Certik SlowMist Jakub Wojciechowski +2 Ben Cosman Ethworks
Certik SlowMist Jakub Wojciechowski Ben Cosman Ethworks
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Last updated: Aug 21, 2023
TrueFi is an uncollateralized lending DeFi protocol, built on the symbiosis of centralized and decentralized finance, and was launched by TrustToken – known for creating and operating the TUSD stablecoin. The project is governed by TRU token holders. Upon its launch at the end of November 2020, the platform allowed vetted borrowers to request loans denominated in TrueUSD (TUSD), as long as TRU Stakers have assessed and approved the creditworthiness of loans. TrueUSD holders were able to earn TRU incentives on stablecoins loaned on the protocol.
Uncollateralized lending, which the project focuses on, allows lenders to earn higher long-term returns while borrowers can maximize their capital efficiency. Since its launch, the platform has gone through major protocol upgrades, started decentralizing protocol governance, and exceeded $200M in loan originations with zero defaults.
Lenders add assets to a TrueFi lending pool, which are used to fund new loans, for which they earn interest and TRU. All unused capital is sent to Curve Finance in order to maximize earnings, and allow for high withdrawal liquidity for lenders. Curve Finance can be viewed as an exchange with the main goal to let users and decentralized protocols exchange stablecoins through it with low fees and low slippage, by using liquidity pools like Uniswap. The platform achieves this by getting liquidity from its users and rewarding it with tokens.
Borrowers are whitelisted through “a rigorous onboarding process” which involves a deep review of their business, signing of an enforceable lending agreement, and approval by the TRU community. Once approved, borrowers submit a request for capital at a certain rate and a credit limit determined by their credit score. The submitted request is subject to further approval by the TRU community, which votes with “Yes” or “No” on each loan. In order to protect lenders in case of default, staked TRU may be liquidated at a maximum rate of 10% of staked TRU. Once approved for a loan, borrowers need to return the principal and interest before the term has expired, otherwise face legal action pursuant to the loan agreement signed during onboarding.
These mechanics and the future development of the protocol are subject to future change by TRU holders, since the project was built on the concept of progressive decentralization. Initially, the development focused on bootstrapping the protocol and distributing TRU tokens to the community, but in the long run the platform aims to become a “market-driven, automated credit rating and lending protocol”.
Assets loanable by TrueFi protocol are USDC, USDT, and TUSD, however the projects may include more digital assets such as Bitcoin (as wBTC), Ethereum, and other non-stable coins as it develops, keeping the possibility to support “almost any ERC-20 asset” as loanable collateral in the future.
The TrueFi lending pool can be used by lenders to earn returns on loaned cryptocurrencies while maintaining full transparency on the allocation of the loaned capital. At the same time, vetted borrowers can use the platform for rapid access to fixed-term digital currency loans. The TrueFi main lending pools are designed to allow TRU holders to collectively assess the creditworthiness of borrowers and individual loans by staking TRU.
Another product available to TrueFi users is the TrueFi Lending Marketplace - a platform for third-party managers to launch their own lending pools or portfolios. Detailed guides on how to use the TrueFi app are available on the platform’s YouTube channel.
Lenders are not subject to TrueFi fees for lending their funds on the platform. However, there are exit fees TrueFi collects that are variable and depend on factors such as the amount of available stablecoin in a pool. Managers can set their own fees as well as the period they are applied for.
TrueFi wallet support includes MetaMask, Coinbase Wallet, Portis Wallet, as well as wallets supporting the WalletConnect protocol.
The native utility token of the TrueFi protocol is TRU, it plays an important role in approving new loans, borrowers, and governance motions. The more the protocol decentralizes, the more its holders will act as its steering committee. The token has three main use cases.
Staking on TrueFi, allows for new loans to be approved or rejected, and provides protection to lenders in case of loan defaults. Stakers participation is rewarded in TRU and tfUSDC.
TrueFi governance requires TRU or stkTRU for on-chain votes to enact protocol-level changes and allows TrueFi community actions such as providing grants from the community’s treasury.
Providing liquidity on exchanges such as Uniswap and Sushiswap is typically rewarded with a share of the transaction fees collected on the pair supported by the liquidity providers, which “may sometimes enjoy farming incentives”.
tfUSDT, tfUSDC, tfTUSD are tokenized IOUs (IOU is the acronym for “I owe you” in financial terms used to describe a document stating that one party owes a debt to another party), referred to as Loan Tokens and represent a lender’s claim to assets in a specific TrueFi pool. These tokens can include unloaded stablecoins, CRV rewards, and loan tokens tied to specific outstanding loans.
