Centrifuge Token Executive Summary

Abstract

The Centrifuge Token Model powers Centrifuge, providing the framework needed to run the platform without reliance on a centralized third party to accelerate its utility. To accomplish this, Centrifuge leverages the crypto-economic primitives of the native token called CFG.

Centrifuge Chain charges transaction fees in CFG, employs CFG to stake value, and uses an on-chain governance mechanism that allows CFG holders to vote on chain upgrades. This governance mechanism empowers token holders to guide the development of Centrifuge, and together with CFG rewards incentivize an ecosystem of users committed to the long-term growth and sustainability of Centrifuge.

All changes to the Centrifuge protocol or the CFG token model described here go through governance proposals and need to be implemented by CFG token holders.

CFG Utility

CFG tokens are used for Centrifuge-specific utility. This includes both standard network functions such as chain security and transaction fees, on-chain governance, as well as unique utility to support Centrifuge-specific functionality to finance Real-World Assets on-chain. The more utility and participation there is in the network, the stronger the network becomes.

Utility Value

As the utility of Centrifuge grows, CFG will capture the growing value provided to users of the network through each of the utilities described below. This value is primarily captured in the use of CFG for transaction fees, and additionally through its importance in governance of the network.

The CFG Token Model secures Centrifuge Chain and incentivizes a distributed network of agents to perform critical network functions in the form of CFG Network Rewards.

Token Supply

Minting Mechanisms

The token supply of CFG will increase in the short term as it is minted in order to pay for chain security, as well as to incentivize a distributed network of agents to perform critical network functions in the form of CFG Network Rewards. The current yearly mint rate depends on the different rewards distributed in that year, potentially including: the reward to incentivize chain security, the rewards to liquidity providers, and a block reward to the on-chain treasury.

As the inherent utility of the network becomes sufficient to draw in users (and by virtue, sufficient transaction fees collected to the on-chain treasury), mint rates can be adjusted down accordingly by a vote of CFG holders.

Burning Mechanisms

A portion of the transaction fees will be burned, at a rate set by on-chain governance. This burning mechanism will eventually serve to balance the total supply of the token over time.

CFG Token Distribution

Initial Distribution

The initial CFG Generation Event was executed by the Centrifuge Network Foundation. The initial distribution created 400,000,000 CFG, which was distributed to the Foundation and initial contributors, including; the core team, investors, and validators. Since genesis, additional tokens have been minted as rewards for chain security and to incentivize adoption. This wide token distribution is core to the decentralization of Centrifuge.

A snapshot of CFG Distribution shortly after genesis, at a supply of 425M:

Token distribution mechanisms

Centrifuge Chain will leverage rewards, distributed in CFG, to incentivize early participation of network participants as well as to fund the continued development of Centrifuge. These rewards create an additional incentive on top of fees for entities to perform critical network functions. The network benefits from incentivizing early participation by creating a reliable and distributed network of agents early on. In addition, the burning mechanism will allow the chain to maintain a stable supply of the token over time.

Token Lockups

Token lockups help to align incentives of the token holder to the long-term growth of the Centrifuge ecosystem.

Most CFG tokens have long-term lockups at their distribution. The core team members have 48 month lockups when they join, with a 12-month cliff. Generally CFG sales are also subject to long-term lockups. Rewards may also be subject to lockups.

Governance

CFG tokens are utilized for both standard network functions such as chain security as well as the ability to participate in technical governance in proportion to their stake in the protocol by voting to upgrade the chain runtime code. CFG holders participate in governance through an on-chain voting mechanism on proposals: runtime upgrade proposals are voted on by the token holders. Approved proposals are enacted programmatically on-chain.

Transaction Fees

Transaction fees are paid in CFG by users on Centrifuge Chain. Transaction fees are paid into the on-chain treasury. A percentage of fees can also be distributed to network agents that perform critical functions, such as nodes that run the chain. A percentage of fees can also be burned at a rate set by CFG token holder governance.