Ep. 87: Interview. Real World Assets 101 with Cassidy Daly, co-founder of Centrifuge

[00:00] We have to start saying subscribe, but I say it every time. So. Okay. [00:04] Also, [00:06] Wow, you sound so cringe about it. [00:13] How should I say it? [00:15] how should i say like a natural like be sure to be sure to subscribe [00:21] Um... [00:22] If you enjoy this podcast, [00:24] Smash the subscribe. [00:45] Hi. Hey. This is an interview style. We haven't done one of these in a while, but we had on Cassidy Daly, the co-founder of Centrifuge, to talk about real world assets, which we don't know anything about. So even though we did attend their summit. I think we know a little bit more now. We totally do. We know more. It's just like if someone... [01:05] asked me to explain them, I'd be like, [01:08] You should ask somebody else. There's someone else who's better prepared for that. Ask Cassidy. She really knows it inside and out. I feel like part of why I struggle to grasp [01:20] the real world asset world is because I struggle to grasp the real [01:24] financial industry. Uh-huh. Totally. Generally. [01:28] And so I think that it's like bonds. I'm like, well,

[01:32] Can we start there then? [01:35] But I do think that there's a lot of buzz around real world assets right now. And as you hear Cassidy explain it, you're like, oh, it makes a ton of sense. Yeah. And I think that it feels like a really promising application of this technology that we all have. [01:51] really want to work and believe in. And I think that this is deeply down bad if it doesn't work. But I do think that this is a great expression of it, although very different to the world that we're used to living and working in with Boys Club. But I think it's great to see the other side of it. So I enjoyed it and I think you'll learn a lot and give it a listen. Hey, Natasha, if someone wants to get into crypto or is looking for a better way to trade, where should they go? [02:21] So glad you asked. The place to be is Kraken. It's more than a crypto platform. Kraken is your bridge to the new world of finance. A simple, gorgeous place to trade with a redesigned trading interface that's so easy to use. From degen to day trader, first timer to full timer, make your trades in just a few clicks. Go to kraken.com backslash boys club, sign up in just a few minutes, and you can even get started with as little as $10. We love you, Kraken. [02:47] On today's podcast, we have Cassidy Daly, who is the co-founder of Centrifuge. Welcome to the show, Cassidy. [02:54] Thanks for having me. We're super excited to have you on, primarily because we are looking for a 101. We've done a bit of real-world asset learning. We were at your guys' summit and did some spark notes so that we could interview people. But excited to dig in a little bit deeper today today.

[03:12] So as a framing for the conversation, it would be super helpful if you could explain what real world assets are and explain it like I'm five years old. I can try my best. I think when we when we talk about real world assets, we're really trying to talk about bringing those assets on chain. I mean, this term real world, you know, kind of it's specific to like we're in crypto and we're talking about this other thing. Right. And so bringing those assets on chain and in the process, making everything about. [03:42] holding those assets, accounting for them, and then hopefully being able to lend against them [03:47] all more efficient. So you can really think about this as like upgrading our current financial system. When we're talking about real world assets versus digital assets, what are some of these assets that you guys [03:59] are working in and around, like just some examples. [04:02] I'd say everything, I mean, we kind of started off with a specific focus with Centrifuge. And we were thinking specifically around supply chain finance. And what that means is like getting your invoices financed. So if you're some sort of business that's providing services, let's say you're providing services to like Nike, you provide the shoelaces. You'll give them an invoice. And typically that'll take a pretty long time for Nike to pay you back. It could take anywhere from 60 to 90 days. [04:32] on average. And so in that time, these businesses are looking for [04:36] financing for that invoice. And this is something that we see on Centrifuge quite a bit. And that was really our focus in the very beginning. But it's expanded to all kinds of different assets from mortgages to car loans, even inventory that's being shipped across the world. So yeah, really any type of

