[Proposal] Balancing TRU incentives VS Lending Pool Incentives

Hello everyone,

I want to make a few proposals to the community because I see some problems with the TRU token’s utility and value and would like to address the concerns that some members including myself have and propose of a solution to fix them. This proposal is by no means a final draft, and I want to open more discussion and ideas concerning this.

We have seen a previous proposal/idea of incentivizing borrowers by giving them a lower rate if have TRU tokens staked, but this proposal takes it a little further than that.

The tricky thing that TrueFi has to deal with is scaling both the staking pool and the lending pool at the same time while balancing the risk vs. reward for both parties.

Both the staking pool and the lending pool(s) are pillars to the TrueFi protocol, but if we place more emphasis on the lending pools, then I believe there is actually no incentive to have a TRU token at all: If we remove the TRU token + the staking pool and only operate with lending pools, the protocol essentially remains the same. Take the slashing from the staking pool and add it to the lending pools and the main fuctions of this protocol remains unchanged regardless of whether there is a TRU token or not.

Important Premises to Explain:
#1 - Give generated revenue from the protocol to the TRU staking pool. Lower generated revenue from the protocol to the lending pools.
#2 - The rate of emissions for TRU tokens should be greater in the lending pools than the TRU staking pool.
#3 - Emissions to the lending pools should be changed to stkTRU instead of TRU tokens directly.
#4 - Have a better slashing rate for the staking pool and add a slashing rate for the lending pools.

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Explanation of Premise #1

Giving generated revenue back to TRU stakers is essentially equivalent to giving a better loan rate for borrowers who stake their TRU. Both accomplish the same desired outcome. Since this incentivizes borrowers to actually hold TRU, they will most likely increase their share in the staking pool, making it even more counter-productive to default on loans.

This will scale the usage of TrueFi into our native TRU token directly. More loans being emitted will increase the APY in the staking pool, thus arbitrage will drive more TRU tokens to be staked. This also solidifies the significance of the TRU token as equity.

Note: Many protocols don’t seem to give income out to their users and do manage to still have a functioning product, but keep in mind that TrueFi is already giving this income out at current time, so TrueFi is already, by definition, not part of that category of protocols.

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Explanation of Premises #2 and #3

The lending pools should be given more TRU ownership to lending pool providers because not only are they contributing to one of the pillars of the protocol, but having shrinking lending pools is obviously bad.

One solution to this is to give the lending pools stkTRU instead of TRU tokens directly. This would effectively put a lock-up on their rewards as well as keep the APY the exact same. Not only will it delay some token dumping, but it will also give participants of the lending pool a direct access to the staking pool and provide much more liquidity in the staking pool at any given time.

If tied together with #1, we are basically changing the dynamics to this environment:
- TRU stakers will be earning more income (rewarded in USDT/USDC/TUSD…).
- Lending pool providers will be earning more equity (rewarded in stkTRU).

In my opinion this makes more sense than what we currently have now, where both earn TRU tokens (tokens which only produce 10% of income generated when staked as opposed to 90% for lenders).

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Explanation of Premise #4

Since #1 to #3 creates a different dynamic, the staking pool and the lending pools will each earn a different income weighted by equity vs. income. Thus having an even slashing rate would maybe make this much more balanced.

As it currently stands, the TRU staking pool will always be the first one to get slashed, and whatever remains defaulted that can’t be paid by the maximum slashing of 10% from the staking pool will be covered by the lending pools themselves.

With our current numbers in the staking pool, it is quite obvious that with any default over 3-5M, the protocol would have to use a little of the lending pools to repay the loan. Any default over 5M will be significantly more risky to the lending pools. This means that as it currently stands, staking TRU rewards you with more tokens that will be first in line to get penalized in case of any defaults, without generating any income, but that you can use to vote for who to distribute loans to. Contributing funds to one pool with a completely different pool taking the first hit of the risk is very… weird?

I believe no pool should come as “more important” than the other, as both need to be equally scaled and growing in order to have a stronger protocol.


CURRENT SITUATION

With all this said, the benefits are massively skewered to the side of providing loans to the protocol instead of holding or staking TRU. As it currently operates, there is actually not much need for a TRU token for TrueFi to function properly.

