TrueFi (TRU) is a crypto lending uncollateralized protocol that has emerged as a leading credit protocol in the decentralized finance (DeFi) space.
One of the major ideas that have helped in making crypto and blockchain technology the phenomenon that it is has been the concept of decentralized finance.
This is the concept that since many people around the world do not have access to traditional banking services – 1.7 billion people, according to a 2017 report by the World Bank – but still have access to the internet (66% of unbanked people have a mobile gadget), it needs to be easy for them to access financial services that are not linked to any centralized institutions or banks.
The idea of decentralization is a primary element of the crypto world, with the idea that there is no single authority figure that represents a major selling point for most tokens, coins, and blockchain networks.
In the blockchain sector, many transactions are executed daily and a need comes up for a better lending option to guarantee an efficient, quick, and open investment system.
Blockchain startup developers know that offering the DeFi sector a better lending option is an innovation that would enhance the efficiency of the industry and its productivity. Furthermore, efficient credit protocols can take the industry a step further to reach mainstream attraction.
In an aim to offer a viable solution to liquidity problems that limit the crypto sector, projects like TrueFi (TRU) have been developed. The TrueFi developers created an ecosystem that supports the free operation of the protocol. Notably, the project operates freely under the authority of its TRU token holders.
Decentralized finance (DeFi) is believed to be one of the major aspects of blockchain, with its transactions exceeding those of all other financial institutions. In its aim to offer an alternative to traditional financial services, decentralized finance welcomed the TrueFi project, which offers loans and credit.
TrueFi is a protocol that provides dependable and secure uncollateralized cryptocurrency lending services. It was created to solve transaction challenges that blockchain technology could not offer on its own, using the blockchain ecosystem.
The adoption of TrueFi by DeFi progressed over the years, increasing the efficiency of borrower’s capital and assisting in the maintenance of one of the sector’s underwriting records. The benefit of using TrueFi over traditional financial services is that TrueFi lays lots of emphasis on lenders and not borrowers.
The TrueFi Roadmap
TrueFi is currently on a mission to become a major and the most widely adopted and trustworthy protocol for uncollateralized lending operations on a blockchain. Thus, it has sought to keenly build its protocol in different phases toward the accomplishment of its stated goals.
During its first phase of development in late 2020, the initial version of the TrueFi protocol was launched and TRU tokens were issued to the market. That phase just enabled institutional borrowers to access the lending services after completing the AML/KYC review, followed by the mandate to sign a legally-enforceable loan agreement. Furthermore, new borrowers were just eligible for a restricted amount of loan offers.
The second phase launched in the first quarter of 2021. At that time, the protocol unveiled some new components and features to further boost its functionalities. At this point, it launched the liquid exit feature to enable lenders to exit the TrueFi Lending Pool directly into the asset that the lender utilized to join the pool.
This phase also witnessed the protocol releasing an enhanced staking model and the whole launch of its on-chain governance. It offered stakers the chance to readily stake on the general protocol instead of being compelled to stake on individual loans.
Moreover, the third phase of its development started in the second quarter of 2021. At this stage, TrueFi debuted more USD-backed stablecoins to the protocol. These stablecoins included Tether (USDT) and USD Coin (USDC).
The developers went on to implement a highly robust credit model for onboarding borrowers. In that context, the launch of exclusive Lines of Credit coupled with tradable loan tokens happened.
TrueFi continued to the fourth phase of its roadmap in the third quarter of 2021. At this point, the protocol extended support for arbitrary ERC20 tokens like the WETH pool, WBTC pool, and other similar tokens. After that, TrueFi progressed into letting lending pools offer liquidity on all Loan Tokens and line-of-credit tokens, where it also provided other protocols with access to participate in Loan tokens and Line-of-Credit primary fundraising.
How TrueFi Operates
TrueFi as a financial utility provides crypto lenders with the privilege to earn various rewards and offers lending, borrowing, and managing asset services. It achieves that by putting up such funds for the borrowers.
