Secure Asset Fund for Lenders (Similar to SAFU)

[Kia]

Hello Community,
Personally I think TrustToken has built a brand around Trust with their fiat implementations (TUSD, TCAD etc), TrueFi and how open the team is to listen to the community. In order to continue building this trust, I think something like a SAFU built into the protocol will help.

Having such a fund built into the protocol will:

1. Help in winning lenders’ trust and onboard more lenders and therefore more loans can be given out.
2. Help in winning investors’ trust and therefore help in maintaining the value of TRU in case of a loan default.

How can we achieve this?

I was discussing this with @ryan.rodenbaugh and i understood that the company is still deciding what to do with the next rounds of company’s TRU unlocks (54,360,866 in Nov 2021 and another 54,360,866 in Nov 2022).

Few ideas for the fund:

1. May be TrustToken can decide to allocate some portion of the company’s TRU towards the fund.
2. A part of loan APY can go towards this fund.
3. A part of TFI-LP farming APY can go towards this fund.

Thoughts?

[spidey]

Great proposal and one we definitely need to become a trusted lender. As mentioned here

a) The current company unlocked tokens stand at around 15 million USD (54 million) which is still lower than the amount of loan volumes TrueFi is doing. In my opinion, at least 80% or around 12 million USD (42 million tokens) should be added to SAFU insurance which will be around 20% of the current loan volume which is a good number to start with. Rest of the company funds unlocked tokens should be also allocated in this way (80% of each unlock). This will reduce the maximum circulation supply by locking funds into the insurance fund by ~ 120 million tokens as these will be reserved for SAFU pool, and bring around 36million liquidity in USD at current rate. In my opinion, this is the best way to utilize the company funds towards assuring lenders as well as TRU holders who will have more confidence staking their TRU or providing liquidity to tfUSD, and since idea of company funds is to better serve the TrueFi product, this is the best way to use them

b) A portion of TRU emission from both sushiswap and tfUSD pools should be added to the SAFU funds. These pools have one of the highest emissions and have a responsibility to atleast benefit TrueFi lenders and platform in some way. In my head, that is by directing a part of rewards to the TRU insurance fund. I think this return is justified as market makers are still getting a good APY but a part of rewards are being used to insure them indirectly as if TrueFi undergoes a default, TRU price suffers and Marketmakers incur huge losses. Hence for them to pay a reasonable fee to insure the TRU protocol only makes sense. This also reduces the emission of TRU slightly but as Sushi token rewards are being added the net APY won’t go down much.

c) A portion of Governance Stake TRU rewards should be added to the SAFU pool, I think this is what AAVE does and makes sense to contribute a part of governance rewards to insurance funds. We can have the TRU rewards contributed to SAFU not have a vesting cycle as they are only going to be used in emergency situation, and the rest of the TRU rewards for takers be vested (as we are discussing increasing emission for TRU by 16x for governance model)

Thoughts of the team in this matter?

[orion.da]

this is a really smart idea I think and it kills two birds with one stone

1. we simply have too many coins outstanding, the tokenomics are obviously a legacy from the old Trust Token and equity with token model. Two of us have tried to pitch the coin to a sell-side research firm and were given somewhat lukewarm feedback, basically confusing tokenomics with too many coins outstanding. From what I’m gathering a lot of Defi is starting to trade at a multiple of TVL, around 3x on average let’s say, so if our expectation is that we’ll have 200mm coins circulating let’s say, and $100m in TVL by the end of March with the Sushiswap launch, then we’re talking about a $1 coin price and we want to shoot for higher than that, $2 or $5 in the next 3 to 6 months, if possible. If we don’t get rid of some of the dilution than the coin price never increases or goes down b/c the coins are growing faster than our growth. Coinmarketcap has added this metric (price /tvl) to their main company profile so I think investors are starting to look at it…

2. We simply aren’t building a community fast enough. We need to open up the loans to USDC and to the $10,000 minimum ASAP. The dividend idea is great to help the token value but it’s a band-aid on a gaping gash. Most other DeFi lenders are taking on more risk but also providing an insurance fund and/or compensating for that risk. Alpha is offering leverage on their loans and has $1b closed in the past month. We’ve already dropped from 24 to 30 on Defi Pulse and we’re going to be at 35 soon. I don’t know enough about the sector but I do know that others are doing this and it’s working for them. After all, I keep on seeing the same questions popping up on Discord: why isn’t there an insurance fund? what happens if the lender defaults? So obviously people want to stake but the risk/reward compensation isn’t even close to where it needs to be. It’s time for some major change, the market is scorching hot right now and this won’t last forever. We have a chance to fix these issues while all eyes are upon us.

I’d be interested to hear the thoughts of @rafaelcosman and @Jacks

[Kenny]

Hey Orion,

I already proposed some ideas to both Ryan and Rafael about risk tranching. I suggested working with Saffron Finance to create different tranches of risk for the uncollateralized loans. This is a perfect match, IMO.

While this may take some time, a SAFU fund would be a nice first step before risk tranching can be implemented. So I fully support a SAFU fund as well.

As for tokenomics and dilution – completely agree with you there. The unlocks will create major sell pressure on the coin. Unless we grow the TVL at a much faster pace, the TRU token is going to face some major resistance. I don’t know what the right fix is for the high upcoming inflation (unlocks). One suggestion that was floated out was to have the company buy back TRU with the fees from the loans. I don’t think that, by itself, will do the trick. It will be too slow.

Another idea is to create a HODL fund where people who are long-term holders of TRU could deposit their TRU into this HODL fund. The advantages of putting TRU into this HODL fund might be:

1. more % of the fees
2. more voting power (maybe 2x the votes of a normal TRU vote)
3. maybe some bonus TRU for putting it there.
4. minimum 1 year lockup (or some pre-determined time frame.