On-chain data confirms that providing to the lending pools has a better risk vs. reward than contributing to the staking pool (by a huge margin). At current time of writing, we have 224 Million $ in the lending pools, compared to only ~ 20 Million $ in the staking pool. Also being in both those pools, I can tell you that there is less incentive for me to be in the staking pool than the lending pools.

Swapping the rewarded assets between the lending pools and the staking pool will not change the APY at all, it will simply swap the type of rewards given out.

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ROLLING OUT IN STEPS/PHASES

Making all these changes without losing any momentum would require different rollout phases, because such drastic changes will make investors uncomfortable and most probably reduce the liquidity in the lending pools, which is very bad. So I have a proposed rollout solution (not a final draft at all, up for discussion) that is broken down in multiple Phases, each comprising of 4 steps.

Each Phase will include these Steps:
1- Remove 10% of TRU rewards from staking pool.
2-Add 10% of TRU rewards to stable pools.
3- Remove 10% of generated income from stable pools.
4- Add 10% of generated income to staking pool.

We should start with removing 10% of TRU rewards from the staking pool because it will lead to the least amount of damage (the pool is already too weak, a little less in there won’t spell doom for the protocol).

Notice that the lending pools will never, under any circumstances, have a net negative impact in terms of APY, they will only have brief periods where they can benefit from a 10% bonus before their rewards are swapped from one asset to the other. So the lending pools should technically not suffer any losses during the time it will take to change.

It would also help to market and advertise the bonus rates of the lending pools during the 2 weeks of added incentives, which might see more capital inflow into the lending pools. Will they stay forever? Maybe, maybe not, but at least more capital will want to flow in to take advantage of the rate and more exposure was gained; and all this while fixing the problem.

These Phases can be done over and over until we reach a sufficiently balanced state. Maybe instead of 10% per Phase, we can do 5% (the rate was only given as 10% for example purposes).

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Moving Forward

Moving forward, I would suggest these proposals to be reviewed by the community/team members:

#1
Slowly swap the income generated by the protocol (rewarded in Stablecoins) from the lending pools to the staking pool with the staking rewards generated by the staking pool (rewarded in stkTRU) to the lending pools. Rolling out in Phases will be more effective to retain all TVL. As for the % we should move at every step, that is up for discussion, as I cannot predict how the TVL will change based on the exact amounts, but I think anything between 5-10% would work well.

  • Stakers will be getting rewarded with MORE income (aka stablecoins) and LESS TRU.
  • Lenders will be getting rewarded in MORE equity (aka stkTRU tokens) and LESS stablecoins.

The APYs of each pool should remain unchanged.

#2
Emissions to the lending pools should be changed to stkTRU instead of TRU tokens directly.

#3
Amend the slashing rate to a fixed 50%/50% between the lending pools and the staking pool. I believe this change should be saved for last for the following reasons:

  • With our current pool of borrowers we have onboarded and using our platform, the default rate seems to be very small, quasi-none. So the slashing rate is not our most important concern at current time.
  • Boosting the TVL of the staking pool to catch up with the scaling of the lending pools is much more important, and having more incentive to stake TRU should hence, be a priority.
  • Since the APYs technically do not change much I don’t believe changing the slashing % would have much of an effect, and it is in no way compromising any APY for the lending pools at all.

With these proposals in place, we could follow the intended consequences with this logic:

  • Since stakers earn USDT/USDC/TUSD, they will be able to apply upward pressure on TRU’s price by using those earned stablecoins to buy TRU.
  • If stakers want to deposit their rewarded USDT/USDC/TUSD from staking in the lending pools, then that is also a positive gain for the lending pools TVL.
  • On the flip-side, since lenders are earning more stkTRU, there will be less short term dumping of TRU, thus resulting in less downward pressure on TRU’s price.
  • Lenders have a possibility of treating the stkTRU as income-generating assets, possible leading to less downward pressure on TRU’s price.

I believe these proposals will help scale the usage of TrueFi directly to it’s native TRU token. There must be a lot of stuff in here that people will disagree with, but I am ready to take the heat. Love it or hate it, this is my proposal and I do stand by it. I would also like to listen/read about what others think about what I got wrong in case I am completely missing some points.

Again, nothing in this proposal is set in stone, but I would like to know the community and team member’s thoughts about them.

Thank you.

