Token design proposal for underwriters to minimize trust in real-world assets

How to Reassemble the Existing Financial Infrastructure

A token model for underwriters to minimize trust in real-world assets

Centrifuge is a protocol for decentralized asset financing which lets businesses finance their real-world assets on-chain. We’re developing a new system of credit, one that is open, resilient to single points of failure, and with equal opportunities for borrowers and investors.

Centrifuge creates the first alternative to banks and the existing credit system.

We present our design proposal for a system to incentivize the valuation of real-world assets and the assessment of risk through a decentralized system of underwriters in order to minimize trust in real-world assets.

This design builds on Centrifuge Tinlake’s two tranche token structure. TIN–the volatile first-loss high yield junior tranche and DROP–the fixed interest lower risk senior tranche. Read more about TIN and DROP here.

Inefficiencies in Traditional Finance

Today, underwriting is mostly done by banks, with little incentive to be efficient or fair. They often are both the underwriter and the investor, and because of that: they don’t need to be competitive. Banks only perform this function when there is enough of an incentive (profit) for them. These inefficiencies leave many businesses unserved and result in exorbitant fees for the SMEs they do cover.

Our proposed underwriter token model, using the TIN token, is designed to provide the service of valuation and risk assessment of assets to investors through an open and distributed network of underwriters. The active participation of underwriters minimizes the trust in these assets and results in greater efficiency, higher quality of assets, and reduced risk to the system. Investors will find more transparency as a result; with clearer definitions of the value of assets and the estimated risk vetted by several parties.

Centrifuge’s decentralized underwriters enable businesses to access capital faster and cheaper without relying on a bank.

Risk & Asset Valuation by Underwriters

There is a conflict of interest between asset originators that bring loans into a pool and the investors that fund them. Asset originators are looking for a lower cost of capital, while investors are seeking to maximize their risk adjusted return. In the traditional financial world a bank would often underwrite the loan (decide on the terms) and be the investor at the same time.

Underwriters are actors with the expertise needed to provide the value and risk for proposed loans. They are responsible for deciding which assets should be financed and under what parameters of valuation and risk, within the boundaries set by the pool. Their task is to ensure the stability of a pool, and their return is a share of the interest and tied to asset performance.

Because we’re building in an open permissionless system, our underwriters can look very different from today’s. They can opt to collaborate with others in the system to complement each other: an expert in fraud scoring could join forces with a large credit data provider to propose assets that qualify in both categories. Underwriters can also try to compete and use proprietary models for their own advantage.

TIN: The Token for Decentralized Asset Underwriting


The objectives of the Centrifuge Underwriter token are the following:

  1. Remove a single point of failure within the system by allowing underwriters to compete but also collaborate
  2. Incentivize the valuation of assets in Tinlake pools
  3. Incentivize distributed and broader risk assessment to provide more accuracy
  4. Create a gatekeeper to assets entering the pool
  5. Give underwriters skin in the game and require them to take the first loss


With this proposed mechanism, TIN becomes a governance token for underwriting Tinlake pools that controls which loans to accept into the pool. TIN holders vote on pricing and risk assessment by staking towards potential assets. For performing this service, these TIN holders earn underwriting fees.

To participate in a pool as an underwriter, the first step is to deposit DAI (or another stablecoin) into a pool to provide part of the capital needed to originate new loans. The pool will mint TIN in exchange for this deposit. The underwriter can then start staking the TIN to potential assets proposed by the asset originators.

Anyone can become an underwriter by buying and staking TIN tokens. If an underwriter has a strategy that performs better for a pool, they can capitalize on this opportunity. These market dynamics lead to diversity and competition among underwriters. The resulting decentralization is more efficient and safer for both the asset originators and investors.


As assets are financed, DROP and TIN tokens increase in value according to the Net Asset Value (NAV) of the pool. Asset originators repay loans with interest in DAI into the pool’s reserve and DROP and TIN holders can redeem their tokens for DAI in the reserve.

