TL;DR
TrueFi is DeFi’s first credit protocol for lending, borrowing, and managing capital. Built on Ethereum and Optimism, TrueFi’s capital markets connect investors, borrowers, and capital managers for uncollateralized lending in both crypto-native and real-world financial opportunities.
By bringing asset management on-chain, TrueFi removes the middleman and can offer lenders better yields on loaned capital, as well as a range of financial opportunities usually reserved for the ultra-wealthy.
At the same time, it provides multiple layers of loss protection against defaults, helps portfolio managers tap into global liquidity, and enables more capital-efficient lending for borrowers.
Read on to learn how TrueFi is revamping the multi-trillion dollar global credit market — and putting the future of finance in the hands of its token holders.
Introduction
Today, the value of the global lending market is approaching $8 trillion, yet nearly all of this money continues to use financial infrastructure built in the 1970s. These technologies (such as SWIFT) often make investing slow, expensive, and exclusive.
As a result, the most attractive investing options — like corporate debt, specialty real estate, and emerging market opportunities — are rarely available to retail investors.
Blockchain technology offers a new way to move and allocate capital, making investing more efficient, faster, and more transparent. However, blockchain alone does not address issues such as assessing borrowers’ credit worthiness, onboarding real-world collateral, or collecting on defaulted loans.
To solve this problem, the TrueFi team has designed a hybrid structure that allows the protocol to operate freely, under the direction of TRU token holders. Additionally, TrueFi relies on adoption from independent portfolio managers who enjoy the benefits of TrueFi’s infrastructure while owning the centralized components of underwriting and collections in the real world.
Here, we’ll dive into how TrueFi has grown into a first-of-its-kind multi-billion dollar protocol.
What is TrueFi?
Using blockchain infrastructure, TrueFi has launched DeFi’s first uncollateralized lending marketplace, finally allowing borrowers to make on-chain loans without requiring them to provide collateral lock-up.
This has dramatically increased borrowers’ capital efficiency, resulting in soaring demand. Since TrueFi’s first uncollateralized loan in November 2020 to Alameda Research, the protocol has originated almost $2 billion in collateral-free loans, paid out approximately $40 million to lenders, and maintained one of the industry’s best underwriting records.
In 2021, TrueFi progressed from only connecting crypto-native borrowers and DeFi lenders to offering a marketplace of financial opportunities managed by independent portfolio managers, all built on its modern lending infrastructure.
Today, TrueFi offers a diverse and growing range of financial opportunities, including emerging market investing, fintech financing, real estate investing, and gig worker lending — effectively bringing real-world lending and assets to DeFi.
How does TrueFi work?
TrueFi is a public financial utility, offering infrastructure for lending, borrowing, and managing assets. The true magic of the protocol, however, happens when these user groups come together, using TrueFi as a marketplace to meet their needs.
Because TrueFi is a decentralized protocol, it also relies on stakers of its TRU governance token to provide loss protection to lenders, govern the future of the protocol, and make contributions necessary for TrueFi to succeed.
Lenders
Both retail and institutional lenders in the crypto and traditional finance sectors use TrueFi to find the best risk-adjusted yields for loaned capital. Because TrueFi offers such a diverse range of portfolios — spanning crypto-native and real-world lending — and its loans are uncollateralized, the protocol offers some of the most competitive earning opportunities in DeFi across a broad range of asset types.
To participate, TrueFi lenders simply have to use the TrueFi app, review the various pools and portfolios for which they qualify, and make an allocation decision based on their risk and return preference.
As TrueFi allows portfolio managers to control lender selection, not every portfolio is available to every lender — some may need to be located outside a restricted jurisdiction or provide proof of identification, which can also be done on TrueFi.
Lenders can usually exit their loan positions anytime in a variety of ways. Though certain portfolios require capital lock-up for a minimum period, TrueFi’s popular DAO-managed pools and automated lines of credit (ALOCs) allow lenders to exit the pool for a small fee using Liquid Exit, which swaps the lender’s loan token for unutilized capital in the pool. Alternatively, lenders can sell their loan token on a DEX like Uniswap.
Though defaults are a standard aspect of the credit business, lenders are protected against the full impact of defaults in several ways across certain TrueFi portfolios.
Firstly, lenders are covered by the value of up to 10% of staked TRU, which is slashed in case of default. This is then used to help make affected lenders whole.
