Currently the TrueFi protocol charges a flat fee of 0.25% as loan origination fees. It does not take into account the term period of the loan. Borrowers are paying the same fees irrespective of term of the loan. We feel that this fee structure is disincentivizing short term loans.
The idea is to make the origination fees a function of term which removes the disincentive against shorter term loans.
Possible ideas for the new structure are:
Make it completely dependent on the term of the loan.
Example: If the origination fee is 0.125% for every 30 days. A borrower would be paying $1,250 (0.125% x $1,000,000) for 30 days and $625 (0.125% x $1,000,000 x (15/30)) for 15 days as origination fees.
Add a fixed fee which is irrespective of term along with a variable rate which depends on the term of the loan.
Example: On top of a variable origination fee of 0.10% for every 30 days, we can also add a fixed fee of $250. A borrower would be paying $1,250 (0.1% x $1,000,000 + $250) for 30 days and $750 (0.1% x $1,000,000 x (15/30) + $250) for 15 days as origination fees.
Keep origination fee the same as what it is currently. Flat 0.25% of loan principal irrespective of loan term.
Please vote accordingly to suggest a suitable structure for origination fee.
Origination fee structure
- Make it completely dependent on the term of the loan.
- Add a fixed fee which is irrespective of term along with a variable rate which depends on the term of the loan.
- Keep origination fee the same as what it is currently. Flat 0.25% of loan principal irrespective of loan term.
If you voted for the first scenario of a variable rate based on the term. Please vote on what you think should be the fee.
- 0.25% for 30 days (3% annualised)
- 0.125% for 30 days (1.5% annualised)
- 0.1% for 30 days (1.2% annualised)
Voted. Thanks for posting this @subhajit.ray, I agree we should make a change here.
I vote for:
How about an annualized fee but with a minimum number. The idea is to discourage short term loans by setting a floor.
Maybe a 5 bps minimum and an annualized number of 50 bps?
It might not be the right numbers, but I think the format is good.
I might be in the minority here but I believe “discouraging” short-term loans means “encouraging” long-term loans. There is nothing wrong with encouraging long-term, high-interest lucrative loans. Traditional banks would LOVE to get a long-term, reliable, paying client over the next 30 years (mortgages today).
I actually LIKE the idea of encouraging long-term loans that pay high interest for a longer duration than 15-30 days. What’s wrong w/ that?
Short term loans are fine for smaller clients whose credit is less established but will pay us a high interest. Ever notice why Credit Card APY’s are so high even for good-credit borrowers (20-30%).
Also, there’s a misconception that short-term loans means more liquidity. That is completely untrue. You’re investing in CRV and other yield places with the money in the lending pool today. In essence, you’re already putting the funds in short-term loans (loaning to other pools/platforms). When a lender redeems today, they’re NOT getting TUSD back – they’re getting whatever is in the lending pool anyways. So in essence, you’re not really offering these lenders “liquidity”.
If you did offer TRUE liquidity, you would give these lenders back the same TUSD they put in when they redeem. But you’re not. You’re giving them either 1) option to sell their tokens back on UNI and take a hit on the slippage or 2) get whatever’s in the pool. They’re NOT getting TUSD back directly from the pool anyways. So you’re NOT offering liquidity or flexibility.
So where exactly is the rationale that “shorter term loans = more liquidity/flexibility” coming from? I’m confused about that. For those who put money into the lending pool, it makes no difference if the company chooses to invest in short term or longer term loans because no matter what, they’re not directly getting back the TUSD they put in from the lending pool either way. If the reasoning for wanting short-term loans is that it offers more liquidity, then it is flawed reasoning. Short term loans do not offer any more liquidity to a lender than long-term loans.
Shorter term loans would be more liquid because if someone is holding a loan token they would be able to redeem the loan token for TUSD in a shorter time period. Pool participants would prefer to hold loan tokens which are redeemable in 14 days or a month as compared to holding a loan token for a year.
This is one of the ideas behind encouraging shorter terms, other motive is to build a track record of repayments to generate confidence in our protocol.
If someone needed to redeem their Tokens, I’m sure they need their TUSD back right away – not after 14 days. yes, the term is shorter but if you’re redeeming your token, you most likely need the cash NOW – not 14 days later. 14 days vs 1 year would make little difference if you urgently need the TUSD now.
So you would have to sell your tokens to get the liquidity right away. Most people you ask are probably not going to be OK holding a loan token for 14 or 30 days if they need that TUSD now. Wait 14-30 days to get their money – or take the hit on the slippage on UNI? I suspect the lender will bite the bullet and eat the slippage. So I think you’re missing the point if you think shorter loan terms solves or even mitigages the liquidity problem.
I do agree that having a track record would be helpful but once again – you have whitelisted borrowers with some name recognition. I think track record would be much more significant for un-whitelisted borrowers without a recognizable name like Alameda.
I understand the reasoning – I just don’t agree with them. Just my 2 cents.
We too get your point. We are working on a feature which would let users get liquidity without incurring slippage and it would be live soon.
As I said it is more liquid for lenders if the loan terms are short, not in the absolute sense but relative to longer term loans.
I do agree with @Kenny.
First, I would highlight the fact that the community votes so if a proposal is irrelevant according to the community, it will be known.
Second, to put it in a nutshell, with proportional interest rate :
-short terms loans are more liquid but dedicated to short-term trading persona only which is quite restrictive ;
-long term loans are less liquid but may attract more mid-term trading persona and thus open room for new loans ;
Depending on the borrower’s profile, both should be available from 14 days up to 6 months or more, the community being the final decision-maker