Introduction

The lending industry is unarguably a multi-trillion-dollar industry with great prospects if optimally harnessed. The current system which holds a major stake is largely centralized and over-collateralized leading to minimal capital efficiency and low yield for lenders.

The collateral required in exchange for loans is quite outrageous. Most often these collateral are three times more than the loan needed, thereby halting the optimal utilization of funds needed to yield more revenue for the borrower. Frankly speaking, some lending platforms do not rigorously scrutinize borrowers’ creditworthiness but rather bank on the required collateral. A major concern is a clandestine approach to loan approval and disbursement.

Arguably, the integration of blockchain technology has indeed increased efficiency, transparency, and the output of the lending industry and recent developments have revealed the need for a decentralized approach to lending and on-chain credit scores. This will greatly checkmate the excesses of centralized entities and boost the development of the industry. TrueFi — a decentralized lending protocol — offers a different approach to lending and the on-chain management of digital assets. Additionally, TrueFi is poised to bring real-world lending and assets to DeFi; offering a diverse range of financial opportunities namely Fintech financing, Gig worker lending, real estate investing, and ultimately emerging market investing.

In this article, we will learn about TrueFi, the leading DeFi uncollateralized lending protocol, and explore how it is reinforcing DeFi and the lending industry.

What is TrueFi? Uncollateralized DeFi Lending Platform

TrueFi (TRU) is a DeFi protocol focused on bringing new perspectives to the credit market. Its innovative approach is centered on providing an enabling infrastructure for lenders, borrowers, and portfolio managers in a transparent and decentralized manner. TrueFi’s innovation cuts across decentralized finance (DeFi) and traditional finance (TradFi), with a democratic structure for the lending and management of assets without demanding collateral from borrowers, giving token stakers the power to either approve or reject loan requests.

TrueFi as an “uncollateralized” lending platform has enabled institutional borrowers to access loans after a diligent study of applicants’ on-chain and off-chain data and the possibility of loan repayment. However, the protocol focuses on lenders as key participants in the ecosystem providing necessary protection against loss of funds.

Since its launch in 2020, TrueFi has originated over $2 billion in collateral-free loans with over 130 loan requests approved, paying over $40 million in returns to lenders and recording minimal defaults. Beneficiaries include crypto projects, fintech companies, credit funds, and major institutions. The beauty of TrueFi’s on-chain lending is that assets can be monitored by anyone including lenders and token holders who have a clear view of how loaned assets are collected and utilized.

What is TrustToken?

TrustToken, the company behind TrueFi was founded in 2017 by four friends namely Danny Jai An, Rafael Cosman (CEO and head of the engineering department), Stephen Kade, and Tory Reiss. TrustToken is a decentralized application (dApp) launched on Ethereum. The platform creates asset-backed tokens and enables value transfer from user to user (or between users). Rafael Cosman, a graduate of Stanford University with vast experience in machine learning having worked at Google and Kernel is seen as a key figure in the development of TrustToken and TrueFi.

TrustToken focuses on creating asset-backed tokens and moving traditional assets to the blockchain, that’s moving uncollateralized lending to DeFi. The protocol provides an avenue for assets to be managed and accessed on-chain. The use of blockchain offers a better way to move and allocate capital providing for a transparent, fast, and secure transaction. Lenders as well as other stakeholders can monitor the transfer of funds in real time. This is essential having witnessed huge losses occasioned by the collapse of some leading lending platforms.

According to the project’s white paper, “moving the uncollateralized lending market onto the blockchain opens up access to lenders of nearly any size and background while also providing borrowers with the best possible capital efficiency.”

True USD (TUSD)

In 2018, TrustToken launched its stablecoin, True USD (TUSD) as one of the most collateralized and regulated stablecoins that’s pegged to the US Dollar at a 1:1 ratio. TUSD is a flagship product of TrustToken, launched during the wave of controversy surrounding Tether’s USDT. TUSD can be minted on Ethereum as an ERC-20 token and on the BNB chain as a Bep-2 token. These tokens can be minted via smart contracts on the TrustToken platform.

TUSD is fully backed by the US Dollar (and other leading fiat currencies), stored in several escrow accounts in different banks. To maintain its value in the crypto market, TUSD’s price must remain at a $1 peg or be very close to it as market volatility greatly affects its stability. Additionally, TUSD is tradable on major crypto exchanges, notably Gate.io with the following trading pairs TUSD/ETH, TUSD/USD, TUSD/USDT, etc.

To ensure a seamless usage of the platform and to encourage TUSD for USD redemptions. Users are required to pass anti-money laundering (AML) and know your customer (KYC) guidelines in line with regulatory requirements.

Benefits of investing in the Stablecoin

• TUSD can be used as a hedge against the volatile crypto market and inflation in mainstream finance.
• Users as well as holders of TUSD can earn rewards from staking, farming, or mining TUSD.
• TUSD can be minted on several leading blockchains namely; Ethereum, Tron, and BNB chain.

How Does TrueFi Work?

Source: TrueFi

TrueFi is a marketplace that connects lenders, borrowers, and portfolio managers via smart contracts and is governed by TRU token holders. Lenders offer their digital assets by depositing these assets (USDT, USDC, TUSD, and BUSD) into the platform’s liquidity pool.

Institutional borrowers request loans from the TrueFi treasury without providing collateral. The request is carefully studied by TrueFi’s credit committee which subsequently forwards the list of borrowers that met the loan criteria to the token stakers who study the loan request and consequently vote to either accept or reject the loan request.

In the event of loan default, TRU stakers will be required to provide loss protection to lenders using their staked TRU. Also, TrueFi’s DAO-managed pools and automated lines of credit (ALOCs) allow lenders to exit their loan position at any time using Liquid Exit, though for a small fee. Basically, the protocol swaps the lender’s loan token for unutilized capital in the pool and is tradable on decentralized exchange (DEX). Let’s explore more about the key participants in the TrueFi ecosystem.

