TrueFi (TRU) is a protocol that enables un-collateralized stablecoin lending.
They claim TrueFi is the largest decentralized finance (DeFi) credit protocol for real-world and crypto lending. They claim TruFi users had originated $1.7 billion in loans and received $1.5 billion in repayments between November 2020 and 16 March 2023.
TrueFi uses four primary lending solutions: DAO Pools, Single Borrower Pools, Automated Lines of Credit (ALOCs) and Portfolios to issue un-collateralized loans.
DAO Pools
Decentralized Autonomous Organization (DAO) Pools aggregate lender capitol and direct it to borrowers’ TrueFi’s DAO labels creditworthy. A Credit Committee and the TRU token holders who govern the TrueFi DAO vet borrower and set loan terms, size, and rates based on market and business information.
They claim TrueFi’s DAO Pools originated over $1.5 billion in loans to over 30 institutional borrowers between November 2020 and 16 August 2022. The DAO Pools have three kinds of users: Lenders, Borrowers, and Stakers.
Lenders earn yield by lending True USD (TUSD), USD Coin (USDC), Tether (USDT), and Binance USD (BUSD) stablecoins to the pools. The pools lend pool tokens or tf tokens. They claim lenders can receive annual percentage yields (APY) of 10% to 20% and TRU incentives.
Vetted institutional borrowers can borrow on the TrueFi platform. They claim vetted institutional borrowers need over $10 million in unencumbered assets to borrow on TrueFi. Those borrowers include Alameda Research, Nibbio, and Wintermute.
The vetted institutional investors were not so great. Alameda Research was the trading headed by former FTX CEO Sam Bankman-Fried. Court documents allege Alameda Research made $3.23 billion in payments and loans to Bankman-Fried and his associates. In particular, the loans financed Bankman-Fried’s lavish lifestyle.
Tru Stakers vet borrowers and perform risk management for TrueFi DAO Pools. For example, Tru Stakers approve borrowers, vet loan requests, and design and administer DAO Pools. In exchange, TRU Stakers receive TRU tokens as incentives.
Secure Asset Fund for Users (SAFU)
Any lender can lend stablecoins to DAO Pools. DAO Pools mitigate risk with Secure Asset Fund for Users (SAFU). SAFU is a smart contract that handles bad debt in the DAO Pools.
If a loan defaults, TrueFi slashes 10% of TRU from the staking pool and transfers it to SAFU. TrueFi then transfers all defaulted loan tokens from the lending pool to the SAFU. If the SAFU cannot cover the loans, it can sell TRU to raise money to cover the loans.
If SAFU cannot cover the defaulted loan, it will calculate the difference between the loan and the funds available. SAFU issues ERC-20 tokens that represent claims on the Uncovered Amount or Deficiency Claim. The Deficiency Claims give the DAO Pool a first-priority claim on recovered funds.
When they repay debts, SAFU uses recovered funds to purchase the asset they denominated the loan token in. SAFU transfers the asset to the loan token contract and burns the Loan Tokens. SAFU covers the unpaid loan by purchasing Deficiency Claim tokens from the DAO Pool. SAFU will keep any recovered funds that exceed the Deficiency Claim.
Single Borrower Pools
TrueFi (TRU) lets the most creditworthy institutional borrowers create their own Single Borrower Pools.
Instead of the DAO, the Borrower manages the Single Borrower Pool. The Single Borrower Pool only lends money to one borrower. A Single Borrower Pool can restrict lenders, for example, only allowing US lenders to participate in a pool.
Single Borrower Pools offer fixed-rate and fixed term loans that let lenders lock up funds for the term of the loan. They also let borrowers lock in interest rates.
Automated Single Lines of Credit (ALOCS)
An ALOC is another type of single borrower pool. Instead of loans, an ALOC offers the borrower a line of credit. To get that line of credit, borrowers pay a dynamic rate.
Borrowers pay a higher cost of capital for using the ALOC. Lenders put funds into the portfolio and receive interest borrowers pay. TrueFi bases the interest rates on the use of the ALOC credit. Lenders pay fees to the TrueFi Treasury to get access to the ALOC. Lenders pay the fees when they withdraw from the ALOC.
Portfolios
TrueFi Portfolios allow fund and portfolio managers to create customized lending products.
Mangers set lender selection, fee structure, strategy, and duration in the portfolios. They claim portfolios allow managers to tap into DeFi Liquidity.
Plus, managers can make “real-world loans” through the TrueFi Portfolios. Portfolios include Delta.ai, which lends in Latin America. Teller Finance makes real estate loans and allows users to invest in them. Cauris Finance offers lines of credit to technology companies in emerging markets such as Africa.
TrueFi plans to upgrade to structured portfolios that offer portfolio tranching. Tranches are financial products they can split into multiple pieces. TrueFi plans to offer three kinds of Tranches, Equity-Junior Tranches, Mezzanine Tranches, and Senior Tranches.
Equity/Junior Tranches offer higher returns for taking bigger risks. Mezzanine Tranches offer moderate returns and moderate risks. Senior Tranches offer low risks with low returns.
What Value does TrueFi offer?
Mr. Market has a strong interest in TrueFi (TRU). For example, TrueFi was CoinMarketCap’s 17th most trending cryptocurrency on 16 March 2023.
CoinMarketCap gave TrueFi a 9.385₵ Coin Price, a $91.990 million Market Capitalization, a $136.084 million Fully Diluted Market Cap, and a $37.308 million 24-Hour Market Volume on 167 March 2023. Additionally, TrueFi had a Total Value Locked of $1.376 billion, a Centralized Exchange (CEX) Volume of $37.140 million and a Decentralized Exchange (DEX) Volume of $167,794 on 17 March 2023.
They base those numbers on a Circulating Supply of 980.262 million TRU, a 1.45 billion TRU Maximum Supply and a 1.198 billion TRU Total Supply. TrueFi was CoinMarketCap’s 287th ranked cryptocurrency on 17 March 2023.
I think TrueFi (TRU) has enormous value potential because it can lend in US dollar stablecoins. Hence, TrueFi can make loans in the world’s most used currency, the US dollar. More importantly, they target many of TrueFi’s products at institutional lenders.
I suspect there is an enormous market for stablecoin lending, especially for corporations and institutions that TrueFi could capitalize on. Speculators who want to cash in on blockchain lending need to investigate TrueFi.
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