4 Likes

this is one of the best community forum posts I’ve read so far. Includes a lot of things I’ve been thinking about / discussing with others, but had not put into words.

The point about some tradeoffs between stakers and lenders is spot on

I’m a bit distracted w/ other things today so will give this another read tomorrow, but one thing is… I think you do an excellent job of laying out all the facts as they stand, but I’m a bit confused by your suggestion/recommendation for the next steps

3 Likes

I have added a section in the end pertaining to the exact proposals I had, it was quite rough for me to capture everything in one go so forgot about that part, thanks Ryan. Also everything is up for discussion, I would want the feedback of everyone who has something to add to this, whether its agreement or disagreement, all is welcome.

UPDATE: I have edited and added concrete proposals near the end.

Thanks for posting, @MoreNapalm. This is thoughtful and well-written.

I fully support proposal #2 – I would also like to see lenders receive rewards in stkTRU, just as Aave provides stkAAVE rewards.

Re: proposals #1 and #3, I want to spend some time thinking on these also. My initial reactions are below:

Pros: I like the idea of stakers having more “skin in the game” and giving them more incentive to be highly involved in TrueFi’s credit decisioning and governance. And I agree that if TRU stakers are exposed to more risk, they should also capture more of the value generated by the protocol. 50% sounds high, I’d be more inclined to start at 25% or 30% (Aave again is a good comp here – stkAAVE slashing rate is 30%).

Cons: “Moving” value from lenders to stakers means that the real, non-boosted yields for TrueFi lenders will decrease. I think it’s important that TrueFi lending yields on uncollateralized loans remain higher than fully-collateralized DeFi yields on Compound, Aave, Curve, etc. If TrueFi’s real lending returns don’t beat crypto’s “risk-free” rates then I fear others won’t believe TrueFi’s economics are sustainable. For this reason, I’m reluctant to divert much more than the current 10% of interest away from lenders.

I don’t see a problem with stakers earning returns primarily in TRU (or stkTRU) at this early stage of the protocol. My working assumption is that most TRU stakers are people like me, who are bullish on the long-term vision of the protocol and happy to accumulate more TRU. Curious to hear how others think about this.

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The strategy I was more inclined to do was the “swap” the assets received by lenders and stakers. Basically the APY should remain the same after these changes, with the following differences:

  • Stakers will be getting rewarded with MORE income (aka stablecoins) and LESS TRU.
  • Lenders will be getting rewarded in MORE equity (aka stkTRU tokens) and LESS stablecoins.

But the APY for both of the pools should not change in the slightest. The goal is to change the rewarded underlying assets, not the APYs. We are already outperforming Yearn/AAVE/Compound for the rewards on both the lending pools and the staking pool, so there should be no problem.

Of course, the rates will change based on the price of TRU token, but we are essentially swapping the asset rewarded between the pools.

I have also edited some wording to make the explanations clearer as well as changed the term “move” to “swap”.

And of course, being an early adopter, I would also want to accumulate the most TRU possible, which is precisely what I am doing. I personally am both staking and lending at the moment, also never sold a single token.These proposals can certainly be pushed further down the road, but I do believe that these proposals have a chance of boosting the price of the TRU token (probably not immediately, but certainly in the future, because it will now be tied directly to the performance of the protocol).

The only thing I fear is that momentum can be lost on the TRU token and with the current way the rewards are set up, we will keep seeing token dumping with almost no incentive to stake the TRU (the on-chain data clearly proves my point). We all want to accumulate TRU, that is 100% fact, I am just worried TRU will slump into a position where it is rendered useless and much much harder to attribute a direct incentive to.

I believe that having a solution so the lending pools and staking pool grow side-by-side would be much more healthy in the long term.

UPDATE: Also made some changes to the concrete proposals in the end again. I might keep editing the proposal as more stuff comes up, unless staff think it’s better the changes reflect in the discussion instead?

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Something TrueFi desperately needs is some good PR, and though I see some effort being made to attract people to the protocol, I don’t see how this will be moving the needle to the positive if TRU’s price faces repeated downward pressure. If the protocol isn’t being structured to support TRU with metrics designed to protect it, why should anyone be interested in the token? The WeChat group has been a good indicator of the sentiment to be expected should TRU remain vulnerable to constant offloading. I’ve personally seen my TRU devalue to the tune of 65% from entry, and as much as I may believe in the protocol long term, that’s not an acceptable position in the face of what feels very often like ambivalence.

