[Proposal] DAO to Portfolio Lending Through Allocation Committee

1

Problem

  • TRU holders are not qualified to underwrite loans directly
    • Professional credit underwriters identify TRU holders underwriting loans as a risk
    • Portfolio managers have significant expertise in underwriting loans
  • The DAO permissionless pools do not have the ability to fund portfolios directly
    • Smart contracts support a different type of lending which uses an old system
    • Pool logic relies on a set of smart contracts which manage loans
    • TRU stakers approve loans directly to borrowers

Summary

To allow DAO pools to deposit to Portfolios, the Allocation Committee can borrow using the existing lending structure, then deposit those funds into a Portfolio. The TrueFi Foundation acts as the KYC entity when lending to Portfolios.

The benefits of this model are:

  • Efficient: Management of funds is faster through a multisig rather than on-chain governance
  • Effective: Allocation committee is comprised of experts rather than all TRU holders
  • Flexible: Allows for committee to invest in multiple Portfolios

Note that this proposal is meant to act as a temporary solution (3-6 months). In the long term DAO pools will need to support lending to portfolios natively.

DAO Allocation Committee (DAC)

The Allocation Committee vets managers and lends to portfolios, the DAO oversees the allocation committee and ensures they are acting in the interest of the DAO members and LPs. Functions of the committee include:

  • Establish formal process for vetting portfolio managers
  • Recommends an amount to allocate, which tranche to choose
  • Evaluate credit history of manager and whether they will originate good loans

The DAO would vote to approve a multisig as the allocation committee. Any member who wants to join the committee would advocate for themselves via forum post and discord discussion. The DAO would have the power to set the multisig address which has the power to submit approvals. The recommended multisig setup is a 4/7 or 5/7 multisig due the large amount of funds being trusted by this committee.

Committee Organization

A multisig will be set up with the initial committee members. A vote will be held on Snapshot to elect this group of members.

  • Committee meets every 2 weeks for 1 hour
  • Can meet more frequently depending on the number of PMs onboarding
  • During meeting time members review PMs and approve funding through the multisig
  • Members are paid $250 worth of TRU per hour

Initial Setup

  1. TrueFi Foundation passes KYC
  2. TrueFi Foundation signs MLA
  3. DAC multisig whitelisted to borrow from DAO pools

Funding a Portfolio

  1. DAC posts to forum & snapshot to get a signal
  2. TrueFi Foundation signs agreement with Portfolio Manager
  3. DAC multisig applies for a Loan
  4. stkTRU holders approve Loan
  5. DAC withdraws funds
  6. DAC joins Portfolio
  7. At Portfolio maturity, DAC withdraws funds with interest
  8. Loan is repaid to the DAO Pool

When borrowing from the DAO pools, the DAC will have to under-estimate the interest rate as compared to the Portfolio it desires to invest in. The DAC can have a “buffer fund” to make up for any potential underperforming portfolios. This can be funded through the DAO Treasury, and if there is an overperforming. Funds invested by the DAC should not be used to farm TRU rewards or receive airdrops.

Flow of Funds

1434×546 97 KB

Signal Request

If passed on snapshot, the Allocation Committee will be whitelisted to borrow from the DAO Pools and will apply for loans using the same process as existing lenders. As described in this proposal, the DAC will post to the forum explaining which portfolio they want to seed, then apply for a loan to be approved by TRU stakers.

  • YES - I support this proposal
  • NO - This proposal needs to be re-worked

0 voters

2 Likes
2

Thanks Hal for the summary. Forgive my ignorance but what is the purpose of this mechanism? I understand the benefits but is the reason for proposing this to bootstrap more liquidity into the Portfolio pools as and when required?

Otherwise I would have thought Lenders would decide which Portfolios to directly lend into or otherwise deposit into the DAO pools and leave the decision making to TRU stakers?

Is there a concern that lenders to the DAO pool take exception to funds being comingled with the more centralised DAC?

Thanks

2 Likes
3

Problems

  • TRU holders are not qualified to underwrite loans directly
    • Professional credit underwriters identify TRU holders underwriting loans as a risk
    • Portfolio managers have significant expertise in underwriting loans
  • The DAO permissionless pools do not have the ability to fund portfolios directly
    • Smart contracts support a different type of lending which uses an old system
    • Pool logic relies on a set of smart contracts which manage loans
    • TRU stakers approve loans directly to borrowers

The DAC would be elected by TRU holders, and is meant to be a temporary (3-6 month) solution while we develop a new lending pool smart contract. A future proposal is to have the DAC propose allocations, and TRU holders approve them.

1 Like
4

Thanks Hal. So is the idea to eventually move away from the current model where TRU holders are approving individual loans from borrowers and shift DAO pools to PMs?

5

Thanks Hal. I support this proposal as the DAO exits the business of direct lending to borrowers before year-end. The terms “under-estimate”, "under-perform, “over-perform” will need to be more fully explained presumably by the DAC itself in a subsequent forum post.

1 Like
6

Yes. The DAC wouldn’t underwrite loans, rather they would vet portfolio managers. Portfolio Managers underwrite loans, DAC recommends which Portfolios the DAO Pools should invest in

7

A reasonable budget for the DAC members is $200-$300 per hour. Ideally we will have 7 members. The DAC would meet weekly or bi-weekly to discuss PM onboarding and approve DAO pool allocation.

  • Committee meets every 2 weeks for 1 hour
  • Can meet more frequently depending on the number of PMs onboarding
  • During meeting time members review PMs and approve funding through the multisig
  • Members are paid $250 worth of TRU per hour
8

Thanks Hal and RDharia

It sounds like the model is shifting to focus on PMs and away from individual loans/direct lending to Borrowers.

In this case, if the DAC is entrusted by the DAO to make the PM allocation decisioning, what is the purpose of stkTRU holders approving the loan?

The initial model as I understood it was stkTRU holders would play a role in assessing credit risk, ala a ‘wisdom of the crowds’ approach. I appreciate the challenges of this and see the benefits of shifting this to the DAC who would have more experience to vet PMs.

However, if the vetting process is to be undertaken by the DAC, and the loan underwriting to be undertaken by the PMs, what is the purpose of requiring stakers to approve? What are they approving, other than entrusting the DAC has made the right decision (which would be implicit in empowering the DAC to be responsible for this in the first place).

1 Like