TrueFi Ecosystem

Lenders

There’s a high annual percentage yield (APY) for lenders in collateral-free loans compared to over-collateralized loans. Lenders earn an attractive APY for their capital in the form of loan interest and TRU incentives. Upon giving out their loans, lenders will receive a “tf token,” that’s a tradable ERC 20 token that can be sold on a DEX like UniSwap. This token validates their claims to the principal and interest accruing from the repayment of the loans.

Borrowers

TrueFi is overprotective of lenders and their capital, thus, has in place stringent guidelines for borrowers. Loans are given to vetted institutional borrowers with proven track records of productivity and efficiency. A credit team appointed by the DAO is saddled with the responsibility of scrutinizing borrowers and confirming suitability to receive the loan.

Since the loan is collateral-free, there is a rigorous study of the borrower’s background, operating, and trading history, assets under management as well as liabilities, performance history, etc. They are required to pass KYC and AML checks.

However, with the risk of loan default, TrueFi requires borrowers to sign an enforceable lending agreement. Legal action can be instituted on delinquent borrowers upon expiration. Interestingly, since its launch, TrueFi has recorded minimal loan default.

With TrueFi, borrowers can maximize their working capital as the collateral ordinarily required (by other lenders) can be used to generate more revenue for the business.

Portfolio Managers

TrueFi provides a marketplace accessible to independent portfolio managers who create various pools or portfolios for lenders. Token stakers have to approve portfolio managers before they can be whitelisted.

TRU Stakers

TrueFi is highly community driven and the decision of the token holders greatly determines a whole lot. Basically, TRU stakers vote on loan requests after the vetting process by the credit team has been completed. They either approve or reject the loan request. However, once approved, borrowers can access loans from any of the permissionless DAO pools. Whitelisted borrowers are required to keep to the loan agreement while to ensure the safety of funds, TrueFi tracks every dollar loaned on-chain and reviews regular attestation of TRU token treasury.

Also, TRU stakers govern the future of the protocol and actively participate in the decision-making process through on-chain voting on Snapshot and Tally motions. They join token-gated DAO conversations and most importantly provide loss protection to lenders.

How Does Lending on TrueFi Work

Source: TrueFi

The following steps reveal how borrowers apply to obtain a collateral-free loan.

1. Applicants submit a formal notice for a loan.
2. TrueFi credit team carries out a rigorous creditworthiness check on the loan request and reviews the borrower’s background, assets under management, asset exposure, leverage, and performance history.
3. The borrower signs an enforcement lending agreement and consents to the interest rate and credit limit determined by their credit score.
4. Once the TrueFi credit team declares a borrower credit-worthy, TRU token holders will vote to either accept or decline the proposals. If the application is approved, the borrowers will receive the loan possibly on the same day of approval. In approving loan requests, TRU holders or stakers are aware of the potential risks of default, which is a 10% liquidation of staked TRU.
5. Finally, borrowers are expected to return the principal as well as interest within the time allotted. Failure would lead to litigation and reputational damage.

What is TRU?

The native token of TrueFi, TRU is a utility and governance token used in carrying out transactions within the ecosystem. The token can be staked to earn a reward. The token has a total supply of 1.45 billion tokens, with more than 565 million in circulation.

TRU Token Distribution

Source: TrueFi

The aim of TrueFi through progressive decentralization is the effective distribution of TRU, where 39% of TRU is allocated to an incentive pool including key stakeholders such as lenders, TRU stakers, and liquidity providers. The plan is to enable the community to manage the protocol and to accept or reject the disbursement of funds. Hence, TRU holders vote in governance and approve new borrowers and portfolio managers to be whitelisted as well as carry out other functions.

26.75% of TRU was earmarked for token sales while 29.5% was allocated to the development team. The token assigned for token sales and those reserved for the TrueFi team were initiated locked. The unlocking process is designed to be quarterly beginning from November 2020 to August 2022 — a two-year lock-up period.

How to Own TRU?

You can buy TRU from a centralized cryptocurrency exchange. Gate.io offers traders and users different trading pairs that is TRU/USDT and TRU/ETH. To own TRU, start by creating a Gate.io account, and get it verified and funded. Then you are ready to go through the steps to buy TRU.

Is TrueFi (TRU) a Good Investment?

The lending of assets in the crypto space is an all-important avenue to earn passive income from your idle cryptocurrencies. TrueFi provides an enabling environment and security needed to lend and earn. The platform enables lenders (investors) to earn a percentage ROI by depositing a portion of their assets (stable coins) in the protocol’s vault. Borrowers can assess these assets without the need to provide collateral after passing through a rigorous selection process requiring approval by token holders.

The protocol solves the problem of over-collateralized lending which greatly discourages genuine borrowers and it is most sought after by borrowers because they can maximize their capital efficiency since there is no requirement for capital lockup. However, it is greatly advisable to do your research and seek expert advice to understand the risks involved before lending (investing) your visual assets,

The Need for Proactive Regulation

TrueFi is a project whose innovative solutions provide institutional borrowers with collateral-free loans, high ROI for lenders, and an open-source platform for portfolio managers. However, with the sudden collapse of leading lending platforms investors (lenders) are circumspect in releasing their assets.

So much has been lost by lenders, hence there’s a need for confidence building, the elimination of bad players, and proactive regulation of the sector to effectively checkmate the excesses of lending platforms as well as to forestall future collapse. This can be prevented by requiring lending firms to undergo regular stress tests and proof of reserve checks.

Take Action on TRU

Check out TRU price today and start trading your favorite currency pairs:

• TRU/USDT
• TRU/ETH