I’m glad to see these conversations being given space, I only hope their outcomes find equal momentum.

3 Likes

Yes, that I why I believe this proposal can potentially create more upward pressure on TRU price while also decreasing sell pressure at the same time (explanations are in the last part after the given concrete proposals). I would also like to know if anyone has counter-arguments or logical fallacies in the proposals I have given.

I have quoted the part where I do address the intended outcome when it comes to the price of TRU:

We’ve had similar discussions before, but this is bold and thought provoking. I like the idea of swapping the incentives, but we’ll have to figure out the right balance. I don’t agree with the equal slashing because although there are some arguments against this, I see the lenders as a more risk averse group. I’m certain over time, a rising lending pool TVL itself will contribute to raising the price of TRU. That said, we need to find a balance that rewards TRU stakers more in return for the additional level of risk as junior tranche “lenders”.

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I would be inclined to agree with you purely on a theoretical standpoint, but let’s take data to examine this.

Total TVL going up should give the TRU token an upwards pressure on price, since TVL is a very important metric in DeFi and protocols in general, but in the case of TRU, there are a few differences as to why the TVL would not affect the price.

TVL and utilization of the protocol have only gone up while the price of TRU still has downward pressure because there is a disconnect between the TVL + utilization and the value of TRU.

Let’s say we now have 1b TVL with 80% utilization.

Now what has changed in the opportunity cost of holding TRU? I would still prefer to be a lender than a staker, because I get 90% of income generated with the stakers taking the blunt force of any defaults before I have a chance to get hit. I am also accumulating TRU tokens that I find are pretty useless because I would not want to participate in staking at all, thus I will treat this as income and sell them.

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I did an on-chain analysis of the top 10 participants in the new USDT pool here:

  • 0x4e0cfd6aab6b30ad7b3ebbb52587b777d0c65d43 - 22,298,695.31 USDT Locked - dumping on Binance
  • 0x6f57f7b099fe5553198fdb67a74a4f90902c67c8 - 19,915,714.36 USDT Locked - dumping on Paraswap
  • 0x6b31eb29eedead4ab79020c5c0580d2a45ef0cfb - 6,877,030.93 USDT Locked - dumping on Paraswap
  • 0x817f1c05ae3cbeb973894e9ad6457910da4b9743 - 5,000,000 USDT Locked - dumping on Sushiswap
  • 0xa5e2bd77d1aa16f68d8d6cc663c00ce9e6987939 - 3,500,000 USDT Locked - dumping on Binance
  • 0x6e41e1e7d009a320569cbeb8cf8d7adba94a6364 - 2,500,000 USDT Locked - just supplied 2 days ago, didn’t claim rewards yet
  • 0x4460c8c57b8094d64076e6c26711c3b65554c8d9 - 2,485,183.13 USDT Locked - dumping on Sushiswap + Uniswap
  • 0x8c14ac5b17cff2612e48334935db48cfd56cbc09 - 2,386,099.89 USDT Locked - dumping on Sushiswap
  • 0x818b0246ee14f772847404c12bdc313b1c71bfee - 1,431,014.32 USDT Locked - dumping on binance
  • 0x14dc2b8e75926018fd0453dc7eda73fd058909ad - 1,000,000 USDT Locked - dumping on Binance

Here are some other notable early farmers (they farmed when APY was from 50-200% during day of launch):

  • 0x4bfe4b16f1363ffd496b15a3832f75627d6d2729 - 9,941,966.56 USDT Locked - came in, farmed up and dumped and withdrew
  • 0x805c559b43565505cec1273801d5aab30fb91004 - 5,130,007.24 USDT Locked - came in, farmed up and dumped and withdrew
  • 0xdf51a1e4808d1442d761813dc4d4d2ba05a9fd09 - 4,159,212.85 USDT Locked - came in, farmed up and dumped and withdrew

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Now here is the top 10 for USDC pool:

