[Ideas] Designing the TrueFi Backstop Fund

Ideas
3

I like MakerDAO’s System Surplus Buffer as an inspiration for TrueFi’s backstop fund design.

One simple self-sustaining structure could be:

  • [ y ]% of protocol fees earned (earned in tfTUSD or TUSD) are sent to the backstop fund
  • once backstop fund value reaches >= $[ x ], then all fees earned go to TRU stakers
  • governance can vote to send backstop funds to the lending pool or other recipient(s) in an adverse event
  • as the protocol grows, governance can decide to adjust the amount held in the backstop fund and/or the % of protocol fees diverted into the fund

I see the backstop fund as a failsafe to protect lenders, above and beyond the protection TRU staking provides. For this reason, I think the backstop fund should be very conservative. I could be swayed though – I’m just not as familiar with the insurance mining model.

Alpha Homora also has a similar reserve model:

10% of borrower’s interest will be stored in Alpha Homora Bank Reserves, which can be used as an insurance fund for lenders in case of unexpected scenarios.

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