Next, the TrueFi SAFU may use its reserve funds to offer affected lenders further coverage.
Finally, TrueFi may elect to pursue collections against defaulted borrowers to recover assets that can be liquidated in order to assist any lenders who are still affected.
Borrowers
To become a TrueFi borrower, applicants must go through a rigorous credit worthiness check that reviews both off-chain and on-chain data, including company background, assets under management, asset exposure, leverage, and performance history.
Once a borrower is declared credit-worthy by TrueFi’s Credit Committee, TRU holders will vote to approve or reject their application. If their application is approved, a loan may be issued from any of TrueFi’s permissionless DAO pools at a rate set by the market, and informed by the borrower’s proprietary TrueFi credit score.
To date, TrueFi has originated over 130 loans for dozens of borrowers, and maintains a healthy and active lending book with regular new loans.
Borrowers rely on TrueFi for capital because the process is fast, with capital often available on the same day the borrower is approved for accessing credit. And because TrueFi’s loans require no capital lock-up, every borrower is able to maximize their capital efficiency.
Portfolio managers
As of 2021, TrueFi has offered support to independent portfolio managers, finally allowing fund managers and institutional investors to bring their business on-chain.
TrueFi offers portfolio managers the best of both DeFi and institutional finance. Its portfolio managers can tap into global liquidity 24/7 from the day they launch their portfolios, while enjoying the cost savings and transparency of a fully on-chain lending book.
At the same time, these managers enjoy feature parity with institutional credit products, having full control over lender selection (including KYC requirements) and the terms of their portfolios and individual loans, as well as their portfolio strategies, rates, and fees.
With TrueFi, becoming a portfolio manager is similar to becoming a borrower, requiring community approval before a manager’s portfolio can be listed to the TrueFi app. However, since TrueFi uses open-source infrastructure, portfolio managers can simply use TrueFi’s smart contracts to launch their own portfolios themselves, without needing to go through TrueFi directly.
Today, TrueFi’s portfolio managers use DeFi liquidity to allocate capital towards growing the Latin American fintech sector, investing in emerging markets, backing crypto mortgages, and more — all while generating competitive, diversified returns for TrueFi’s lenders.
Introducing the TRU token
As TrueFi is a decentralized lending protocol, it relies on input from its token holders and contributors to set and deliver on major goals. TrueFi uses a hybrid DAO model, relying on a real-world foundation to manage certain off-chain tasks like tax filings, legal activities, and collections actions. It also puts major decision making power in the hands of TRU holders through binding on-chain voting.
TRU stakers comprise the frontline of both TrueFi governance, and the first line of protection against defaults. By staking TRU, stakers can formally join token-gated DAO conversations and vote on Snapshot and Tally motions, thereby charting the path for the future of TrueFi.
How to buy TRU on Binance
TrueFi’s native token TRU is available for purchase and trade on Binance. Register and get your TRU using this direct link to get started.
What’s next for TrueFi?
To truly take advantage of the global multi-trillion dollar credit market, TrueFi is taking a two-pronged approach to bridging the gap between DeFi and institutional investors.
Over the next year, the protocol plans to achieve deeper integration among traditional financial institutions while continuing to grow DeFi integration with major DAOs, fellow lending protocols, and retail DeFi applications.
Growing institutional adoption
TrueFi is continuing to improve its protocol and lending products to match the controls of institutional finance with the improved performance of blockchain technology. With the help of major protocol contributors like Archblock, TrueFi is attaching liquidity from funds and family offices while exploring possibilities to onboard true institutional asset managers on-chain.
Upcoming features from TrueFi include tranching, which will allow institutional investors to select their risk-return profile within given portfolios, as well as capital formation periods to allow the testing of market interest in a financial opportunity before putting capital at risk.
In addition, TrueFi will roll out improved reporting and offer better institutional dashboards for both lenders and managers through independent contributions from key partners.
Deepening DeFi integration
To make TrueFi more accessible across DeFi, the protocol is making its loans and portfolios compatible with the ERC-4626 standard. This makes both these vaults composable with other DeFi opportunities, allowing corporate debt and credit to be included in offerings across other DeFi protocols.
At the same time, TrueFi is publicly working with major DAO and protocol partners like MakerDAO, FRAX, and dYdX on becoming a preferred partner for yield and DEX liquidity, possibly bringing hundreds of millions of dollars into the protocol over the next year.