Progressive Decentralization & Our Commitment to a Fair Marketplace
TrueFi will be built on the concept of progressive decentralization. Initially, TrueFi development will focus on bootstrapping the protocol and distributing TRU to the community of users and developers who participate in the protocol.
In the long term, TrueFi aims to become a market-driven, automated credit rating and lending system. This will demand building beyond the rigid, conservative constraints such as minimum/maximum APY and high TRU participation factor. It will also require increased levels of responsibility from users, especially for onboarding new borrowers beyond the pre-approved whitelist and approving new loan types.
Progressive decentralization will be accomplished in part through the distribution of TRU which is used to stake on individual loans at launch, and could be used to affect major decisions across TrueFi, such as onboarding of new borrowers, once these features are further developed.
We acknowledge our Company will be the largest individual trustee of the TrueFi native currency, holding about 9% of TRU at the time of launch. Following a plan for progressive decentralization, 39% of TRU has been allocated to an incentive pool for platform participants including Lenders, TRU Stakers, and Liquidity Providers to TRU pairs on Uniswap and Balancer to gradually put TrueFi under the control of its users.
In the interim, our Company will make the following two commitments in order to cultivate the fairest marketplace possible:
- Reinvesting Farmed TRU: For at least the first 6 months after launch, all TRU farmed by the company will be either burned or sent back to TrueFi’s yield farming program to pass on to the community.
- Fixed Supply: While TrueFi is being progressively decentralized, we commit to taking no mint actions that would increase the total supply of TRU (e.g. re-minting burned TRU).
- Community Treasury: The only fee TrueFi collects is 0.25% (25 basis points) collected on loan origination. The fee accrues directly to the protocol and usage will be determined by the community. We commit to leaving these funds untouched until TRU holders have given feedback on how to best reinvest this treasury into TrueFi’s growth.
Risks of TrueFi & Uncollateralized Lending
While borrowers are usually willing to pay higher rates for uncollateralized loans, these higher yields do not come without risks. Compared with collateralized lending, uncollateralized lending has two major risks:
- Potentially increased risk of loss: Protocols that require collateral are protected by that collateral in case of default. While this allows such platforms to be indiscriminate in approving loans, uncollateralized loans come with a much higher standard of trust that must be met by a borrower. In case of default on an uncollateralized loan, a delinquent borrower will have been assessed for creditworthiness before the loan was made and will face both reputational damage and legal action. If such legal action is unsuccessful in collecting on the loan, lenders may lose a portion or the full value of the loan.
- Potentially lower liquidity: While instant withdrawals are becoming a norm for new protocols, uncollateralized lending may not offer the same flexibility. Most borrowers for uncollateralized loans are interested in fixed-rate, fixed-term loans for predictable repayment. This means lenders who fund such loans need to be comfortable locking up their assets for the duration of the loan, which can last weeks or months. TrueFi offers an alternative to instant withdrawals: the ability to sell your claim to the set of outstanding loans in the form of Pool Tokens. Lenders who choose to liquidate their loans this way should understand they may take a loss on the sale of their Pool Tokens, as these prices will be set by the market.
Users: Who Benefits from TrueFi
💰 Lenders add TUSD, and eventually other cryptocurrencies, to the TrueFi Pool for use in uncollateralized loans to approved Borrowers. They earn a high yield on their loaned TUSD.
Lenders whose capital is loaned out on TrueFi will receive a tradable ERC20 Pool Token representing their claim to the principal and interest due on repayment of all loans to the Loan Pool. These tokens can have their own liquidity on Uniswap and other DEXs. In the future, we expect multiple TrueFi Pools may exist simultaneously (possibly with specific lending strategies, like lending just to exchanges).
Lenders who add TUSD to the TrueFi Pool will earn TRU while their TUSD is loaned, in addition to the interest paid by the borrower.
