Developed by TrustToken, the team behind the True USD (TUSD) stablecoin, TrueFi is a decentralized finance (DeFi) protocol that provides uncollateralized loans to institutional investors using an on-chain credit score mechanism. Users can deposit stablecoins to TrueFi lending pools and earn high-interest yields. Also, the native TRU token is an essential part of the TrueFi DeFi protocol. Plus, users can participate in TrueFi staking using the TRU token to earn protocol fees and voting rights for governance proposals.
In this article, we’re going to dive deep into the TrustToken ecosystem and the TrueFi DeFi protocol. Also, we’ll discuss TrueFi staking, uncollateralized loans, and on-chain credit scores. Plus, we’ll look at the TrustToken, TrueCurrencies and the TRU token.
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What is TrueFi?
TrueFi is a decentralized finance (DeFi) protocol for uncollateralized loans. The protocol was developed by TrustToken, the team responsible for TUSD and other asset-backed stablecoins. TrueFi is pioneering on-chain credit scores for collateral-free loans, aiming to become the “ultimate market-driven, automated credit rating and lending system” to allow money to flow wherever it can create the most value in the shortest time.
Furthermore, TrueFi offers lenders attractive rates, while borrowers can access fixed-rate loans without the need for collateral. Plus, the way assets create yield is fully transparent on-chain. Also, borrowers build an on-chain credit history that assists in the vetting process, enabling the TRU token community to determine the creditworthiness of new loan applicants.
TrustToken
TrustToken is the parent company of TrueFi that also provides the TrueCurrencies stablecoin minting service via the TrustToken platform. The TrustToken team is striving to make global trade and financial opportunities accessible and frictionless. Plus, TrustToken helps to bootstrap new DeFi projects with funding via the TrueCurrency Liquidity fund. According to the TrustToken website, TrueCurrencies are highly-attested stablecoins with “the longest proven track record of liquidity and redeemability”. The TrueCurrencies stablecoin range includes five major national currencies.
True USD (TUSD)
Among these, the most used is the US Dollar-pegged TUSD. However, TrustToken also offers stablecoins pegged to the British Pound (TGBP), the Hong Kong Dollar (THKD), the Canadian Dollar (TCAD), and the Australian Dollar (TAUD).
Furthermore, TUSD provides access to collateral-free loans and stable yield from lending. All lending activity is fully transparent on-chain. Plus, all TrueCurrencies are fully backed and held in third-party escrow.
The TRU Token
The native TRU token is the utility token of the TrueFi platform. The TRU token plays an essential role in the TrueFi protocol. Staking the TRU token on the TrueFi platform allows users to participate in the approval of new loans and borrowers. Those who stake TRU tokens receive tfUSDC and TRU token rewards in return. Plus, the TRU token helps to protect lenders from loan defaults.
Another use case for the TRU token is liquidity provision for decentralized exchanges (DEXs) and automated market makers (AMMs). Liquidity providers (LPs) that supply TRU tokens to DEXs such as Uniswap and SushiSwap can also earn transaction fees and participate in yield farming.
Also, the TRU token is essential for the governance of the TrueFi protocol. Holders of the TRU token will be able to vote on proposals to inform the direction of the platform and make changes to the protocol by staking TRU or stkTRU. Plus, TRU token holders can vote on community actions such as grants and funding. In the future, we can expect the TRU token to gain increasing utility as the protocol continues to become more decentralized.
The TRU token is available on several centralized exchanges (CEXs), including FTX, Coinbase, and Binance. Also, you can buy TRU tokens on various decentralized exchanges (DEXs). According to CoinGecko, at the time of writing, the TRU token is trading at around $0.69, with a market cap of around $258 million.
How Does the TrueFi DeFi Protocol Work?
TrueFi only issues uncollateralized loans after applicants go through a thorough vetting process. This will initially only be available to institutional investors. However, TrueFi will help onboard more borrowers when the ecosystem has developed and become more decentralized.
Uncollateralized loans
Lenders deposit stablecoins into a TrueFi lending pool, which are used to fund loans. From these loans, lenders earn high yields and interest. TrueFi lending pools provide loans for creditworthy borrowers using predetermined strategies to achieve maximum yield with minimal risk.
Furthermore, TrueFi offers returns on stablecoins that are much higher than many other decentralized finance (DeFi) lending protocols. This is because idle capital is transferred to other DeFi protocols such as Aave and Curve to maximize returns. Currently, the minimum interest rate for TrueFi loan applications is 10%.
These lending pools are overseen by an affiliate company of TrustToken, Inc. called TrueTrading. Only trusted, whitelisted borrowers can take out loans from lending pools. Plus, becoming creditworthy requires a reputation-based on-chain credit score. After depositing funds into a TrueFi lending pool, lenders receive Lending Pool tokens. Further, Lending Pool tokens represent a lender's proportion of the capital in a lending pool.