[04:53] asset out there that you'd want to get a loan for. So the idea is to help businesses or one use case is to help businesses with sort of cash flow issues where they know that. [05:02] let's say Nike is going to pay them for the production of the laces that they've already done. [05:07] a 60 to 90 day window where the product has been out the door, but the payment hasn't come in. And for a lot of businesses that can be really disruptive to their cash flow or make it impossible for them to continue to do business. And so you're saying there's a use case to have a loan against that invoice? Yeah. OK. So you would basically take out financing with the invoice. [05:27] as your collateral. That would be the term that we would use there. Okay, cool. [05:31] And then stable coins are a real world asset as well, right? [05:37] Yeah. [05:37] Actually, I would say one of the more exciting things that we've done is we've used these assets, specifically mortgages in one example, and use those to back stable coins. So it's currently there's a pool on Centrifuge called, run by an issuer called New Silver, and those mortgages are backing Maker's DAI. And I think for me, that's one of the more exciting use cases of using real-world assets to, [06:03] to actually back something in a more stable way. [06:06] Cool. Okay, let's talk about centrifuge. So you talked a little bit about the beginnings, but how would you define it? [06:13] today. And I'm curious, like why you personally started it as well. [06:16] Yeah, I mean, so Centrifuge, I would define it really as this platform to connect these real-world assets that we just talked about to this financing that these small businesses might be looking for. So really connecting the real-world assets to liquidity that's on-chain and specifically in DeFi. And when I say DeFi, I really mean using these financial applications that we have in DeFi that have open access. And I think that open access is a really important piece there because it enables businesses to

[06:46] financing that aren't able to actually get that within our current financial system. And that was really the core of starting Centrifuge, was that it came out of this work that a lot of the other co-founders were working on before called Talia, which was specifically supply chain financing. And it was trying to get small and medium-sized businesses access to. [07:06] to loans at a rate that they [07:08] normally really can't find within traditional finance. So Centrifuge really came out of taking that to the next step, bringing that on chain and unlocking even more possibilities. [07:18] even more, hopefully, better rates for these businesses than they can today. If I was a small business owner that wanted a loan for my inventory, I would come to Sympathry Refuge and be like, hey, look, in the Nike example, [07:31] This is the invoice. This is the business that we're doing this with. And Centrifuge would provide the loan. What I would say is that Centrifuge really enables a small business to get a financing with a possibility of doing that. [07:46] Without directly going to a bank. Okay. So I would say oftentimes these small businesses, they'll go to a bank and ask for this loan. And banks will either say just flat out no because they've never worked with you before. They don't have a lot of history on you. And doing all of that work to get your information is just really expensive for most banks. It's not necessarily that they... [08:08] want to say no to everybody. It's just like a lot of work and it's not worth it for them. And then when it is worth it for them, they're just charging you an extremely high interest rate there. And so

[08:21] I think it oftentimes feels very predatory, and I think sometimes it can be, but it's also just like not worth it for a lot of these large institutions. And so bringing this on chain and making it transparent, making it more accessible, we're actually enabling businesses, you know, like a small business owner, hopefully, the ability to actually get this loan. I mean, that said, Centrifuge right now is in a platform that's used directly by these small businesses. [08:51] You were this, you know, laces supplier to Nike. You're not going to be using centrifuge directly right now. [08:58] But hopefully that is where we're getting to long term. Cool. This might seem like a... [09:03] kind of naive question, but in the example you talked through with the bank and the time and cost it takes to review these loans, how is that translated to what Centrifuge is doing? And like, who is doing that review of these loans, if anyone? And if... [09:18] that isn't happening, how are you guys mitigating the risk of [09:22] some of these loans that are being taken out. - So I think a big part of a bank having the ability to assess these loans is access to data. [09:32] And so that is really where bringing these assets on-chain comes in, because you're making that data, you know, really accessible because it's on-chain, it's verifiable by many different parties, and everything is transparent in a way that not only can someone who wants to assess the credit risk of this loan really dive in and take a look at this, but they could do it in a more automated way that makes it much more cost-efficient to do this.

[10:02] I think a huge problem with efficiency of the traditional financial system [10:07] is just like step one is digitizing a lot of it. So not even the fact of bringing it on chain. But then when you bring it on chain, you unlock even more efficiency. So you've got the digitizing aspect where you've just got access to all of this data, but then taking that to the next step of really being able to automate this, but across many different types of service providers, like different types of credit risk, different types of like data input, like say you're financing a [10:37] of what the mortgage landscape looks like in Northern America. All these different things, I think, really play a role into making it much more cost efficient to actually assess these different types of loans. [10:50] So transitioning into other assets that are... [10:54] being put on chain or being discussed to put on chain when we were at the summit with centrifuge [10:59] There was some people who had this idea that the future will be that everything is on chain, that there is a digital representation of my chair, of my table. Everything will have this on chain record. [11:09] Do you see that as... [11:11] the future? And if so, I have many, many questions. But first off, how does that sit with you? I do think very many things will come on chain. I don't necessarily know if every single physical thing needs to be represented on chain. I think it really comes down to you can tokenize something, right? [11:30] You can mend a token to represent that chair. But then what do you want to do with that token? It's really about all the things that you want to unlock,

