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Centaur is trying to introduce services such as digital banking, peer-to-peer lending and mobile technology into DeFi, integrating the advantages of DeFi and CeFi to expand the field of financial applications.
Written by: James Hong
Thanks to the boom in liquidity mining, the DeFi market has shown explosive growth this year. The amount of locked positions on the DeFi chain has increased from USD 247 million on February 6, 2020 to USD 8 billion at present. At present, most DeFi applications are built on the Ethereum blockchain, and the use cases mainly involve loans, derivatives, payments, and asset tokenization. On mainstream decentralized lending platforms, the annual interest income is 39 million U.S. dollars and the total transaction volume is 840 million U.S. dollars.
The rise of DeFi is unstoppable, but it still pales in comparison with traditional finance
There is no doubt that DeFi continues to grow at a high speed. However, it still pales in comparison with the traditional financial industry.
As one of the main economic pillar industries, traditional financial markets mainly include stock markets, bond markets, derivatives markets and currency markets. The global financial market is huge and has been growing steadily for many years. The global stock market value increased from US$65.04 trillion in 2013 to US$74.43 trillion in 2018, and the transaction value of the international bond market remained stable from 2015 to 2019.
Global stock market capitalization from 2013 to 2019
It can be said that the current scale of DeFi can only be regarded as a fraction of traditional finance. With the current growth momentum and potential, as long as continuous growth occupies a small part of the traditional financial market, the market potential cannot be underestimated.
However, the potential of DeFi is not only reflected in the innovation of the current traditional financial industry, its destructive inclusiveness is also reflected in the ability to reach residents in areas lacking financial infrastructure in a pioneering way, which is the previous tradition. Problems that the financial infrastructure has never been able to solve.
Most of these “unbanked” groups live in developing countries. There are approximately 1.7 billion adults worldwide, accounting for 31% of the global adult population. It is estimated that with the increase in the overall global income level, there is a market of up to 380 billion U.S. dollars for financial services created for such unbanked groups.
There are approximately 1.7 billion “unbanked” adults worldwide
For SMEs, this figure is even more alarming. In developing countries, an estimated 131 million small and medium-sized enterprises (41% of the total) have unmet financing needs. The market size of this gap is approximately US$5 trillion. In contrast, the current SME financing scale is only US$3.8 trillion.
These problems have not been effectively resolved for many reasons, including lack of financial infrastructure, imperfect personal credit system, and lack of financial knowledge.
In this context, Centaur is trying to introduce services such as digital banking, peer-to-peer lending, and mobile technology into DeFi to provide user-friendly and widely accessible mobile and web-based finance for these “unbanked accounts” that lack basic financial facilities. In addition to basic services such as domestic and cross-border remittances at the beginning, with the gradual development of infrastructure and technology, Centaur will also provide more complex DeFi services (such as lending and mortgage) in the future. While improving the living conditions of the population in the region, it will also expand the overall user scale and mainstream adoption of DeFi.
Centaur: the bridge between decentralized and centralized finance
At present, although DeFi continues to grow, it still faces many problems. For example, technical barriers and user experience have led to a lack of full adoption of DeFi. In terms of legal risks, DeFi solutions are usually decentralized or vague. The accountability system has made it very difficult to supervise and manage market participants. A series of market misconducts such as wash trading, insider trading and market manipulation are almost impossible to prevent, discouraging ordinary investors who want to get started.
In addition, it is also very difficult to impose legal sanctions while the parties remain anonymous, and the settlement of disputes requires the courts and other off-chain intermediaries to make a ruling. At present, DeFi lending platforms such as MakerDAO and Compound issue loans through the over-collateralization model, but this model hinders the organic expansion of lending scale.
Centaur makes full use of the advantages of traditional finance and centralized finance, trying to solve these unsolved problems, and gradually realize complete decentralization in compliance, localization and introducing resources from the traditional financial field into the scope of decentralized finance. model.
Centaur believes that at this stage, risk-taking, decision-making, and record keeping are the three core issues that need to be resolved. Therefore, it has pioneered a “semi-decentralized” approach to solve the problem, that is, the realization of the three-dimensional Two points, combined with the advantages of decentralization and centralization, under the premise of ensuring security, to achieve the widest adoption and implementation of decentralized finance.
Taking lending as an example, Centaur has adopted a centralized, hybrid decentralized approach in decision-making, and a decentralized approach in risk-taking and record keeping.
Specifically, Centaur will create a decentralized liquidity pool. This liquidity pool allows anyone to pledge digital assets to obtain interest income while obtaining proof of future withdrawals. The lender can use the proof of withdrawal to use assets to provide liquidity for other services, such as cross-chain transactions through interoperability or as loan collateral.