The Yield Waterfall: Yield is distributed to the different tranches and awards are given to staked underwriters.

Asset Underwriting Mechanism

DAI in the pool’s reserve from investors and loan repayments can be used to finance new assets. In order for an asset to get financed by the pool, first an asset originator proposes the asset with a minimum deposit of TIN. This minimum deposit serves to prevent spam of proposals. In the proposal, the asset originator includes a proposed value, loan amount, and risk score for the asset. Any proposer must own a minimum share of TIN of the asset value being proposed to ensure there is enough at stake for the proposer and align their incentives with those of other TIN holders.

Underwriters stake TIN tokens on proposed assets to be financed, and assets above the minimum threshold, with largest stake, are then financed by the pool according to that risk class. The minimum threshold is set relative to the value of the asset. If a proposal does not meet the minimum threshold of stake, the proposer loses their minimum deposit. However, they can propose the asset with different value, amount, and risk parameters.

With this mechanism, underwriters decide under which terms assets are financed within the boundaries set by the pool. Staked TIN is locked until an asset is repaid. Stake on defaulted assets is slashed based on a percentage of the lost value.

The asset underwriting mechanism is designed such that if no loans get enough stake, bad quality loans do not get financed. There is a minimum threshold of TIN at stake relative to the loan amount of the asset to be financed, and the value of TIN. If there are more assets that qualify than liquidity to finance them, only those with the largest stake get financed in that time period.

Encouraging Active Participation

In order to incentivize active participation of underwriters, on loan repayment new TIN tokens are minted. The newly minted TIN are distributed only to those underwriters that staked towards the asset. As a result, not participating in this asset underwriting process leads to a dilution of your TIN–effectively the fee for underwriting services.

We foresee people to build delegation models on top of this mechanism to allow TIN investors to delegate tokens to underwriters for better asset curation–sharing the upside with underwriters that don’t have enough capital of their own avoiding their dilution due to non-participation.

A Better Way of Credit

The above token mechanism incentivizes competitive pricing for real-world assets and reduces the reliance on asset originators and off-chain data. As a result, investors find more transparency; with clearer definitions of the value of assets and the estimated risk assessed by several parties. Asset originators, investors, and underwriters are systematically aligned to create more liquid and stable pools–a better way of credit.


Let’s do not underestimate this proposal. I think it is the first time we can make things, which today happening behind doors in banks and other financial institutions, work better: fully transparent, open, decentralized, bankless!


Unfiltered feedback - Idea.

Congrats, Aligning underwriter and Investors interest is absolutely fundamental and probably create a path way to success.

Let’s Centrifuge (Tinlake) be the financial arm of the world Amazon fulfillment.

#1 for the underwriters, may I suggest some kind of whitelisting as a filter in addition of a purely economic incentive “filter”.

Risk assessments - pricing - APR accuracy are crucial especially at this early stage.

We need to demonstrate a high degree of professionalism to attract both capital and demand.

#2 I will like to introduce the idea of a warehouse (pool) to back the underwriters’ effort on prefinancing the debt issuance.

The idea here is to create speed and fluidity using a warehouse like mechanism (could be a tokenized SPV or a Pool).

The warehouse (pool) would provide the initial capital via DAI to buy the full issuance and receive TIN and DROP tokens or another specific token TIN+ or SuPN (Secured underwrote Promissory Note) and sell the inventory of TIN and :droplet: DROP via Swap on balancer or uniswap or Tinlake … to investors using DAI. We can also imagine the Warehouse providing liquidity on private pool to create secondary market.

So LP and investors could from there buy TIN and DROP in secondary for a like a 10days period and eventually sell in secondary with discount (penalty).

The warehouse (pool) would get a very small cute to provide initial liquidity and speed.

The cute can be fairly small (0.5%) while still be attractive as the same funds can finance serval issuance, up to 30+ cycles per year (365/10) depending on the length of the secondary period sales.

