Lucas Vogelsang on building Centrifuge and the Future of Defi

September 7, 2022

Kenzi Wang

In this episode of Web3 Unlocked, Kenzi Wang and Diksha Dutta speak to Lucas Vogelsang, CEO, and Founder of Centrifuge, focusing on bringing Real World Assets to Defi since the early days of Ethereum. We cover the future of Defi, the Polkadot ecosystem, and Lucas’s experiences of being a founder in the web3 bear market. Here are edited excerpts from the interview.

Lucas had always been passionate about computers and coding. In 2017 after working in the tech space for seven years, he decided that he wanted to revolutionize the finance industry and use blockchain to build the backbone for financial transactions. That’s how Centrifuge was born and became a platform to help people access capital for future needs.

What makes Centrifuge Web3?

Banks have every incentive to maximize their share in every financial transaction. Web3’s goal is the opposite. Decentralized finance aims to have protocols that are modifiable, open source, and ultimately governed by the community. In this space, solutions are designed to be kept free or low-priced and easy to use.

Because Centrifuge is an open B2B commerce protocol with the tools to fuse walled-off silos of business data and business logic on a public, decentralized network traditionally – it fits right into the definition of Web3.

“Fundamentally, the idea of Web3 is that you give the users a choice and give the user the power to ensure that systems generate money so it can sustain itself.”

Web2 vs. Web 3: The difference

Smaller companies find it difficult to get loans from banks, whereas large international firms like Coca-Cola can raise loans to billions of dollars relatively quickly.

Web 2 is the internet version where payment services depend on your business’s ticket size, and access to capital is easy for big players in the market. Additionally, servers for gig economy workers could go down and affect income, and payment services may not be allowed for certain kinds of work.

In Web3, everyone can use a service, payments are built in via native tokens, no personal data is required on apps, and no payment can be prevented, and web3 servers can’t go down because a decentralized network of 1000s of computers work together.

“We are at the dial-up stage of Web3. The technology is immature, and it is difficult to say what crypto will look like 10 or 20 years from now. We are building the foundation for it now. There is a lot of legal uncertainty too. The vast majority of founders spend a lot of time ensuring that what they are doing is somewhat compatible with the law and that the infrastructure is safe. It might be easy to figure out if you are violating privacy laws. However, there is no definition around tokens and what they can do.”

What makes Web3 founders successful

Web3 founders must be adaptive, aware of their surroundings, absorb new information, and update themselves.

“I think two aspects are very important when you are trying to build a Web3 product. One is to be comfortable working in an undefined space and find something that sticks. The other is to be open to collaboration and do a good project within an ecosystem. In the Web3 space, you can’t do it all by yourself. Web2 product builders are building their products, finding their own users, doing their own marketing, and trying to establish their category. In Web3, this does not work; if everyone built everything themselves, product development would be very distracted.”

Network value of Web3

Defi is new concept, and bringing real-world assets on crypto is newer. The value of Centrifuge is bringing assets from the real world to blockchain.

“At Centrifuge, we are building a marketplace for debt like securitized asset-backed securities, mortgage-backed securities where people borrow money based on collateral. We are building a community of people that help price assets and how safe they are. We are building the expertise, and technology and bringing real-world assets into existence.”

Making decisions in a bear market

The crypto world saw a massive bull run till May 21 and then a crash. We are now in a bear market that has seen many tokens disappear, and investor sentiment is cautious. All markets undergo cycles; crypto founders ride the bull and bear markets differently.

“I’m very happy that this isn’t my first bear market. We started in 2017 and raised money in 2018. Nothing was happening in crypto for the first couple of years; no one cared about it.”

For Lucas, things are different in this bear market. “Our team is doing very well; we have doubled in size. Building a well-performing team is never easy. Now, we are playing a different game, and many distractions have gone. I love building in the bear market, even though it has made it harder for everyone to raise money and grow. I think the good projects will easily make it and come out of this, with sustainable products like Uniswap.”

Institutional Adoption of Defi

The way any token that represents money becomes the norm when everyone in the market accepts it- that is what gives it legitimacy. So, apart from individuals, crypto needs to see acceptance and adoption from institutions- banks, governments, and mainstream investment and portfolio management companies.

“At Centrifuge, we rely on people who prefer a lower yield with stability. We were not affected by the market because we rely on a much more mature segment of finance to start using Defi. What will help us grow is our work with financial institutions that have invested in crypto and trade financial assets. We would like to work with them and show them how crypto can help their work. Instead of paying lawyers, bankers, fund administrators and other intermediaries that you use to do the deal traditionally, you can achieve all of this with smart contracts as it will be faster and cheaper. Our focus has been to help such institutions use this technology rather than just invest in it. Blackrock, Coinbase, Societe Generale have already started working with crypto. We have made a start in establishing DeFi as a financial system.”

The Polkadot ecosystem: Present and Future

The crypto world has exploded with a plethora of tokens and ways to exchange value. Polkadot, an open-source blockchain platform and cryptocurrency, has been a popular choice for Web3 founders regarding building technology. The beauty of the platform is that it allows interconnectivity and interoperability between blockchains by enabling independent chains to securely exchange messages and perform transactions with each other without a trusted third party. With all the promise that Polkadot brings, progress in technology development is slower than expected.

“From a technology perspective, Polkadot is on the right path to building very secure and scalable decentralized blockchains. Power chains that will allow cross-chain messaging are still early in development, and the ecosystem is likely to grow by Q1 next year. We’ve been building on our Polkadot para chain for over two years now. I am super excited about the tech and what it will allow us to do in the long run. I believe in a multichain world, and we have built Centrifuge as a multi-chain product, and that’s how we are building the architecture and connectors. It allows users to interact with Centrifuge across different chains so that they can use Centrifuge on Ethereum as an investor, and the borrower is using Avalanche. The money flowing to the Centrifuge chain can be used to originate a bunch of different loans.”

Mentors

It is natural for founders and entrepreneurs to need mentors and guides to help them build a business, especially in a space that is so new and filled with uncertainty. However, we wonder how Web3 founders support each other.

“I always learned a tremendous amount from other founders that have different experiences or are more experienced than me.

The people from the early wave of crypto are now a tight-knit family of people that have gone through similar problems and spent years working on them. I stay in touch with them and make it a point to exchange ideas and learn from them. For example, when I was 20 and trying to start my first startup, a good friend of mine, was 30 something at the time, shared a lot of his experience with me on networking, fundraising, and hiring.”

Most crucial learning as a Web3 Founder

F founders often know they are making a critical decision but can’t predict how those decisions will pan out. Only when we look back and connect the dots can we reflect on what we could have done better.

“Our entire team was very skeptical of launching a token or starting a community before we actually had a real product. We actually waited till 2021 to launch the token. I always underestimated Web3 projects the idea of giving people ownership over the network. Building a community around that is something that is viable in itself and going to bring a lot of energy to the product. Right now, it’s become extremely popular to launch a token without anything, any idea at all apart from a cool name and then figure out together what to do. I’m skeptical of that because without a vision, I don’t think you can throw 100 people together and hope that something cool happens. But, I think there’s probably somewhere in the middle between those two extremes that you can. You want to build a community and not spectators. If you are thinking of building a project today, don’t underestimate the time and the work it takes to decentralize your community. If you’re just a centralized company and makes all the decisions and then you launch something and you’re expected to have a token and then people to come and actually do something they won’t if you don’t actually allow them to rebuild your team at have many ways for them to interact and work independently of the founding team.”