Provide TRU rewards to borrowers in order to increase borrower activity on TrueFi, while maintaining high lender APYs and cultivating “loyalty.”
Though TrueFi has recently hit the $100m loans originated milestone, the rate of growth for new loans has slowed. It’s clear from borrower conversations that demand for new loans has reduced proportionally to the rise in interest rates.
As borrower activity is key to TrueFi’s short term (APYs) and long term (defensive moat) health, this proposal aims to incentivize new borrower applications and make our loans more attractive to existing borrowers.
Proposal: Borrower TRU Incentives
The following proposal aims to increase new borrower applications and new loan applications for existing borrowers while maintaining high lender APYs, and cultivating “loyalty” (through TRU token holdings & repayment histories) among borrowers.
This proposal requests 1m TRU from the TrueFi incentive pool to be allocated to borrowers who borrow the next $100m on TrueFi [see current TRU token allocations here]. Details below:
- This incentive program is open to any new or existing borrowers.
- Under this program, borrowers will receive incentives equal to 1% (100 basis points) of the principal loan amount. For example: $1mm loan would receive 10,000 TRU.
- TRU Incentive on any one loan cannot exceed a maximum of 40,000 TRU ($4mm principal loan amount).
- TRU Incentive is sent to the Borrower only upon successful loan repayment.
- TRU Incentive program will end at the earlier of the next $100mm in funded loans (1mm TRU) or September 30th, 2021.
- TRU Incentive program subject to early termination if the total ‘cost of debt’ net of TRU incentive is deemed too low based on prevailing market rates.
- If approved, borrower incentives begin on approximately May 20th - at the same time [origination fees are slated to end].
- New/more lending activity: Lower rates will certainly help convert new borrowers to apply for whitelisting on TrueFi, as well as give us a tool to bring back existing borrowers who have refused new loans under current terms.
- Attractive rates for borrowers and lenders: These incentives will help us convert more borrowers without directly reducing the rates of return enjoyed by lenders.
- Incentive Alignment: Borrowers holding TRU make them invested in our success, possibly to the degree that they participate in TRU token markets or governance. Our borrowers holding TRU is also good optically.
- Credit model becomes more valuable: Every loan is captured by TrueFi’s V1 credit model, which incorporates past TrueFi loan repayment activity. For borrowers, a robust TrueFi repayment history means better loan terms, which in turn means a greater likelihood of future borrowing - thus functioning as a sort of “loyalty” incentive.
- Circulating TRU supply: This incentive would release only 1m TRU into the circulating supply over ~4 months, representing approximately 0.2% of the total incentive pool. See TRU treasury dashboard for details.
Considerations Regarding Borrowing on TrueFi:
- Rising lending rates: Borrowing rates have risen almost 500 basis points in the last 3 months.
- Higher DD friction: The new credit model process has increased the due diligence performed on borrowers, increasing some of the friction of signing up as a borrower (but making for arguably “safer” loans).
- Below-Target Utilization: TUSD in the lending pool is currently sitting around 50% utilization, on a target of 70%. With new assets being added soon (~May 20th, V3 launch), TrueFi needs more loan requests to nurture a healthy marketplace.
- Borrower Alternatives: TrueFi’s standard borrowers typically have access to a handful of other sources of funds, such as exchanges (which give lines of credit for little to no cost). At current rates, the “cost” (financial + time cost) of TrueFi is less competitive with other alternative sources of funding.
Lower utilization has the effect of forcing more loanable assets into Curve, lowering overall lender ROI, and undermining the growth of TrueFi. Building a healthy double-sided borrower/lender market is especially important now that more competitors are starting to enter the market.
At its core, TrueFi is a two-sided marketplace of lenders and borrowers - and a healthy, long-lasting relationship with borrowers is what really makes the platform valuable and defensible. Especially this early into the growth of the protocol and the on-chain credit sector as a whole, every single loan is valuable to building the strongest possible marketplace.
It’s for that reason we believe TRU incentives for borrowers aren’t just good for borrowers, but for lenders and TRU holders alike - and an integral part of moving towards larger, more regular loans as well as a robust, industry-accepted on-chain credit score built on TrueFi activity.
With that, would love to discuss this proposal further, and encourage you to vote:
- YES, I support allotting 1m community TRU to this borrower incentive program
- NO, I oppose the borrower incentive program