Warehouse mechanism

Asset Originators - Debtors issue and own digital assets (tokenize secure promissory notes) as the representation of an invoice or merchandize (stock of good) or balance sheet etc (collateral asset) with the help of the underwriters TIN and the vote of the warehouse TIN+.

The Warehouse TIN+ after approval (gov) finance the all set of TIN and DROP issued and open a 10days period or more where “retail” investors can buy in.

*TIN+ warehouse could be warehouse lending platform to act as a buffer between debtors and creditors. The warehouse is funded by actors wanting to acquire a stable coin product collateralized by debtors professionally underwrote.

Screen Shot 2020-08-28 at 1.12.19 PM



Also I think an asset originator needs:

  • Financing
  • A painless - frictionless experience
  • A competitive rate
  • A fast track - (speed and rate are probably in the essence)

Having a warehouse like mechanism could create theoretically an 24h/7 financing platform where capital could be disbursed in 48h or less.


Illustration 2 warehouse (sorry only 1 illustration per post :/)

final thought :thought_balloon: :slight_smile: Collateral - underwrote assets need to be somehow “premium” otherwise we will only attract high yield under rated debt and increase DROP :droplet: & TIN holders chance of suffering large capital loss. We are about to experience a credit crunch and probably an hyperinflation period that may last a while.
The demand and market size for tinlake marketplace - platform and product, especially in countries heavily impacted by those market conditions because of there operating currencies (none reserve currency countries) gonna be wild. Centrifuge can - will be able to afford to be selective.

*side note: *
Interesting to follow the Forge project from Societe Generale.


Hi, awesome proposal. First time through it, but how does it deal with currency exchange risk. If the DAI, appreciates against the amounts denominated in the debt pools?


That is the general risk of using Dai. We had to solve it with the first pool back in 2019 by hedging it with Dai market makers.


Hey @FortunaFi, thanks for the questions!

From what I understand of your question, this is correct. An originator can only obtain financing for an asset if there is enough liquid DAI at the time that they request financing, as well as that the proposed asset & price is sufficiently staked against by underwriters. Is there another implication you see here?

DROP is a fixed-interest and lower risk token, much like the traditionally understood senior tranche. When investors deposit DAI into the pool, they can choose to invest in either DROP or TIN – as long as the ratio of TIN:DROP holds true. That is, there must always be enough TIN investors to secure the more senior DROP investors. This ratio is set at the time of deployment of the pool.

We hope that long-term this could be an open system that anyone can participate in. That said, participants of the pool may elect to only allow participation from whitelisted addresses. This is a parameter that they could decide on through pool-governance.

As well, it would potentially be more interesting to have a reputation system for underwriters – and this is something we are very interested to build natively. Would love to hear if you have any thoughts on something like this!

I think this is an interesting idea, and something I foresee someone building on top of Centrifuge. However, this derivative token would be risky – as the underlying TIN could be slashed if the asset it is staked towards defaults.

Another note – TIN itself is effectively like cDAI, as it represents a share of DAI in this Tinlake pool.


Hey @Fabien, this is a great suggestion, and something that we are very much interested in building! I foresee this being more important in the medium to long-term, as the entities participating in the very beginning will likely be well-known to all parties involved. Do you have any thoughts on building a reputation based “filter” for this?

This is a very interesting mechanism proposal, and I am curious to see if there is interest for this in the market. It would definitely help AOs to be much faster in their ability to finance their assets.

How much interest do you foresee for such a mechanism? And what do you think this interest will depend on? (ex. will it be a question of size of the Tinlake pool? or the types of assets that are being financed?)


accidentally deleted my original post - re-pasted below:

Congrats on releasing this!

