Financial Jargon and Centrifuge

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Democratization of Finance

Centrifuge must make it easy for people to understand the financial jargon it uses - terms like “facility,” “SME” and “origination.” And it should avoid using specialized language unless it’s necessary.

This aligns with the overarching goal of DeFi to democratize finance. Centrifuge shares this goal and is helping achieve it by allowing everyday people access to financial products that previously were the exclusive domain of banks and other financial institutions.

But the middlemen of traditional finance are not the only barrier to access. Financial jargon is another. Not understood by regular people, it places the finance world outside their reach. For DeFi to succeed, financial language must be simplified. Jargon, used only when needed, must be explained.

Specific to Centrifuge, people not steeped in finance represent a huge potential market for lower-risk investment vehicles like senior tranche DROP tokens. To attract them, Centrifuge must make its financial features easy to understand. This will help solve one of its biggest challenges: “Finding senior investors has become very difficult” and will likely remain so, notes Mike Ruzic in a May 10 forum post, observing that “this tranche is by far the lion’s share of pool TVLs” (total value locked).

Establishing Global Reach

Other reasons to avoid jargon or explain it when it’s needed:

· Centrifuge wants to expand its foothold internationally. People on both sides of the investment divide – borrowers and lenders – may be from foreign countries and have limited English-language facility.

· Do not overestimate how much your audience knows - even if they’re from the world of finance. That world is multifaceted; a person from the “fix and flip” real-estate sector may be unfamiliar with terms from supply-chain financing.

Moreover, is it not the intention of everyone producing content for Centrifuge that readers and listeners comprehend what they read and hear?

Earning Respect

For sure, jargon can be helpful and at times necessary – e.g., one cannot understand supply-chain financing without grasping the key concept “facility.” Likewise, no one would suggest “small and medium-sized enterprises” be spelled out every time instead of using the convenient acronym “SMEs.” Same with RWAs (which is virtually always explained upon initial use).

After a recent Pool Party where presenters were asked to explain several items of jargon, a participant wondered whether we “should have firms defining basic financial terms like SME, origination, facility, etc. Or should we expect the community to ‘uplevel’ and look up these terms independently if they’re unfamiliar with them?

“The broader context is that we want to build Centrifuge into an institutional financial brand that works with and garners the respect of longstanding traditional institutions, to achieve our mission of accelerating the transition of credit from CeFi to DeFi.”

Who’s Your Audience?

Use of unexplained jargon by Centrifuge might impress financial institutions with its professionalism. But often others are tuning in. For example, the target audience of a Pool Party is the Centrifuge community - from the smallest token holder to the largest. Even in the future, with the largest capital institutions in the world participating in Centrifuge, will they be the only ones attending? Pool Parties or similar events are a moment for Issuers to introduce themselves and to spark community interest - to which end, education, “plain speak,” and building a shared common knowledge are critical.

Financial institutions play a critical role in the long-term success of Centrifuge and its desire to achieve institutional branding is amply justified. But this can be achieved without building walls of words and sacrificing inclusivity.

Centrifuge should lead by example and ensure the financial language of everything that it airs and publishes is accessible. This is what will earn it respect - and help secure its place at the forefront of DeFi.

Crypto Jargon

This piece addresses financial jargon. It leaves to another day debate on crypto jargon. That debate will be informed by the discussion this piece prompts and any conclusions drawn.

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I don’t know if I agree fully with this. I believe access to finance for anyone is hugely important but that shouldn’t mean every aspect of our community needs to be understood by anyone without the required domain expertise. Issuers talking about their business in the POP are talking about their “originations”, their “facilities” when explaining what they do is justified. The target is for the credit group and other credit professionals in the community to evaluate the business. If half of the time was spent explaining concepts like tranching, credit risk profiles etc. it would become a very inefficient way at doing this.

I think we need to strike a balance in this that in the long run will likely lead to specialists in the community working on these topics with the broader community relying on those experts.

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To achieve the right balance, one needs to consider governance.

Take, for example, the POP process. As currently conceived, the wider Centrifuge community is polled at different points on whether a would-be Issuer should move from one stage to the next. First the community votes on whether the Issuer should do a Pool Party; then on whether it should be assessed; and finally, once the experts finish their assessment and release their report and analysis for community review, the community votes on whether it should launch an asset pool.

“The ultimate vision is to take this governance on-chain, allowing CFG holders to stake towards POPs they wish to see launch on Centrifuge.”

That’s democracy.

While experts weigh in at every stage, it is the community at large, including everyday people, that decides the fate of prospective Issuers. While the Issuer onboarding process may be revamped, its essence, whereby the community and CFG token holders have the final say, is unlikely to change. (A future on-chain governance model may introduce vote delegation. Or the community could delegate some decision-making to an expert committee.)

For the community to responsibly and intelligently exercise its voting power it must be informed. Accordingly, it must be able to understand the information that aspiring Issuers publish and air - as well as the input of the experts. Voters must comprehend each Issuer’s business and the issues that pertain to each vote. Financial language must therefore be accessible.

This applies to Centrifuge content generally since the matters that come up for community vote can touch every corner of the ecosystem.

Voters can rely on the opinions of specialists “working on these topics.” But they must not rely blindly. For at the end of the day, they have to make their own decision.

I agree. If you need jargon to describe what you do, yes, it’s justified. But explain it - just once is enough.

This exaggerates the time it takes to explain jargon. It can usually be done quickly and seamlessly in a way that does not interrupt flow. If more elaboration is needed, readers and listeners can be directed by links or show notes to more detailed material, e.g., in-house docs, forum or Medium pieces or videos.

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For simplicity this proposal didn’t talk about delegation at length but I think most governance will ultimately go towards a system with delegates. So will also the CFG staking feature. Let’s call it a “representative democracy”. I believe for Centrifuge to achieve its mission of better access to financial products both for lenders and borrowers ultimately Centrifuge should do two things: simplify financial products to allow a broader audience to use them and create incentives for experts who provide valuable work in finance (e.g. underwriting risk, structuring credit) to do this work being rewarded fairly. I think CFG holders who want to stake can either pick their own pools and do this work or they can choose to delegate to experts. As long as there are no barriers to staking and anyone can do so the experts that receive delegations will have a much harder time turning their work into a monopoly and become unnecessarily rent-seekers (as they could simply be replaced by someone else).

I think you mention a valid point here:

Take, for example, the POP process. As currently conceived, the wider Centrifuge community is polled at different points on whether a would-be Issuer should move from one stage to the next.

I think the POP today is expecting too much community feedback too early on without enough information. I think ultimately the credit group could play a bigger role in the process in informing token holders on how to vote. There’s probably room for improvement here.

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I agree. Our community would be wise to embrace delegation of decision-making to motivated, trusted, and knowledgeable members.
But what would that mean for jargon usage?
As in any representative democracy, the Centrifuge electorate will need to be able to understand the issues of the day as articulated in ecosystem content in order to meaningfully exercise their delegation power and evaluate the performance of chosen representatives. This will require that financial language be accessible.

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An obvious and unobtrusive way to demystify jargon would be to use the Centrifuge Docs Learn section. Currently, terms native to Tinlake are explained there.

A “Jargon” subsection could be created with categories for financial terminology specific to Centrifuge, and language connected to the business of borrowers.

Where ecosystem content contains jargon, links can be provided to these Learn resources for terms that do not lend themselves to bullet-quick explanation.

This would mirror the current trend among traditional financial institutions: Barclays bank has a “beat the fear of financial jargon” online section, and mutual-fund manager BlackRock uses a jargon buster to address the complexity of financial language. Other examples are rife.