[11:39] by bringing that thing on chain. And when we say bringing that thing on chain, we're really just talking about like, [11:44] you know, identifying ownership of said thing on chain. So maybe that's actually a beautiful antique chair that's 200 years old. [11:54] and you want to sell it in an auction. So tokenizing that might provide some sort of authenticity. There might be some track record of ownership of this chair and the materials used. And so it makes it [12:06] makes all of that data much more transparent and verifiable in a way that maybe you could go auction it at Christie's or something like that. It's not to say that that isn't possible in the future, that, you know, so many things are tokenized, but it's really going to happen if there is a use for that. When I hear you talk about that in the example of the antique chair, Sotheby's or an auction house or whomever is selling that chair, do you see them as the responsible party of verifying the authenticity of that thing? Because I think that's a huge part of what... [12:35] is sort of the promise of bringing things on chain or having real world assets represented digitally. A lot of that is this idea that it's a one to one, that obviously the thing that you have represented on chain is clearly represented to the physical object or the real world asset that it's representing. How do you verify that? What is the relationship between the object and on chain representation of it? [12:57] I mean, that's a piece that's really important, and I would say we're still in the process of solving. Ultimately, I think there's just going to be [13:06] very many different services around something like the tokenization itself. So you've got, you know, a token that represents this chair, that's really just showing this ownership piece, right? But then you've got a lot of different services that could go around that one of those things is having an accurate price feed. And I feel like we're going to see a

[13:27] Hopefully, because these are going to be open systems, very many different service providers that could actually attest that. [13:34] to the authenticity of this specific asset. Sotheby's have their version of verifying this chair and the authenticity of it. [13:43] But hopefully you have many different third parties that could also provide that service. And maybe this chair is represented with an NFT and the NFT has all of these different credentials that are attached to it using some type of like identity service or, you know, there's lots of protocols working on that right now, actually. And so you'll probably have tokens that have many different third parties that are attesting to the price of it or the value of it or the authenticity of it. [14:10] Okay, switching gears a little bit, I want to talk about the benefits of [14:14] tokenizing real world assets. And I think zooming out a little bit, the idea that I think we can all agree on, which is that the current financial system is [14:24] antiquated, it's wildly inefficient, let alone the sort of systemic inequalities that are built into it. I think that we all can agree that there's some meaningful upgrades that are long overdue. When I think about real world assets, and what we learned at the summit is that it comes down to kind of three really clear benefits, or maybe four around this idea of disintermediation, [14:49] transparency, [14:51] increasing speed and efficiency and then reducing fees and cost. I'd love to sort of talk through those and talk through how you think this idea of tokenization, real world assets, and like just generally bringing things on chain speaks to each of these benefits.

[15:06] Yeah, definitely. So we could start with disintermediation. So what this means is just taking out [15:12] those intermediaries, those, you know, [15:15] middle parties [15:17] that are extracting some value from this process. And I think it's one of the things that's really at the core, or kind of ties into those other three values that you mentioned. Because disintermediation really is made possible because we're creating these quote unquote, trustless systems, these secure systems. And so we remove the need for a lot of these systems. [15:40] parties to come in and sit in the middle who are providing a lot of this value of just like testing things along the way. And now you have everything on chain in this verifiable way that anyone can actually attest to those qualities. And so we don't need quite as many of those maybe service providers in some instances, but in other instances, maybe gatekeepers that were just [16:10] These other benefits, transparency, reducing fees, because you have more efficiency in the system, you reduce both like the potential for intermediaries to come in and also like the value for them to come in and try to extract things. I think it becomes more obvious that they weren't providing value and that you don't actually need them as part of the process.

[16:40] being able to attest to the authenticity of an item or to the value of an item, you'll probably still see those services. [16:48] But again, it'll be completely transparent and on-chain. [16:52] what service they are providing to the system, and they'll be able to hopefully charge their service fees in a way that's completely transparent, which opens up competition for those service providers. And so you're actually able to bring costs down [17:08] because you have this fully transparent competitive system. [17:12] Are these service providers that we're talking about [17:15] Are they upset at this future that you're building? Are they angry? I mean, I'm sure that some of them are upset, definitely. [17:26] I think... [17:28] Um... [17:29] Probably many of them are just slightly pivoting what their businesses are. And some of these services were probably like side services that they were offering next to their core business models or other things that they were doing. And so, you know, as those opportunities are not available to them anymore, they'll probably just shift and focus. I'd probably compare it to like not having the need for cashiers at a grocery store. [17:59] But I think we'll be able to adjust and shift. And there's plenty of ways that... [18:04] you know, these companies could legitimately provide value to these processes without actually just being extractive and taking advantage of the system.