I’ve seen something like this done on Saffron and I think it’s a great idea. Maybe we can do this here as well. Will definitely help with the unlock/inflation problem.

-Ken

[orion.da]

these are both great ideas.! Saffron is great! soooo innovative and I love their Tranches, we should try to work with them for sure.

[ryan.rodenbaugh]

Great post. Very timely. Will have more to share here soon

[JupiterCapital]

Orion and Spidey make some great points here. The tokenomics is a major issue. I have personally spoken to 1 huge crypto investment fund and a reputable crypto research firm and they have both echoed this sentiment. We need to put up a vote asap to address this. I have spoken out in regards to the lack of marketing on the project previously and this continues to get ignored. The build it and they will come idea is a joke. It doesn’t work in crypto or any other industry.

1. Create the SAFU immediately.
2. Start a proposal to consider more aggressive burning of tokens
3. OPEN UP OTHER STABLECOINS ASAP. THE ROADMAP SUGGESTING A MAY DATE FOR USDC ISNT GOOD ENOUGH. Rafael asking how to increase TVL in discord? This is easy. Everyone is using USDC or USDT. This needs to be implemented asap. Defipulse rankings is easy marketing and we are dropping the ball.
4. Allow staking for unlocked investor tokens.

I am asking others in this community to push for some of these changes. Just talking about this will get nothing done. Put up a vote and make changes before we miss the Defi boat.

[orion.da]

@JupiterCapital @Kia @spidey @Kia it doesn’t seem like the team knows what to do to get the TVL up. It seems they believe they can build it and it will come. See Rafael’s post in Discord below. And I disagree I think we need marketing but I’m no expert. I’ve made my pitch to Michael. He argues that we don’t need marketing but need to focus on product. Candidly when I pitched this to a major sell side firm they thought it was a bit of a joke . They said the development seemed slow compared with the rest of the sector. They asked me if all the team members were working full time or not. I didn’t know what to say. If Rafael doesn’t know how to fix the TVL issue then that’s going to be a serious issue (unless this strategy is really driven by marketing or ??) See here : image|690x259

[carlj]

Hey all, been mia for a while.
I think all these ideas make sense and I will support them if they are put to a vote.
IMO, in terms of priorities, adding USDC support goes before creating a SAFU. I could be wrong but I believe adding USDC will have a higher impact on growing TVL, at least in the short term. Having a SAFU will be critical once more decentralization happen… nevertheless i agree that both are essential to the protocol’s long term success, no doubt about that.

[JupiterCapital]

I agree with you Carlj. Waiting to May for USDC isnt the right approach. We need to push for a vote to add this asap. The safu helps with tokenomics to a degree and can also be marketed to the community at large that the protocol is serious about protecting lenders. I’ve also been mia but this is getting to be a concern the slow pace of the project. Who wants to lend with the low APR and have no backstop like a SAFU in the event of default. I am happy that we have companies that want to use the protocol but quite frankly, its free money to them.

[JupiterCapital]

its simple. increase awareness through marketing and add USDC. Nobody is interested in TUSD in comparison.

[orion.da]

guys I think we should split this proposal up into a few different proposals so that others except the most active tokenholders can digest and understand and then vote on them?

1. SAFU fund/token burn
2. larger token burn
3. Adding USDC (and maybe DAI?)
4. We can create a proposal on marketing to get up the TVL?

[dnlklr]

Do we even need a vote for adding USDC? Seems like there is a strong consensus that this should be the number 1 priority for the team.

[orion.da]

Yes, currently there’s a discussion with Michael about which stable coins too add, there are benefits /drawbacks of them, but optimally we would want to consider USDT, DAI as well, and maybe even BTC, and ETH, while Rafael favors adding “any coin” as the base asset. We want as many pools as possible b/c it’s essentially shelf space on places like the Onsen menu of Sushiswap, the more space we take up the more TVL we’re likely to get, more options…so we talked about switching costs from different type of user subsets. Makes sense to hammer these details out ASAP rather than just saying USDC (I think)

[dnlklr]

I guess it depends on how much extra engineering it takes to add each pool? I agree that we want to open it up as much as possible, I just think USDC alone would add enough TVL to tide us over until the rest can be implemented in May.

[Pelevani]

Great idea. Will be big milestone on the way of being decenterlised defi.

[spidey]

Looking forward to it Ryan

[orion.da]

yes @ryan.rodenbaugh we understand that the Tokenomics proposal may need to go on hold per your comments, but this might be able to be pushed through. I think , especially in the face of Alpha’s hack today, we need to get something like this established soon.

[orion.da]

@rafaelcosman you are our leader here, There’s been an Alpha hack which is dragging down the entire sector, AAVE, CRV, CREAM, I know you guys are exhausted, but we need your comments here and I think you should issue a public statement about the security we use on our site … @MG-TT @Jacks @subhajit.ray
good article for the SAFU to read to see what Yearn is doing fyi Yearn.Finance puts expanded treasury to use by repaying victims of $11M hack

[hal]

I’m wondering if a better alternative to a SAFU could be simply to allocate tokens to a treasury managed by governance. We already will have staking in 2.0, which insures the lending pool up to 10% of the USD value of staked TRU tokens. So, this is in essence an insurance against defaults.

A better alternative. could be to use this governance fund in any way TRU holders see fit. This could cover litigation against borrowers that default, or straight out paying the lending pool if there is a default. I think a SAFU fund that automatically pays out on defaults doesn’t make sense if we have staking. Rather, we should act more like Nexus Mutual, where TRU holders decide outright if it’s worth repaying lenders for a default, and for how much. In addition to the automatic payout from staking, this should be more than sufficient to compensate lenders in the case of defaults, exploits, etc.

Let me know what you all think.