  • 0xa0f75491720835b36edc92d06ddc468d201e9b73 - 19,641,962.37 USDC Locked - dumping on Binance
  • 0x0eb4add4ba497357546da7f5d12d39587ca24606 - 10,509,252.24 USDC Locked - dumping on Binance
  • 0xd4538104db1255da61232a88e981334271cd27b2 - 11,943,169.4 USDC Locked - dumping on Sushiswap
  • 0x136db1cdff916f3a9269519a6e453586a9a4c025 - 9,970,421.51 USDC Locked - accumulating TRU (but not staking)
  • 0x9eb5c961e61d0da94ddb7d583fd1e2e266f0dafe - 9,058,142.22521 USDC Locked - dumping on Sushiswap
  • 0x2bbde8e38badf38603c8c66869faeb0117bfb1bf - 4,472,392.4 USDC Locked - accumulating TRU + staking it (yay!)
  • 0x6e41e1e7d009a320569cbeb8cf8d7adba94a6364 - 6,479,677.76 USDC Locked - just supplied 4 days ago, didn’t move yet
  • 0xbbe3188a1e6bfe7874f069a9164a923725b8bd68 - 4,414,023 USDC Locked - dumping on Sushiswap
  • 0xa5e2bd77d1aa16f68d8d6cc663c00ce9e6987939 - 2,977,410.86 USDC Locked - dumping on Binance
  • 0x4bfe4b16f1363ffd496b15a3832f75627d6d2729 - 2,000,000.71 USDC Locked - dumping on FTX (he used to have 36M and dumped much more, he probably found better yield elsewhere)
  • 0x256530ce969f76ece1cf66998aef0eab6a940fa8 - 1,380,965.11 USDC Locked - dumping on Sushiswap

Here are some other notable farmers that exited the pool already with their previous amounts:

  • 0x4e0cfd6aab6b30ad7b3ebbb52587b777d0c65d43 - had 30,252,627.43 USDC Locked - dumped all TRU on Binance
  • 0xb81a0e6c38c3fec8a171cfe9631f60127a0c5bfd - had 15,363,300 USDC Locked - dumped all TRU on Sushiswap
  • 0x6f57f7b099fe5553198fdb67a74a4f90902c67c8 - had 10,508,377.43 USDC Locked - dumped all TRU on Paraswap

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So after analyzing this data, you can clearly see that the actual opposite is true:

Higher TVL in the lending pools generating more TRU dumped on exchanges, thus Higher TVL is actually applying downward pressure on TRU price. So with the current methodology we are using to boost TVL in the lending pools, it will cost us downward pressure on price with absolutely zero gain in our staking pool used to secure from defaults.

You can counter-argue with me saying that “all they need to do is realize how valuable TRU is and hodl man, TRU 100x eoy”, but is it 100% clear as day that the lenders are dumping their TRU. None of them find TRU valuable, they would rather reap from the APY and put that money elsewhere. This is factual analyzing on-chain data.

All in all, the TVL and utilization has only risen, but it has not stopped any of the farmed token dumping. I am not even speaking about the price of TRU because all markets are down, so a decreasing price is okay. We should be looking at the % of TRU farmed and dumped and see if it has decreased (which it has not). I believe there needs to be changes done to turn negative pressure into positive pressure.

And what will happen when the incentives run out? The TRU token incentives will diminish to a point where they can get better yield elsewhere. The point I am trying to make is that there has to be an advantage to holding and staking TRU, and if that advantage is “well, now it’s better to stake TRU than to lend to the pools, things will balance out”, then I would kindly disagree and say that all this TVL is going to go elsewhere.

4 Likes

Napalm:

Great input for driving data driven decision making. Thanks for investing the time to collect this data and present it here !

3 Likes

Hello everyone,

Napalm has done a really great and data-driven research and proposal.

I believe that inventing new incentive mechanics is really much needed in order for TRU to have any sustainable value in the long term.

These problems are regularly met around the Defi on other protocols as well.

Lenders want APY - most of the time they don’t vote, stake, or care about the project.

Switching incentives is just a small step, otherwise, the value of the token will get demolished, especially in a prolonged bear market.

If I’m not mistaken currently is even below pre-sale prices, which is quite a weird thing.

I would even consider a percentage of the fees generated from the borrows to be used as a TRU buy-back mechanism of some sort. That way the business value will be directly correlated with the value of the TRU token, which should be quite a strong incentive to stake, hold, vote, and generally care about the project.

On a side note, all kinds of token economics improvements are really a great marketing and PR tool, which spreads awareness about the protocol organically.

