our Gem Research.
And we apply them to one of the gems we think has potential in the real world assets part of DeFi. Think they will qualify? Let’s find out together.
A Case Study Using Centrifuge
Today is all about how to find a potential 100x Gem for yourself. So, the easiest way to show you how I do it is to show the techniques we use in a case study. Our subject is Centrifuge. This project has a lot of features we like so it should make for a good example.
1) Narrative
I know you must be bored of me saying how important narratives are in crypto. But they are. Otherwise, how will people find the project when there are thousands and thousands of projects out there? So one of the first things we look for is the story.
And Centrifuge has got it. Before the idea of bringing real-world assets (RWA) to the blockchain was cool, Centrifuge was already doing it. They are one of the leaders in the stat that matters most in this narrative. Actually doing deals involving RWA. Tinlake, which is Centrifuge’s DeFi protocol of RWA pools shows a TVL of over $181 million DAI.
1/ From @a16zcrypto's State of Crypto 2023:
DAOs hold $10 billion in liquid treasury assets.
These DAOs could deposit their stablecoins into Centrifuge's RWA pools to earn steady returns.
And these are returns that are *uncorrelated* to the (often volatile) crypto markets! pic.twitter.com/EwXiVnt1BZ
— Centrifuge (@centrifuge) April 13, 2023
So it’s not only RWA hype. Centrifuge is doing it. Almost 1100 assets tokenized so far.
2) Practical Use/Product-Market Fit
When a project first starts, this is tough to evaluate. Centrifuge has already pivoted to adjust to the needs of its clients. But here’s what I mean. As a RWA finance chain, some access to Ethereum or EVM chains is absolutely necessary. It’s where most of the DeFi money is and many apps Centrifuge could partner with like AAVE are there.
But, they also need better security and interoperability to be able to work on many chains. So how did they solve these issues? They built on Substrate. That’s what Polkadot is built on. They operate as a Polkadot parachain too. But that’s not all. There is also a Wrapped Centrifuge that’s ERC-20 compliant so they can access ETH assets too.
"@centrifuge Chain is our open and permissionless Proof-of-Stake blockchain built on @ParityTech's @substrate_io. This is the starting point for originating real-world assets. It enables users to bring their assets on-chain as non-fungible tokens (NFTs)."
Learn more: https://t.co/WvTRoocnqd
— Polkadot @ Consensus 2023 (@Polkadot) May 26, 2020
That’s smart planning, and it’s clear that what Centrifuge is doing so far is working. But the big risk is how small and new this RWA market really is. Something we need to keep in mind.
3) Tokenomics
Next, we look at tokenomics in three aspects: token utility, burning mechanism and token allocation.
- Real Token Utility
First, most governance is nonsense so far, especially if you are outside of the Cosmos chains. So if the token’s only utility is governance, that’s a big red flag.Centrifuge uses its native CFG token for charging transaction fees and staking too. That’s good. CFG also provides some specific chain security functions and payments that RWA firms want to see.
-
Deflationary/Burn
Here we have 2 different but related questions:
- Is the token inflationary or deflationary?
As of now, the token is still inflationary paying out the staking rewards in new CFG. However, there is a burn program for a % of all fees the chain charges. That helps keep inflation from getting too high.
2. Does the token have a burn mechanism/program?
We definitely PREFER deflationary tokens but this setup for CFG is pretty good.
We're thrilled to announce that $220 million in Real-World Assets (RWA) are coming to Centrifuge, in partnership with @BlockTower and @MakerDAO!
BlockTower Credit will be the first institutional credit fund to bring their collateralized lending on-chain.https://t.co/WhSMpUWJwk
— Centrifuge (@centrifuge) December 14, 2022
- Token Allocations
How much is going to the Team? We all agree they should get some. But are they being fair to us investors? How much is allocated to the public? Here are the numbers:
- 27% to contributors, team
- 17.1% to backers
- 7.3% for grants, rewards
- 8.3% for early ecosystem
- 11.8% for development grants
- 7.1% for community grants
- 11.8% to foundation
- 9.5% for community sale
- Vesting for team is at 12-month cliff and unlocks over 48 months. This means the Team is locked in for a minimum of 1 year and some cases up to 4 years.
- Early stage investors have their tokens unlocked since December 2022 (after 1 year period unlock).
- Currently, circulating supply over total supply is at 80%. 360 million out of 447 million
You can discover more in their whitepaper. Now, how would I assess this data? Contributors, who can be anyone, not only a VC, and the Team get 27%. That’s more than usual but not bad. I’ve seen projects where the team alone has a higher % than this. Between grants and rewards, community grants, and community sale, at TGE, almost 24% was available to the public.
With 80% of the total supply out there, that’s a big positive. It means no artificial price inflation due to a small supply. It also means if we are not happy with the amount available to the public, we can easily go out and buy some.
This week's report from @Axios Crypto is all about real-world assets and Centrifuge 🌀
Despite a turbulent 2022, Centrifuge's TVL continues its steady rise. What we've built is working as intended!
Axios puts it best: "This is a turtle race." 🐢 pic.twitter.com/MDZu0Plq8Z
— Centrifuge (@centrifuge) April 21, 2023
And it’s not only available in Substrate and on Polkadot. There’s a Wrapped version for Ethereum that’s ERC-20 compliant too. Vesting periods look good with locks in for the Team. We like to see that.
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