🤲 Borrowers borrow funds from the TrueFi Pool by submitting requests subject to assessment of creditworthiness by TRU stakers and approval by the Pool. Borrowers must pay back the loan amount and interest before the loan expires or face both reputational and legal risk enforceable in court, per terms described in their binding loan agreement.
At first, TrueFi’s Borrowers will be made up of a whitelist of carefully selected funds vetted by the TrustToken team. Over time, TrueFi may open to any Borrower with an Ethereum address, including other DeFi smart contracts.
📨 TRU Stakers vote “Yes” or “No” on incoming loan requests from Borrowers to signal their support. In the future, TRU may be used to approve new Borrowers or otherwise guide the direction of TrueFi development.
🌊 Off-Platform Liquidity Providers support TRU liquidity on Uniswap or Balancer, getting the opportunity to farm TRU by staking their LP tokens with TrueFi.
How to Farm TRU 👨🌾
As a summary of the stakeholders above, there are currently three ways to farm TRU:
- By adding TUSD to the TrueFi Pool as a Lender
- By staking TRU on loan proposals as a TRU Staker
- By providing liquidity support on platforms like Uniswap or Balancer as a TRU Liquidity Provider
Technical Contributions: Three Novel DeFi Building Blocks
TrueFi is composed of three distinct components we’ll describe at a high level here. Each is built to be used by other developers, even if they aren’t using the overall TrueFi system. Developers can plug in at any level of this stack.
LoanTokens: On-Chain Loans with Fixed Size, Term, and Interest Rate
The LoanToken protocol is a minimal system for fixed-size, fixed-term, fixed-interest rate loans on the blockchain. In the future, we expect to see other fund-like DeFi protocols that invest directly in LoanTokens from the top borrowers we’re bringing to the platform. An institutional borrower might create a loan token to raise a $5mm tranche, and any Ethereum wallet or smart contract could contribute as little as $1.
Credit Prediction Market: Predicting Loan Repayment
The most systematic way to assess the risk of a LoanToken defaulting is through a prediction market. Wallets and smart contracts can place bets in the Credit Prediction Market using TRU and any protocol can use this data as a market-based estimate of the probability that a LoanToken defaults. These prediction markets are resolved trustlessly, with the LoanToken getting a clear read on whether the loan is repaid or not.
TrueFi Pools: Framework for Open-Ended “Funds” with Various Strategies & Risk Tolerance Levels
TrueFi Pools are the top of the TrueFi tech stack, and they’re what users interact with. TrueFi Pools invest in LoanTokens that the Credit Prediction Market determines to be within the pool’s risk tolerance. While we’re starting with a single pool, TrueFi Pools will in the future support a variety of pools with different investment strategies and risk appetites.
Go deeper on TrueFi: Review the technical specifications.
Proposed Roadmap: The Future of TrueFi
TrueFi’s goal is to become the ultimate protocol for uncollateralized lending.
To get there, TrueFi must advance in four key ways:
- Expand the set of borrowers
- Expand the types of loans
- Improve the efficiency of the Credit Prediction Market
- Progressively decentralize, to put these types of decisions into the hands of TrueFi users
With these improvements, we see a future in which capital moves at an order of magnitude greater efficiency than it does today. In a truly efficient market, a pre-approved borrower can take out a $5 million loan, return it within 30 minutes, and see the same funds immediately borrowed by another borrower. This flow would be powered by a prediction market assessing the likelihood of default of every individual borrower 24/7, pricing in every new piece of available information.
In this future, every dollar of capital is instantly allocated to wherever it gets the best risk-adjusted return. We see TrueFi playing a key role in moving finance in this direction, and we’re excited to have you be a part of it.
Get Started: Code & Community
🤝 TrueFi Community: Join the discussion in Discord and on Twitter with @TrustToken
👾 TrueFi Product: Explore the TrueFi product preview at Truefi.io
💻 TrueFi Technology: Review our technical spec on GitHub, and contact email@example.com for details on our bug bounty program.