There was recently discussion in discord around some borrowers looking to increase the amount they are borrowing very significantly (some as much as 4-10x their most recent amounts). While this strong demand from borrowers is very healthy for the platform, we need to make sure that the platform is not doing anything risky.
We are prioritizing building out a full credit model that will be verified on-chain. But until then, while we are still voting on loans manually, I would propose the following rules: 1. Borrowers cannot increase their loan size more than 1.5x from their most recent loan 2. Borrowers cannot borrow more than $5mm from the protocol at a time unless they have shared more detailed (and/or ongoing) financial data with TrustToken Inc.
The goal of (1) is to keep the platform safe by forcing each borrower to establish a track record of repayment with TrueFi before taking out larger loans. I am proposing 1.5x because it seems to me to be fast enough to allow borrowers to ramp up to large sizes within a few months, but still slow enough to keep the platform safe. I am open to other numbers such as 1.75x or 2x if folks think that would still protect the platform.
For context on (2), there are tools for viewing aggregate statistics about a trading firm’s exposure and risk (e.g. how much exchange leverage they are using in total) without seeing their individual positions or trades. We believe this type of financial data will be a valuable input to our credit model (which is under development right now) and can help us to make sure borrowers are not taking outsized risks with this capital.
I’d appreciate hearing folks thoughts on this proposal. Thanks.
Would definitely want to see xmargin on all loans >5M. Does it update live?
Hedge funds are moving in and out of positions all the time, so there’s an aliasing problem if they reduce leverage just prior to applying for a TrueFi loan. And then leverage up again after receiving the loan.
This is interesting and fully support it.
Would this tool allow you to put red flag alerts on specific trades that would be agreed between both parties?
Im thinking of the very unlikely case of a malicious player taking a big short position on tru and defaulting on purpose to support his position. I understand with the way things are now this is very unlilely but chances will increase as we move towards more decentralization.
So practically speaking, a borrower would likely start at $1m, and then could borrow $1.5m, then $2.25m, then $3.375m, then finally $5m? Seems like a pretty slow ramp. Did you want to also specify the max loan size for the first loan? And the loan durations, or could they just borrow for 7 days each time? I think 2x is reasonable. I think $1-2m to start is reasonable. I think a min duration of 30 days probably makes sense. I love the xmargin idea.
More generally, I do wish we had better feedback mechanisms. Will be glad to see v3!
As a borrower, of course in general we would like more of a headroom to borrow more funds. And I notice there is a ramp up for 1/1.5mm then to something bigger such as 3mm, and others just ramping up to 10mm, which are multiples 3 to 10. Any newer entrants at a 1.5x would simply take much longer to build to an ideal size of the loan.
For sizing, if I was a lender, I would be most worried about concentration risk of a particular counterparty versus the whole loan pool. In an ideal world, there would a exponentially more difficult voting threshold when a higher fraction of the pool would be taken by a single counterparty.
The truth is there is a sweet spot for loan sizes, as the cost of recovery through legal recourse is fixed (thus making smaller size loans oddly troublesome) and too much size just makes everyone lose a couple of winks of sleep at night.