The Centrifuge Parachain is live! So, what’s next? If you haven’t had a read yet - check out Lucas’s post on our Real World DeFi Roadmap. He touches on a crucial element of the parachain launch, and with it, the migration of asset financing pools from Tinlake on Ethereum to the Centrifuge parachain: CFG utility.
CFG utility should empower holders to participate in the protocol long-term and actively shape its functionality. The CFG token currently has 3 main utilities: transaction fees on the Centrifuge parachain, on-chain governance, and chain security. In this post we propose 2 additional key utilities to implement with CFG for the Centrifuge community to consider.
From here, the governance process could follow the following steps:
- Community discussion. Please comment below!
- Signaling vote on the forum. A vote will be posted for the community once it looks like we can get a good temperature check. Individual topics could also be separated and voted on independently.
- A clear and detailed proposal (i.e. including relevant parameters and reflecting the discussion around this proposal and the signaling vote on the forum)
- An on-chain vote for CFG holders on whether to implement the detailed proposal
- Technical implementation according to the specifications in the detailed proposal (if the on-chain vote passes)
- An on-chain vote to upgrade the chain to implement the newly developed features.
*Please note, there will be a follow-up post explaining the voting procedure and policies for the Foundation and core team.
The first proposal for the community to consider is to turn on protocol fees. These protocol fees can be implemented as servicing fees in CFG tokens for use of the protocol for locking an NFT, entering into a borrowing transaction, etc. These fees would be paid in CFG into the on-chain treasury, and the token holders would govern the best way to deploy these funds to grow the protocol (ex. grants, or burning a percentage of the treasury each spend period, at a rate set through CFG-holder governance.) Read more about how the Treasury is implemented with Substrate in the Polkadot documentation here.
Why now? And what does this mean for token holders? Given the growth of Centrifuge pools on Ethereum to over $80M TVL (total value locked), and the upcoming launch of pools on Centrifuge chain, the Community can consider that the protocol is both large and mature enough to support protocol fees. Implementing such fees on Ethereum would have been too complex and expensive while borrowers were paying high gas fees, and come at a stage where Centrifuge was still proving its value as a protocol. With its current size and coming updates - protocol fees could start to have a real impact on the protocol’s future growth potential, and CFG holders’ participation in that growth by creating a link between CFG and the growing use of the protocol.
The second proposal is to implement on-chain staking to enable CFG holders to determine which pools to launch. This mechanism could help the Community to curate pools on Centrifuge, enabling Community-based engagement for all Centrifuge pools. CFG holders would stake towards pools they wish to see launch on Centrifuge. Pools that reach the threshold are then able to open and accept liquidity to finance assets. CFG-holders that are staked to these pools could receive a network reward from the protocol fees (see proposal #1 above). CFG that is staked towards a pool can also be slashed under specific circumstances to incentivize that only quality pools are able to launch on Centrifuge.
Open questions remain for this proposal that should be included in the detailed parameters presented for the on-chain vote:
- Implementing on-chain staking for pools would be technically difficult and may take some time to implement.
- What is the staked CFG threshold for a pool to go live?
- Should the amount of CFG staked increase in order to grow the pool past a certain size?
- How is the staking mechanism implemented?
- How are fee rewards distributed to stakers?
- How is a stake slashed?
We have proposed these 2 utilities as the most effective and impactful functionalities the protocol and its token, CFG, could have today. But, of course, there are many other utilities that the community can consider now, or in the future.
Is there another utility you think the community should consider? Drop it in the comments.