Unlike decentralized lending, lenders will initially be limited to SMEs/multinational companies/institutions to reduce the risk of default. As the frequency of users’ transactions on the platform increases, Centaur will make full use of the advantages of its partnership with credit cooperatives to identify and allocate potential borrowers’ credit scores and limits based on a decentralized approach. Specifically, the system will generate a credit report based on the user’s financial history on the chain. These credit records will be bound to the user’s personal wallet address, permanently recorded and stored on the Centaur Chain.
In the event of a loan dispute, Centaur will use traditional judicial procedures to hold the borrower accountable to recover the funds. In fact, Centaur works closely with regulatory agencies in multiple regions to effectively handle a large number of claims, greatly reducing the cost and time required for such claims. Once the funds are recovered, Centaur will return these recovered funds to the liquidity pool after deducting legal fees. However, if it is impossible to recover or only part of the funds is recovered, the recovered part will be put into the liquidity pool, and the remaining outstanding balance will be absorbed by all lenders based on the pledge ratio.
As one of Centaur’s core use cases, Centaur uses the decentralized model of risk-taking, record storage and loan interest rate decision-making power, and the centralized model of borrowing decision-making power.
The effect of this is also obvious. The use of centralized borrower decision-making power, that is, the credit evaluation of Centaur users by the cooperative, this credit lending mechanism means that there is no need to overcollateralize like decentralized mortgage lending, which can greatly improve the use of funds rate. In contrast, in the decentralized mortgage lending platform MakerDao, in order to prevent default events, all loans require at least 150% over-collateralization, which prevents the utilization of funds from reaching the optimal level.
Decentralized record storage ensures that all loan records processed on the platform are reflected on the Centaur Chain blockchain and recorded in a transparent and decentralized manner, including the credit reports and financing history of all lenders and borrowers. Credit reports and credit ratings can be generated based on these records, so that you do not need to apply to the credit union for the next loan. If the credit history is poor or there is a borrower who has defaulted on platform loans in the past, the community can choose to exclude the borrower or blacklist it.
In the decision-making power of another loan interest rate, the Centaur lending system uses a decentralized approach. Decentralized decision-making will essentially make the system more transparent. As users of stakeholders, when they have a certain degree of decision-making power in the community, they can actively participate in the ecological construction of the community. In the Centaur ecosystem, the loan interest rate of a single individual can be adjusted flexibly, mainly through two aspects. On the one hand, the loan interest rate based on the personal credit rating is adjusted and determined by the community; on the other hand, it can also be dynamically adjusted based on the algorithm according to supply and demand. This dynamic interest rate structure essentially benefits from the increased transparency of potential borrowers’ credit records, which can build a fair community atmosphere.
In terms of risk acceptance, if there is a loan dispute, on the one hand, Centaur adopts a centralized model for accountability, that is, Centaur represents the lender to resolve it through regular legal institutions, which can minimize the risk and reduce the cost and time required for such claims. On the other hand, if the recovery fails or only part of the funds is recovered, Centaur will adopt a decentralized model in which all lenders in the ecosystem absorb the outstanding balance based on their asset pledge ratio.
Multi-asset management and privacy protection
In order to promote the mainstream adoption of cryptocurrency, Centaur has developed a multi-asset, multi-address and decentralized cryptocurrency wallet.
Conventional crypto asset management solutions are either multi-currency wallets without advanced features, or native wallets that allow users to access multiple functions including staking, voting, and smart contract deployment. Centaur combines the two, that is, supports multiple native wallets. It is a multi-currency asset management platform that can control multiple protocols. According to the team’s vision, this wallet initially supports access and utilization of the Centaur liquidity pool, and will serve as an interface for all products and services in the Centaur ecosystem in the future.
For individual investors, this means that there is no need to purchase a single cryptocurrency separately on the exchange, but can directly use the Centaur wallet to purchase cryptocurrencies or invest in financial products such as more diversified crypto index investments that will be supported in the future. The currency will be transferred to its Centaur wallet, which can only be accessed through the user’s private key.
It is worth mentioning that, considering the privacy protection needs of most investors, Centaur provides users with advanced features for privacy protection. Specifically, the liquidity pool under development by Centaur uses stealth address and ring signature technology, which can realize the privacy protection brought by zero-knowledge technology and conceal the sender and receiver of all routing transactions.
For traders and investors in Centaur, once this advanced function is activated, transactions through the Centaur liquidity pool will be in a private state. In addition, their wallet balance will also be in a private state and cannot be seen by others.
It can be said that on the surface, Centaur seems to be a trade-off and compromise between decentralization and centralization. The real intention behind it is to maximize the utilization of funds and land applications while ensuring safety and risk control. And promote mainstream adoption, and gradually realize complete decentralized finance. .