Some initial questions:

  • Under the new token design proposal it appears that if anyone can participate in the pool then an originator trying to fund the entire loan or at least the entire tin portion of the pool might not actually be able to?
  • How does the drop token play into this? I thought that you had to fund the pool first with dai then take the drop to maker for more dai (once the pool is approved by maker).
  • I think ideally you could whitelist addresses that could participate in pools. Which then in that case you wouldnt need to stake the TIN if you owned all of the TIN for example.
  • Another suggestion, would be that in the case where you do want to stake the TIN, that you build a mechanism to provide a token back to the staker (like a cTIN). Similar to getting a pool token back for depositing liquidity into a pool.

First time here and also coming from a legal background, so may be missing a lot.

I understand that any real world assets can be accepted into the pool. In the traditional world, and especially with banks, a loan is underwritten against certain representations given about the collateralized asset. If such representations prove wrong (say, the borrower has no ownership rights over the asset), the bank can pursue litigation and enforce its rights against other assets of the borrower. Such recourse rights are important for risk assessment.

In case of TIN, how would this work? I understand that all the burden will be with the underwriters who will risk having their stacked TINs slashed. If so, the associated risks (without recourse rights against other assets) should be higher, which will make the interest rates less attractive for the borrowers.

Just thinking out loud, no proposal here for now. Reputation and decentralized identity seem very relevant here, imao.


Thanks @cassidy
We would seed the initiative - first warehouse, and probably register the first dedicated SPV - most likely - Delaware + SEC under regD if you and the team think it is a valuable mechanism.
As for the interest - depending on the economics (share (%) captured by the warehouse and cycle length, I will expect a first SPV of $1mio should be something that could reasonably be quickly put in place. In my example this can help AOs up to $36mio (1mio*36cycles per year).
After a few cycles and some historic with this type of TRI we (community - warehouse) should be able to raise a second SPV if necessary. All parameters can be adjust and change during the proces to better fit the market and needs.
One of the big thing I believe is being able to deploy the funding of new AOs - meaning that we need to smoothly onboard new customers on Tinlake while providing a “frictionless” experience.
I do believe that with professional grade underwriting + instant funding you guys can make a case to convince AOs to issue on Tinlake - centrifuge.


The underwriting process is key here - risk assessment etc … this is why in general underwriters charge a 2.5% in debt issuing and up to 5% on the equity side of thing.
If underwriters are playing it down on the risk assessment and fail on underwriting properly seems fair for them to take the first hit.


Reputation based filter - whitelisting seems an interesting way to go - what would be the KPIs- indicators?


Hi roman, thanks for joining the discussion!

There is of course a off-chain legal framework around what’s happening on Tinlake. An SPV is the legal counter party for borrowers and investors. The SPV as the issuer has to provide all these data, documents and proofs they get from the borrowers. The NFT is anchoring (fingerprinting) this on-chain. Investors can check the data and proof that is correct using our precise proofs of the anchor. Underwriter creating a additional level of proof. They independently check the data, vadlidate it, and propose if okay with it the asset … makes sense?


Excelent Work. Maybe consider a second layer of guarantees (in the style of Aave), with some mechanism of CDF or similar.


One additional suggestion as I thought through a particular use case. There should be a way for the tinlake admin to set the dilution from TIN to TIN stakers. For ex: if we want to set the “underwriting fee” to 2% then the passive TIN holders would loose 2% of their gains to pay stakers.


Hello Martin,
what do you mean by SPV and do you have a link to have a glance at it?
With a legal background as well, I think, this is key to a working product.

kind regards


1 Like

Hi Ronald,

An SPV is a Special Purpose Vehicle acting as the issuer of the DROP and TIN tokens. It is the legal entity for the token issuance, and the legal counterparty for investors (purchasers of DROP and TIN), who sign a subscription agreement with the SPV, and the borrowers (sellers of the NFTs), who sign a finance agreement with the SPV.

Best, Martin


Does the new DAO Wyoming legislation change the proposed setup in any way(s)?
How about using onchain protocols for dispute resolution?