TrueFi is a DeFi protocol for uncollateralized lending. To power the protocol the company has created the TRU token (TRU), used for staking and governance.
The company behind TrueFi, TrustToken was co-founded by its current CEO Rafael Cosman in 2017. TrustToken was founded to modernize the financial system. Primarily by reducing transaction fees, speeding up international transactions, and increasing global access to financial services. It has created several crypto tokens to do this, this includes many stablecoins pegged to fiat currencies, for example, True USD (TUSD), pegged to the US Dollar.
As part of its attempts at holistically modernizing the system, it has now ventured into uncollateralized lending with the launch of TrueFi. This represents the company’s specific goals of facilitating DeFi borrowing and lending by creating an accessible system with fixed terms and no collateral requirements. TrueFi is unique because the system has created the first-ever automated on-chain credit rating system. It aims to build on this and become the leading market-driven automated credit-rating and lending system.
What are TRU key features and how does it work?
By combining collateral-free lending with blockchain technology, TrustToken is hoping to maximize capital speed and efficiency for borrowers and increase capital returns for lenders of cryptocurrencies. To do so, the protocol simplifies the interactions between the three stakeholders; the lenders, borrowers, and stakers.
Lenders provide the capital by adding stablecoins, e.g. TUSD into TrueFi capital pools. Borrowers (for example, OTC desks, exchanges, and other protocols) then request capital using smart contracts. These provide the requested loan’s details, for example how long it will be, interest rates, how much will be owed, and the Ethereum address that will receive the loan if a proposal is accepted. Lenders thus benefit from full transparency of how their capital will be used. To increase returns, any excess capital in TrueFi’s pools that is not actively loaned out may be used to provide liquidity in other stable, high-yield DeFi protocols (for example, Curve.fi).
Whilst uncollateralized loans can be high-risk, TrueFi seeks to overcome this in various ways. Loan proposals are assessed using a Credit Prediction Market system, where TRU stakers, a decentralized network of people, assess the risks of the smart contracts and vote on the proposals, indicating the creditworthiness of a proposed loan. TRU stakers have direct interests in the loans as such they are incentivized to vote responsibly. Additionally, borrowers are firstly whitelisted using a thorough vetting and auditing process and all loans must also reach strict criteria set out by the protocol. Borrowers with accepted loans are expected to return the principal and interest on or before the agreed loan terms end. Borrowers who fail to repay could face legal action.
Lenders are rewarded in different ways depending on what they stake. Lenders who put stablecoins e.g. True USD (TUSD) into the pool can reclaim this with interest. If a lender stakes Liquidity Provider tokens they can get bonus TRU tokens. As a holder of TRU tokens, they will be able to participate in the Credit Prediction Market system. Additionally, when a loan is successfully repaid all stakers that voted yes in the Credit Prediction Market get additional TRU tokens for participating and correctly predicting loan repayments.
As well as a token used for staking, the TRU token is also a governance token where TRU token holders participate in protocol governance decisions.