[18:13] I'm struck by a lot of what you're talking about is these institutions that have a lot of red tape, have existed for a very, very long time. And I cannot even imagine the slowness in which many of these institutions work and how frustrating that would be as a startup with this new technology and this innovative way of working. [18:36] And I'm curious how the response has been for you guys as a business and also just being in this industry and working to implement. [18:45] new technologies, [18:46] what the experience has been for you and what the response has been. And I'm sure there's like an initial, Oh, we're excited. This is interesting. There's, [18:53] cost efficiency and there's ways for us to implement that that make our business better. But actually getting that [19:00] implemented and through the door in a variety of different institutions. I'm curious what that experience has been. [19:07] It's definitely been frustrating at times, frustratingly slow. I think, yeah, being a project that's working hard [19:15] you know, one foot in, you know, very fast moving [19:19] crypto and one foot in like really slow as molasses TradFi is kind of frustrating at times to see like how much progress we could make so quickly and really not being able to get there as quickly in TradFi. [19:33] I think, unfortunately, some of that slowness has creeped into these large DeFi projects. Yeah. I think... [19:43] Dow governance is one of those elements that's really slowed things down, not because of Dow governance itself, but because it's so new and people are unsure of how to work within these governance systems. And so it's not just about...

[19:58] a governance process. It's also about we're doing things for the first time. And so when you do something for the first time, like in a DAO governance process, not only are you voting on the thing, but you're also just all learning about what is our voting process at all. And so... [20:15] I think that's something that's kind of slowed us down within DeFi, too, [20:19] where we're kind of just like, [20:21] you know, setting precedent for the way that we're going to do these things going forward. And so bringing TradFi into that has also just taken a long time because not only are we trying to explain to them what this is, but we're figuring out what this is while we're explaining it to them. So I think it's really exciting to be on the forefront of these things and [20:42] be innovating and pushing it forward. But I think we all get a little bit impatient sometimes that it's not moving as fast as we really want it to. I kind of want to like double click on what Natasha said even more. If I'm Bank of America, I'm freaked out. I am looking at what Centrifuge is doing. I'm looking at the MakerDAO, like stablecoin mortgages. It's like capital D disruption to [21:06] a huge legacy industry and business specifically from Bank of America. Are they... [21:12] playing ball with you guys, are they... [21:15] watching from afar what's that relationship like with the bank of americas of the world i would say they're watching from afar [21:23] And they're keeping tabs on things and... [21:26] They're probably large enough where they could just sit back and say, we'll just see how things develop and we'll jump in when we're ready. There's some players...

[21:37] that are both large enough that they could sit back, but they're trying to keep some horse in the race, and they have some sort of... [21:46] innovation team that's probably working on something with [21:50] private blockchains maybe and they're definitely like [21:54] trying to stay actively involved. We did have some like larger TradFi players that were attending the Real World Asset Summit in New York. And so it's really good to see that they're interested, but I don't think any of them are ready to do something super meaningful within DeFi quite yet. I think part of the reason for that is just the fact that it's a bear market at the moment. I think a lot of them were super interested up until the end of last year. And in the market [22:24] It's really, I'd say in a lot of ways, just like... [22:28] a PR issue for them to go into crypto. It's not even that they're not interested. It's that like, OK, this is not the right time just because it doesn't look good for us. But I feel like once the market comes back and, you know, it's not seen in the same kind of light as like being this. [22:44] sort of questionable industry, they're going to start to [22:47] legitimize it more and more. [22:49] Yeah, I also think a part of that is... [22:52] the regulatory environment and the unknowns that are a part of working crypto right now. How has [23:00] the regulatory... [23:02] environment and the rhetoric around it and then also actual regulation affecting the work that you're doing. I'd say that there's a regulatory question out there right now that's really just an existential one for all crypto at the moment. And I guess because of the bear market and all the turbulent things that happened, it made it something worth focusing on for regulators or like, you

