There is a tradeoff here. We only have so much development time to build new features. So unless community members start to develop features for TrueFi, there is a limited number of good ethereum developers and auditors that can be used to build new features. I think following the current roadmap makes sense, and a lot of thinking & effort was put into this plan.
I personally think having open term loans with a dynamic interest rate and improved credit model is more beneficial for the protocol, as it increases liquidity and interest earned by lenders. The current code for Phase 1 is targeted for TRU holders, so I think Phase 2 should be targeted towards improving the lending & borrowing mechanisms. Weāre not solving a real problem for uncollateralized lending by adding new assets, since anyone can acquire TUSD at minimal cost through most exchanges now.
We can decide as a community if itās more of a priority to build open term loans, or to build new assets to lend in TrueFi. But we canāt have both quickly with high quality, and getting exploited due to rushing is a lot worse than taking our time.
I actually agree with this. This makes more sense. I think however communication/marketing around it would be key as the objective of a SAFU fund was to provide confidence in the protocol in the event of a default. If such treasury is set up, we should communicate on a ātentativeā allocation split that would provide confidence to the lenders that we have the resources and processes in place to chase lost funds in case of a default, whether it is via legal route, or paying out directly to cover the loss.
Yes, exactly what I suggested, in my post above, as well in the Revised tokenmics comment (Revised Tokenomics and proposed token BURN - #11 by spidey). We should create a SAFU treasury managed by governance and move a major chunk of Company/team tokens there to be used only for emergency situations. How and when to use funds can again be decided by the community. Tagging @ryan.rodenbaugh here as well as heās actively involved in SAFU discussions.
I also love the idea of using stakers to act more like NXM stakers and decide if its worth repaying the lenders for a default (on top of 10% compensation from staking pool). We need to figure out what parameters will the TRU holders make the decision on but this is the right way.
The additions to SAFU fund from TRU emissions from tfUSD and sushiswap pool is still an important suggestion (based on dev availability) and maybe the community can vote to decide its priority. As mentioned before, the LP providers also share a responsibility to insure TrueFi as they are directly impacted by it, so its reasonable to charge a small part of it to go to SAFU fund or burned, to reduce the sell pressure from LP TRU emissions.
I really empathize with @hal in how important it is to focus precious development time on the features that will make a huge difference in TrueFi trajectory. Every new feature needs to be carefully coded, reviewed, audited, and maintained.
As a liquidity provider, the main issue that limits me from depositing more TUSD capital into the TrueFi Lending Pool is risk management. When the money is being borrowed by reputable firms that are well capitalized and have a long history, examples including Poloniex and Alameda, there is less concern about a default.
However, as TrueFi attracts more capital and more borrower applications, default risk is likely to increase. The underwriting process must scale from āhey, I know this group in the crypto space and can vouch for them on a forum postā to a more sophisticated credit assessment process.
If not, the risk-adjusted return for liquidity providers becomes negative. Every DeFi project is competing for liquidity and TrueFi must be competitive when it comes to risk-adjusted return on capital compared to those projects. As it is, TrueFi has great potential but it is not competitive on APY on a risk-adjusted basis and itās financially risky to increase portfolio exposure.
There are several strategies that would lower that risk, some which donāt require much software development time:
Continue to only loan to well-capitalized, reputable borrowers.
Clarity on the process for how slashing TRU stakers (up to 10%) and the TrueFi Lending Pool works in the event of a default.
Clarity on how TFI-LP liquid exit might be affected in the event of a default.
Clarity on the legal process TrustToken would take in the event of a borrower default. Clarity on the contract terms that TrustToken has with borrowers and the law firm that is representing TrustToken. How will payment be made for the legal costs? How to handle legal cases when TrustToken is headquartered in US and some borrowers have international jurisdictions?
Establishing a SAFU fund to reimburse holders of TFI-LP in the event of a default.
Increasing APY to be so high for TFI-LP (via incentive emission) that it partially offsets the financial risk of a default.
@rayanami Great post, 100% agree that reducing default risk is the best way to grow TrueFi and that there are multiple ways to pursue this. We should tackle each of the points you highlighted. Right now, it feels like we have some great tailwinds helping us too:
lots of borrower demand: it feels like borrower demand is outpacing lending pool growth right nowā¦ I think market dynamics are pushing us to increase APYs and only approve loans to the best borrowers
lots of TRU staking in v2: with 35M staked already in the 48hrs after launch, thereās a good amount of TRU staked behind each $ loaned. Letās figure out how to put this staked TRU to work for the platform.
Iād love to see a SAFU soon too. I think it could go a long way to bridge the gap between today and the fully-fleshed out, robust staking system we want for the long term.
Folks, weāve just published the TRU Tokenomics, which includes the following commitment from TrustToken Inc:
As a first step on this journey, weāre announcing that weāll contribute 10% of our company tokens from Unlock 1 into a pool specifically to create a SAFU-like/insurance fund/system backstop, one designed to incentives more lenders. Itās still TBD the structure that this will take and weāll be engaging the community for proposals of how this could ultimately be self-sustaining.
We will also contribute a further 10% from Unlock 1 into a fund that will be community governed , to fund other ideas that the community approves. Of the tokens the company has unlocked so far, weāve also committed ~35% of those towards market makers and AMMs so that TRU has strong liquidity.
To summarize: the company is committing to give away >10mm TRU which will go to the SAFU and the community fund.
I encourage everyone here to read through the tokenomics writeup and then, Iād love to see a conversation about the ideal design of the SAFU fund - which now, thereās some funding for!
Excellent work, thank you for posting that @MG-TT. I agree the SAFU is important- the 5mm+ TRU that the company is seeding it with is a good start, but we need to figure out a model for it to become self sustaining over time.