3 Likes

Impressive data driven research, it is much appreciated. As I said before, I am in support of rebalancing rewards. incrementally. The problem I have with your argument that TVL has an inverse relationship to the price of TRU is that you are looking at it in isolation at:

  • Current levels of TVL

  • Current market conditions

  • Current interest rate levels

By your argument, TRU will go to zero if TVL goes to $1B by linear extrapolation. I can’t buy this argument no matter how much data you throw at me, for one thing we have no data at $1B TVL, together with lower interest rates, and in a bull market.

3 Likes

I agree that farmers dumping TRU is a problem. My next thoughts are:

  1. do marginal changes to fees passed to the protocol change this?
  2. if the idea is to grow protocol fees, we can do that two ways: by (1) increasing fees to TRU, or (2) by generating more loans.

I’d argue that today TrueFi is in early stage growth and should prioritize generating 10x more loans than nearly anything else. Attracting more lenders via TRU rewards has helped us grow lending activity 2x in the past month.

I would still prefer to be a lender than a staker

I’m not sure there’s a problem with this. Lenders and borrowers are driving most of the value on TrueFi today. Without lenders putting funds into the pools and borrowers taking loans, protocol fees don’t get created.

While it’s important to make holding and staking TRU attractive, driving more lending and borrowing feels like it should be the top priority today. Let’s just make sure if farmers are dumping TRU, we’re getting more value for the protocol out of them than they’re extracting from us.

3 Likes

Higher TVL in the lending pools generating more TRU dumped on exchanges, thus Higher TVL is actually applying downward pressure on TRU price.

Like @mhanco above, I also don’t agree with this statement. Given that consensus is decreasing incentive emissions from here on out (see 1, 2, 3), the amount of TRU farmed by lenders will be decreasing over time.

As TVL increases, the amount of TRU farmed by lenders should stay constant or decrease.

2 Likes

Sorry for the tangent on the 1B TVL, TRU going to zero was not the intended message I wanted to convey. What I was supposed to say was that the value of TRU will always be capped by that 10% revenue generated and off-set by the risk of slashing, which in all honesty doesn’t make the token attractive much.

It is very simple what I want to accomplish, and I believe this is also what other users want to see:

  • TrueFi has more TVL and more loans, more usage.
  • TRU token has upward pressure because people would want to hold it
    Right now that is not what is going on.

Even if we had a bull market + lower interest rates + more TVL, none of those things change the fact that it is not worth it to hold and stake TRU. Or am I missing something?

(1) I believe that increasing fees to TRU will give TRU more value as an investment that is not purely derived from hype. It will provide income that is balanced by the risk that stakers have to take to stake their tokens.

(2) Generating more loans is good for the protocol in general and is very important, but no matter how much more loans are generated, the fact that staking TRU is not worth the risk vs. reward will not fix anything concerning the TRU token.

And without anyone staking TRU or even holding it, the protocol can still exist and operate quite normally. Sorry, but i’m going to ask this: why even need a TRU token then? I didn’t know the point was that lending pools were more important than the staking pools, I’ve always thought you should view them as equally important…

And when those TRU token incentives run out, what will keep the Lenders on TRU instead of going to another protocol to get better yield?

Are we assuming that lowering emission rates will increase the price of TRU? Because it has yet to happen, and there is literally nothing in the data provided that is indicating more holders and stakers for TRU at all. 95%+ of the decrease in price for the TRU token comes from the lending pool farmers, in fact, long-term holders have been holding on their TRU instead.

I am scared of this situation happening (which I believe will happen):
1. Decrease in emissions for the lending pools over time.
2. Farmers will move elsewhere to gain better yield because yield is no longer attractive.
3. Less TRU will be dumped on the market.
4. Still no upwards pressure in TRU price.

Result: Loss in TVL + no upwards pressure on TRU price. Instead of bleeding faster, we will just be bleeding slower. Still no reason to hold TRU as a token.

I suppose that is one way to look at it, I mean all the proposals concerning giving TRU token more incentives could be pushed further down the line in all honesty.

I am just worried that if we take that approach we would end up in a position where we have a semi-dead token with low price and low volume and our only solution is something like doing CPR to it. Because CPR doesn’t always work.

