Discussion for the Polkadot Community to Onboard onto the Centrifuge Platform

Summary

This proposal is aimed at supporting the long-term sustainability of the Polkadot Treasury. We propose that the newly formed Polkadot Community Foundation on behalf of the DAO, invests into real-world assets to earn stable yield, grow Polkadot TVL, diversify the treasury, bolster RWAs within the Polkadot community and support a leading parachain, Centrifuge. This investment would follow the investment that the Web3 Foundation made in January of this year into the Anemoy Liquid Treasury Fund.

We hope to gather feedback on an appropriate amount of DOT/stablecoins to request, and hope to, with the community's help, submit a final proposal. The investment will be fully managed using XCM, directly depositing from the Polkadot treasury into the pools on the Centrifuge parachain. Any potential DOT allocation (or USDT) would be DCA swapped with HydraDX for USDC through the Polkadot Community Foundation.

We believe this proposal is a key pillar as Polkadot looks to manage the treasury to achieve growth, long-term sustainability and functionality in a responsible manner. A well diversified portfolio of uncorrelated assets is key to long-term returns for public-service organizations such as DAOs and endowments. Holding offchain Treasuries or other RWAs is vital for managing a diversified portfolio which benefits the DAO.

Quick Links:

Grayson - BD & Research at k/f (Centrifuge contributing organization): [email protected]

Ivan Postavskyy - Centrifuge Governance Facilitator: @ImdiorCKZ (Telegram)

Anil Sood - Cofounder at Anemoy Capital (Centrifuge-native asset manager): [email protected]

About Centrifuge

Centrifuge is the largest protocol built on Polkadot rails, and operator of the Centrifuge parachain. Founded in 2017, Centrifuge is one of the original and most sophisticated real-world asset protocols, having financed $600M in assets, and with $293M in current TVL. Some of our previous work includes working alongside Web3 Foundation, MakerDAO, Aave, BlockTower Capital, and GnosisDAO.

Centrifuge’s History with Polkadot

Centrifuge was launched on the substrate in July 2021 as a live network on Polkadot. In 2022 Centrifuge secured a 9th parachain slot on Polkadot in the second batch with 5,435,161 DOT raised from 27,101 contributions. That was the highest participation in the 2nd batch! In November 2023, Centrifuge successfully self-funded a new lease via para ID3353. In addition, the Web3 Foundation invested into the Anemoy LTF pool.

Centrifuge successfully delivered 2 grants for Polkadot Community:

W3F Grants: Substrate Go API client — Completed

Substrate / Ethereum Bridge — Completed

Centrifuge is building on Polkadot for several reasons:

Scalability: Polkadot’s parachain architecture offers scalability, allowing Centrifuge to handle a large number of transactions efficiently.
Interoperability: Polkadot’s interoperability enables seamless communication between different parachains and blockchains, which is crucial for the liquidity and RWA tokenization.
Security: Polkadot’s security features enhance the trustworthiness of Centrifuge’s platform. Cost—
Effective Transactions: Transactions on the Centrifuge chain are notably inexpensive, fast, and easily adjustable when compared to the Ethereum network.
Efficiency: Fine-tuning and endless possibilities with upgrading and improving existing infrastructure.
Decentralization: All parachains on Polkadot are independent which makes this system fully decentralized.

Centrifuge leverages Polkadot’s infrastructure to make real-world assets more liquid and accessible in the DeFi space. Why RWAs are Beneficial to the DAO

This proposal is aimed at diversifying the treasury in stable, yield bearing assets that better position the DAO to meet long-term liabilities, and overall support the longevity of the treasury. Additionally, this is a major step on behalf of the DAO to support real-world assets on Polkadot.

Investment Details

TVL Accrued to the Parachain

Centrifuge’s parachain is a Substrate network purpose built for the Centrifuge protocol. The protocol is multi-chain by design, meaning Centrifuge can accept funds on the parachain. Not only would TVL accrue to the chain, but there would emerge a great commercial partnership opportunity around marketing RWAs on the network.

Using HydraDX for Swapping

Any and all DOT would be swapped using the DCA feature over the course of a week. This also holds for potential USDT that should be swapped into USDC to invest with Centrifuge. This will further add value to the ecosystem by supporting another close partner within the ecosystem.

Building a diversified RWA strategy

Centrifuge is an asset-class agnostic platform that supports all types of asset tokenization, primarily credit. From unstructured tokenized public securities, to multi-tranche securitizations of real estate assets; from a pool with a single 100k asset, to a 1B institutional grade securitization; the app supports all of these. This gives investors ultimate flexibility when building and growing their RWA investment strategy.

The highest growth RWA to date broadly has been treasury bills due to their low-risk, stable-yield nature. We suggest the Polkadot treasury consider an initial allocation to the Anemoy Liquid Treasury Fund available on Centrifuge.

About the Anemoy Liquid Treasury Fund (LTF)

The Anemoy Liquid Treasury Fund invests exclusively in U.S T-Bills with a maximum maturity of 6-months, focusing on maximizing interest rates and minimizing price and duration risks. U.S T-Bills are held directly by the fund with the custodian and the individual asset holdings can be viewed onchain. The fund is a BVI-licensed fund open to non-U.S Professional Investors.

View the fund in our app

Below you will find the current asset makeup of Anemoy’s Liquid Treasury Fund as of 7/12/24.

The Centrifuge app takes transparency seriously as a core value to investors. In the assets tab, anyone can see the individual Bills held by the Anemoy Liquid Treasury Fund, with the CUSIP securities identification number available.

Below is a detailed view in the Centrifuge UI of a single T-Bill security.

Benefits of the Anemoy structure include: ‍

Daily Liquidity: The fund offers daily redemption orders with settlement in 8-48 hours depending on market hours. Anemoy LTF has recently also enabled instant redemptions with a small fee via a market maker OTC agreement at the users discetion.
Direct Ownership: The tokens serve as direct evidence of ownership of the fund shares, allowing cost-efficient redemptions and providing full legal claims on assets.
Investor Protection: Prospective investors adhere to requirements of a BVI-regulated professional fund, ensuring a secure and transparent investment environment well-protected from regulatory risk and sanctions enforcement.
Transparency: Centrifuge provides real-time onchain visibility of holdings, returns, and tokenized U.S. Treasury Bills.
Ultra-low fees: Fees for the fund are 15bps annually (7.5bps Anemoy management fees + 7.5bps Centrifuge protocol fee).

Anemoy LTF tokens are the individual shares in the BVI fund, and come with full legal shareholder recourse rights to the underlying assets under BVI law (shares are issued as tokens following BVI law). The token price directly reflects the NAV of the fund with fees already withheld from the price. The NAV is updated daily or when an investor invests/redeems in the fund before any investment or redemption. The token is not a rebasing token.

List of third-party service providers are here:

Primer Broker: StoneX Banking: First Citizens Bank
Fund Admin: Trident Trust
Banking: First Citizens Bank
Fund Auditor: MHA Caymans
Custodian of T-Bills: unnamed U.S bank custodian [name can be revealed privately upon request]

Conclusion

The DAO investing into real-world assets provides stable yields, grows Polkadot TVL, diversifies the treasury, bolsters RWAs within Polkadot, and supports a leading parachain, Centrifuge.

We look forward to hearing the community's feedback, and incorporating it into our final proposal. We hope to gather feedback on an appropriate amount of stablecoins/DOT to request. Any allocation above the strike price defined in a future proposal will be returned to the DAO.