[23:27] comment. Like it really was about what was going on in the media and regulators kind of being forced to start looking into these things more meaningfully. This like move fast, break things mentality that crypto has needs to be curbed a little bit. Not to say that, you know, I really want there to still be permissionless applications and open access to all of these different tools that we're creating. But there needs to be some sort of [23:57] - Yeah. [23:58] what is permissionless and what can be fully permissionless or how we can go about doing it in a way where there's also this other piece that regulators can really look at and assess and understand. [24:10] the system that allows for both pieces to exist simultaneously. Because my worry is that if we don't work with regulators there, they're going to take the entire thing down. And then we won't ever have the ability to have this permissionless piece. And I think for a lot of us, that is the end goal is being able to have these sort of opportunities and these options for users. And so I think with regulation, it's really just about working with them so that we can actually get there. [24:37] - Is there any part of you that just wants to [24:40] I suppose you live in Zurich, but like that wants to move your business overseas to some sort of friendlier region or territory. [24:48] I guess, yeah, that kind of was the motivation for Zurich. I think they are one of the countries that is, Switzerland is like the most...

[24:58] active, I would say, in terms of like working with crypto projects and really trying to understand like what it is that is the benefit here and how they can sort of work with that and still protect users in a way that they can approach this. And so I think, yeah, there are some, you know, [25:16] those beams of light out there of regulators that are trying to do this in a way that's not constrictive. [25:23] But I think when we have things like FTX blowing up, it makes it a lot worse for the rest of the industry because you have some of these bad actors that make it seem like this is possible across the board, when in fact that was actually just a centralized situation. [25:39] traditional company that blew up. And it really had very little to do with the way that a lot of [25:44] actual decentralized protocols operate. But that's what we really need to be able to explain to regulators is that difference. Yeah. [25:52] Okay, last question here. What is your hottest take on RWAs? Oh, that's a spicy question. I would say maybe my hottest take is I think 2023 was... [26:05] maybe in many ways, at least for us, the year of real world assets. But I think in 10 years, 2033, we're not going to call them real world assets anymore, because this is just going to be the table stakes of how assets are financed. This is just going to be how we've upgraded our financial system. And I'm really excited for that future. [26:25] Just assets. [26:27] Yeah. Cassidy, such a pleasure to have you on. Thank you so much for spending time with us this morning. Yeah, thanks for having me.

[26:57] 24-7 every day of the year. This is a true story. I've actually hit them up a few times with very dumb questions about our account, and they were so nice and so patient. It just takes a few minutes to get started today at kraken.com backslash boys club. [27:11] Draft tweets. [27:12] It's draft tweet time. Okay. Talk to me. It's been a minute since we've done draft tweets for anyone who's new here. This is when we go into our drafts on Twitter. [27:21] - We were like, "X," I suppose, [27:23] We read out tweets that didn't quite make it onto the timeline. Usually either because they're problematic in some way or they're not very funny or they need some work or we just didn't have the courage to send it. There's lots of reasons why it can maybe not make it up. Okay. What's yours? Okay. Red letter day. [27:42] parentheses showed my kid the boba tea guy video for the first time wait i don't i i i'm totally lost do you know what a red letter day is is that like a reading thing with kids [27:55] No, Red Letter Day is like, I mean, I think it might be British culture, but it's when it's a big day, like a milestone day or there's like a big event or something. It's called a Red Letter Day. Okay. And the Boba T guy is the guy in his car who's like... [28:13] it's an amazing video it's such a good video wait that video is safe for kids like there's no no no [28:19] It's not. It's not safe for kids. But I was like, we had boba tea yesterday, me and Oscar. And I was like, I can't. [28:26] I can't have Boba T with you without showing you. You have to share with him. The funniest Boba T video in the world. And so we watched it together and he thought it was hilarious. He did. Oh, that's so great. Oh my gosh. So funny. That's so funny. Okay. Well, that's a really funny story. But as a tweet, it's.

[28:41] it's tough to follow a lot of explaining it's a little tough i mean i do think people know what red letter anyway i don't know that it's gonna make it but no problem i i do i do i enjoyed it i enjoyed it um okay two two in the drafts here okay i'm gonna do this one because you told me i shouldn't tweet it um so i think you've heard it before but maybe you don't remember i'm so inspired by people who are willing to be rung publicly online like that is so impressive and embarrassing [29:11] tweet that because we have wrong takes. And I'm like, you're right. [29:15] And I'm inspired and embarrassed by myself. Yeah, yeah, yeah. [29:21] So that's that. Great. [29:25] There it is. That's Boys Club. We have two podcasts, two online, where we talk about internet culture and this podcast, where we report on some Web3 or emerging tech story and then talk about our feelings, the feelings check-in. So thank you for listening. Please like, subscribe, share, send to your friends. Anything else? That's it. [29:45] Thank you so much.