Lenders put their crypto in a pool that mostly depends on 3 categories of stakeholders: borrowers, lenders, and portfolio managers.
What makes the network somewhat different from other crypto lenders is that it mainly focuses on the people making the loans instead of the users who are applying for these loans. The TrueFi whitepaper says:
“TrueFi allows lenders to earn returns on loaned cryptocurrencies while having full transparency on how the loaned capital is allocated. Vetted borrowers, meanwhile, can use TrueFi for rapid access to fixed-term, fixed-rate cryptocurrency loans.”
As needed by all blockchain-based networks, TrueFi has its in-house token – TRU. This crypto serves as a method to pay for transactions on the network and as a recognized share in exchange for a reward.
TrueFi Borrowers, Lenders, And Portfolio Managers
These are the three primary categories of stakeholders in TrueFi:
- TrueFi Lenders – the retail and institutional lenders in the cryptocurrency and local finance industries are striving to get the best less risky yields for loan capital. Notably, TrueFi provides such a solution. TrueFi has an app that enables its lenders to review portfolios and pools that they are qualified for.
Then, the lenders make informed decisions based on their risk and return preference. The lender’s choice is controlled by portfolio managers and this is acceptable and authorized by TrueFi since not all portfolios are available to each lender. Interestingly, TrueFi comes with a flexible exit of loans for its lenders.
It offers coverage for lenders by the 10% of staked TRU value mostly cut in default cases. Furthermore, TrueFi SAFU (secure asset fund for users) provides coverage for the affected lenders with reserve funds.
- TrueFi Borrowers – The TrueFi credit committee decides whether borrowers are eligible to borrow on TrueFi or not after an exhaustive screening that reviews on-chain and off-chain data. TRU holders then vote to approve or decline borrowers’ applications. Notably, the successful approval of a borrower’s application results in loan issuance from any of TrueFi DAO pools. Most of the borrowers depend on TrueFi for capital since it is quick and once the application gets approved, the borrowers get their loan nearly instantly.
- TrueFi Portfolio Managers – these portfolio managers have access to global liquidity all day with significant cost savings benefits and transparency. There is a resemblance between being a borrower and a portfolio manager in TrueFi since both of them demand approval. Before portfolio managers can get listed on the TrueFi app, they need to have been approved and reviewed thoroughly.
All the decentralized lending protocols rely mainly on input from token users and TrueFi is not an exception. TRU is TrueFi’s native token that uses a DAO model with a reliance on the real world to manage off-chain tasks including collections and tax filings.
The TrueFi token is primarily based on the Ethereum blockchain. The protocol gives major decision-making power to the TRU holders via binding on-chain voting.
Benefits Of TrueFi
TrueFi provides a massive range of benefits to its users:
- Returns are competitive – on a growing asset rate, TrueFi offers high and competitive returns in decentralized finance (DeFi).
- Anytime exit – TrueFi works ideally with exit liquidity, which provides stakers with total asset control and offers lending protocol with no lockup period limitation.
- Protection of defaults – TrueFi SAFU’s fund together with its token (TRU) stakeholders offers an assurance of stakers’ loan assets.
- By the users and for the users – TrueFi provides total control to TRU holders by offering them the freedom to approve any new borrowers and provides them with a say on important TrueFi treasury and partnerships.
- Creditworthiness evaluation of the borrowers – TrueFi borrowers undergo a tedious vetting process that ranges from community approval to the signing of a loan agreement with a recognized legal binding.
The Bottom Line
TrueFi has managed to successfully become one of the best-used crypto lending platforms since it has so far offered efficient lending services for DeFi users.
Nonetheless, investing in TrueFi might demand caution taking into context the fall of other crypto lending protocols (such as Celsius) which were abrupt and unpredictable. This means that lending protocols might be liable to unexpected and steep crashes.