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To conclude, I do have 2 questions I would like the team to answer if possible:

  1. May I ask the team to explain the incentives are of actually holding and staking TRU? It seems like giving lenders TRU instead of stablecoins would make them run away, therefore you guys are kind of admitting that TRU tokens are less valuable than stablecoins logically speaking here… Just curious to know the team’s thoughts in case I am missing a point.

  2. Can I assume that the team’s plan is to boost the TVL of the lending pools as much as you guys can and then fix the incentives for holding/staking the TRU token later? I’m not against that idea at all.

I know I am in no power to be owed any explanations and there are maybe things you guys need to keep under wraps such as future improvements/updates/partnerships, but as an avid investor in TRU I believe it would be okay for me to ask these questions.

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On another note, has anyone thought of the dynamics if TrueFi used a portion of the generated income to buy and burn TRU?

7 Likes

Hey,

The purpose of this post is to give you feedback from someone Lending, Investing, and Staking
in the Truefi protocol with reasonable size.

I believe that from a game theory perspective the right incentives are always the most important driver and premise for a protocol’s success and growth.

Right now the incentive for lenders is to instantly sell their TRU rewards on the open market, simply because they have no idea how long that yield will be generated for. Weekly yields in the range of 0.1-1% are really non-existent anywhere else except in the Defi world. So, if you’re a sophisticated investor or money manager you’re only looking to exploit these yields, simply because the risk to reward is quite amazing and the time horizon is unknown. The data suggest this pretty clearly as it is showing that all major lenders do is sell.

If you’re a TRU investor and stake your tokens to secure the protocol from loan defaults and you’re aware of that huge ongoing inflation from lenders, you will seriously start to lose the incentive to do that, simply because your staked TRU will be losing value constantly - as it happens lately after all the pools have been opened.

Unfortunately, to me, it’s pretty clear that in such a way the incentives to generally participate in staking, securing, and voting in the protocol are getting screwed a bit and really only depend on the 10% fees generated from loans, which I receive as a reward in TRU once again.

I believe that Napalm has started a beautiful discussion of a needed reinvention of token economics and alignment of the incentives in the protocol.

  • Decreasing emissions.
  • Switching incentives and rewards between lenders and stakers.
  • Implementing a buy-back or burn mechanism that is correlating with fees generated.

These are all good suggestions so far, that would be a great start to an internal discussion.

On a side note all these buy and burn mechanisms FTX uses with all their tokens - FTT, SRM, FIDA
are actually working and giving quite a strong incentive to speculators, investors and retail to hold the token. To me that’s a general expression or a share of the business - and that’s quite valuable if the business is considered to be potential or it actually generates revenue as is the case here.

What I’ve learned for 4-5 years in the spaces is that memes and the right incentives to hold a token generated the strongest communities over time.

And in terms of marketing and PR changes the token economics/incentives are one the biggest catalysts that drive the attention of the whole space and are the best word of mount tool. Value through scarcity.

Obviously, all these suggestions in the past few days have to be well analyzed and discussed in the team internally so the incentives between lenders, borrows, stakers and investors are aligned and work in the best interest of everyone in the long term.

6 Likes

Before making significant changes to incentives, I would want to better understand the risk profiles of our lenders. We can assume capital preservation is a key concern and common to all profiles. But what kind of expectations do they have on returns?

  • Do they expect stable rates of return only in stablecoin? Are these lenders new to the crypto world? Are they crypto veterans who want a portion of their portfolio in lower risk assets?

  • Would they accept a variable return solely based on a volatile crypto token?

  • Would they prefer/accept a mixture of returns in both stablecoin and crypto?

  • Or are they temporarily in stablecoin before they plow into BTC or ETH in their cold wallets upon market resolution?

The problem there is no way for us or the team know the answers to these questions. I would be wary of targeting a 100% swap of incentives between lenders and stakers. However, I do support a gradual and continuous rebalancing to discover and rediscover the optimal mix as priorities change over time.

3 Likes

This. All day long. The timing of the Chinese WeChat launch couldn’t have been worse, albeit unintentionally. A perfect opportunity to have had new investors enter the protocol and promote it to the largest market in crypto, lost to what has at times felt like an ambivalent attitude towards TRU. I’d personally argue that the tokenomics should be of paramount concern, now, bear market or otherwise.