Lending Pool Tokens
Lending Pool tokens are fungible ERC-20 tokens. They represent a lender’s share of capital in a lending pool. Before the issuance of loans from a lending pool, depositors receive TrueFi Lending Pool tokens (tfTUSD or tfUSDC) at a 1:1 ratio of their stablecoin deposits.
However, the value of Lending Pool tokens can fluctuate in line with the yield generated by a particular lending pool. Lenders who join the pool later receive a different value for any Lending Pool tokens, as the value of the lending pool incorporates both deposited tokens and Lending Pool tokens.
Loan Tokens
Unlike Lending Pool tokens, Loan tokens are not tradeable as there is no secondary market for them. Loan tokens are also ERC-20 tokens. However, Loan tokens are unique representations of the value of each loan that work independently from loan pools. These tokenized loans make it possible to track the value of specific loans within a lending pool via the Loans page on the TrueFi website.
When a TrueFi loan is approved, the principal amount goes to funding the loan token contract, which enables Loan tokens to be minted. Loan tokens represent “a share in the total amount payable at the end of the term which is the sum of principal and interest”.
Furthermore, Loan tokens are minted in such a way that the number of tokens minted is proportional to the number of stablecoins that account for the initial principal, plus the applicable interest amount. Then, when a borrower repays a loan, Loan tokens can be exchanged for the appropriate amount of stablecoins.
Borrowing
TrueFi enables borrowers to borrow without any initial collateral. However, TrueFi only offers uncollateralized loans to whitelisted borrowers that complete know-your-customer (KYC) and anti-money laundering (AML) checks. Initially, this has only been available to institutional investors, but in the future, TrueFi aims to onboard more borrowers as the platform becomes more decentralized.
Borrowers that repay loans on time build a trust rating. As this trust rating increases, borrowers can take out larger loans with lower interest rates. Furthermore, TrueFi conducts a credit review of each loan applicant to assess their creditworthiness and give them an on-chain credit score. This on-chain credit score determines interest rates and loan parameters, with higher scores enabling more favorable loan terms.
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TrueFi Staking
Users can stake TRU in the TrueFi staking contract to secure the protocol and protect lenders against shortfalls and defaults. By doing this, stakers receive protocol fee rewards. The downside of TrueFi staking is that participants could stand to lose up to 10% of their stake in the case of a shortfall. However, the on-chain credit score and extensive vetting procedures are in place to reduce the likelihood of shortfalls.
Furthermore, TrueFi staking provides additional TRU incentive rewards and loan origination fees for taking on this risk. Moreover, TrueFi staking is a prerequisite for participating in protocol governance and voting on loan proposals.
The stkTRU Token
The stkTRU token emerged following updates to the TrueFi V1 governance mechanism. Previously, TRU token holders had to choose between staking TRU to earn yield and participating in platform governance.
With the V2 update, TRU token stakers receive the stkTRU token. The stkTRU token can be used alongside TRU token staking to enable stakers to participate in protocol governance while also earning a yield via TrueFi staking. Also, stkTRU token holders can delegate their votes to another wallet address.
Moreover, the introduction of the stkTRU token has allowed the TRU token to achieve greater utility. Plus, it provides token holders with a more equitable governance mechanism that works in the interest of the network.
TRU Farming
Users can also participate in TRU incentive distribution farming. To do this, LP tokens must be staked in exchange for farm tokens. LP token holders can earn TRU token rewards as an incentive for liquidity provision.
Participating pools include the TrueFi-TUSD Pool, TrueFi-USDC Pool, and TrueFi-USDT Pool. Also, the Uniswap ETH-TRU and TUSD-tfTUSD pools can be used for TRU farming and liquidity mining.
TrueFi V4
On August 18th, 2021, the TrueFi V4 update will commence. The TrueFi V4 update will bring enhanced scalability features to the TrueFi protocol. According to DeFi Pulse, TrueFi has achieved more than $1billion in total value locked (TVL), with no defaults to date. This update will help expand the rapidly growing community of trusted borrowers and make the platform safer and more powerful.
TrueFi Summary
TrueFi aims to make uncollateralized loans accessible to anyone that can prove they are trustworthy. This could be a game-changer for people in many parts of the world without access to basic financial instruments. Moreover, undercollateralized loans could help the unbanked and those without sufficient documentation gain access to lending and borrowing facilities that are largely absent in many geographies.
Furthermore, TrueFi provides sustainable loans with predictably high rates of return using stable assets. However, uncollateralized loans are inherently riskier than collateralized loans. As such, the returns for TrueFi stablecoin loans trump the rates found for similar assets on many other DeFi protocols.
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