Loan tokens can be used to earn TRU by participating in farming incentives, or redeemed for the respective asset, and also traded as any other digital asset. The value of these tokens represents the lending activity funded by the pool and fluctuates with it.
stkTRU is the governance token of the platform and is obtainable by staking TRU in the TrueFi protocol, which is also necessary for participation in voting for incoming loan proposals. However, in case of loan default, stakers may lose up to 10% of their staked TRU to compensate affected lenders. For taking the risk and responsibility to assure the safety of lenders in the protocol, TRU stakers are rewarded with additional TRU incentives, while also receiving a share of loan origination fees collected from borrowers.
TrueFi was developed by the team of TrustToken. Its CEO and Co-Founder – Rafael Cosman and his team have been part of the DeFi field for years and have developed strengths as a CeFi-DeFi hybrid business due to the nature of the TUSD stablecoin. The other CEO & Co-Founder Jain An has worked as a Data Scientist at Kernel and Product Manager at PwC. The other two co-founders and leaders of the TrueFi team are Tory Reiss, and Stephen Kade.
TrueFi audits can be found in the protocol dashboard on this webpage.
In late Q2 2021, the company announced they have established a partnership with Binance which will allow TRU holders to participate in the protocol directly through the exchange, earning as high as 30% APY rewards for it.
At the same time, TrueFi announced its integration with Chainlink, to provide protocol users Chainlink Price Feeds in order to access aggregated price data on TRU. The company also migrated its TRU Farm to SushiSwap where users can participate in a ‘Double Rewards' offering from SushiSwap V2, which allows SushiSwap liquidity providers to earn both TRU and SUSHI.
The project wants to target traditional financial markets such as venture debt, corporate debt, CDOs and CLOs, and plans to do so in 2022. The aim is that by opening the protocol to independent asset managers, the TrueFi platform will grow from $1B to $1Tn in TVL.
TRU is tradeable on Binance, Coinbase Pro, Gate.io, MEXC Global, Kucoin, LBank, ZB.com, FTX, SushiSwap, Crypto.com, Hotbit, FatBTC, CoinEx, Poloniex, Uniswap (V2), Bilaxy, and HitBTC.
TrueFi wants to bring more of the traditional global lending market (estimated to be worth around $6Tr) on-chain by leveraging the value of decentralized trust, transparency, and speed. The company envisions that in the future, the speed, cost-savings, and transparency provided by blockchain technology will eventually bring the majority of all global lending on-chain. The other major shift anticipated by the team of TrueFi is that uncollateralized lending will eventually exceed over-collateralized lending in DeFi in TVL, due to effective credit scoring and underwriting.
To facilitate these major changes in the future, TrueFi’s V5 upgrade is focused on scaling capital throughput dramatically. This will happen by introducing major borrower experience improvements, as well as prototyping support for third-party asset managers to launch their own TrueFi pools. At the same time, TrustToken (the team behind TrueFi) aims to test third-party support by launching an independent lending pool on the protocol. This pool is designed to offer B2B loans under different terms than the existing TrueFi pools.
In the current version of the platform - V4, the company introduced a prototype for Lines of Credit (LoC) which allows borrowers ongoing, self-serve capital access at dynamic market rates, as long as they have been approved for it by the community. In the next version, the Lending Engine upgrade with priority is the automation of loan interest rates. The goal is to have an automated credit model, ready to act as the primary means for setting a borrower’s lending limits, rates, and terms. This upgrade is expected to dramatically speed up the protocol’s lending throughput.
Another key aspect of the forthcoming upgrade is that voting with TRU to approve individual loans will no longer be necessary. This mechanism will be replaced with voting for adjustments to the credit model to make decisions at scale.
To determine a borrower’s creditworthiness, the lending rate model uses both on-chain data and off-chain information to compute a score from 0 to 255. This score sets the terms of a borrower’s activity after community onboarding and may slowly increase each time the borrower repays TrueFi loans, grows its assets under management, or reduces its leverage. For this, the platform introduces a new utility for the TRU token – Borrower TRU Staking, expected to create new demand among borrowers. With staking of TRU, borrowers raise their credit limit and improve their rates.