Background:
After four months as a Credit Risk Manager on TrueFi, we are pleased to provide a progress update on recent activities, outline our vision for growth, and present an updated request to expand our role in managing platform risk for the community.
Lines of Credit Update
There were no credit events to mention during the prior four months, despite the market experiencing multiple drawdowns in BTC prices of 20%+ and alt-coins seeing even more violent selloffs and forced liquidations. Borrower underlying investment performance remains in line with expectations, with balance sheets remaining under-levered and approved borrowers maintaining very strong liquidity profiles. Additionally, fund performance for all three entities has remained consistently profitable with average monthly returns of 1.8% during the past 4 months.
Lenders deployed $2.25m across three lines of credit during the past 2 months and another $500k of interested funds are lining up to be deployed upon our next pool launch.
Recent Milestones and Updates
-
Contributed legal documentation to the DAO to enable the use of Lines of Credit
-
Underwrote nine Borrowers, approved four to access Lines of Credit
-
Secured Arbitrum Foundation rewards for Line of Credit LPs, received 45,000 ARB token after meeting two milestones
-
Preserved DAO process integrity by proactively participating in governance
-
Advised multiple interest parties on competitive proposals to ensure there is a competitive bidding process for the community to select the most strategically valuable technology provider
-
Expanded and shared our KYC policy with the DAO
-
Engaged nine parties with targeted skillsets and highly complementary backgrounds to existing board members to participate in the new board opening process and expand the community’s reach
-
Sponsored the redrafting of Cicada’s asset-backed lending docs to interact directly with Lines of Credit and Credit Vaults, ultimately broaden the use case for the existing platform infrastructure
Proposal Update: Protocol Credit Risk Manager
The purpose of this proposal is also to renew the role of Credit Risk Manager within the TrueFi DAO and to offer expanded services that align with our long-term vision for the DAO.
(1a) We aim to maintain our function of structuring and underwriting lending deals to support the pricing and creation of vaults for market-neutral borrowers.
(1b) To expand the addressable market and drive higher DeFi-native yields, we propose to partner with Arkis as integration experts and liquidation agents. The partnership will enable crypto-native collateralized lending.
(2) In addition, we are proposing to consolidate our Real-World Asset (RWA) initiative onto TrueFi, to drive more visibility, usage, protocol TVL, and long-term stability and growth of TrueFi’s infrastructure.
-
Specifically, we’ve received strong feedback from off-chain investors on our Asset Backed Short Duration strategy that we’ve been developing, operationalizing, and seeding for over 14 months. This strategy leverages our institutional structuring, underwriting, and risk management capabilities to bring traditional financial asset-backed yield on-chain.
-
Private Credit has experienced significant growth in recent years, with a substantial dry powder remaining on the sidelines. Asset-Backed lending offers differentiated returns across different economic regimes via structural credit enhancement. Asset Backed Short Duration remains a niche vertical within the broader private credit market that predominantly targets 5-7yr 1st/2nd Lien Corporate loans.
-
We have a robust pipeline of over $50m in the near term and $300m in long-term financial asset originator demand. We are now pursuing an off-chain wholesale distribution strategy for capital supply to support. Given structural high fees in asset-backed lending, limited competition in short-duration private credit, and high yield but low return correlation, we believe this is the right time to target off-chain distribution platforms seeking a short-duration vehicle to deploy into. Furthermore, given the self-referential nature of DeFi-native capital, we believe this is an important means of diversification for the DAO.
-
We recently set up a private placement structure to enable off-chain investment, and after the following four months of testing TrueFi UX, we are excited to expand the use of Lines of Credit and Credit Vaults into this new lending vertical.
-
The end goal: To open the door to off-chain accredited investors in a traditional private fund wrapper under Reg S and Reg D exemptions, while leveraging TrueFi infrastructure as a loan facility management system that provides a transparent audit trail of long-term performance in a more cost-efficient and differentiated alternative solution to traditional private credit offerings. For more specific details, please visit our intro deck.
Suggested Remuneration Model 1 or Model 2
Model 1, Renewal:
To support our efforts to commercialize TrueFi Lines of Credit and Credit Vaults, Cicada requests a combination of base grant (1/3rd) and performance grant (2/3rds ) from the DAO. Our proposal includes the following:
-
Base Grant: 3M TRU tokens, 30% front-loaded, remainder vested over 6 months.
-
TVL-Based Performance Grant: We recommend three tiers of TVL-based performance compensation. If aggregate TVL across Cicada underwritten vaults exceeds $10/25/75M as outlined below, TRU rewards step up by 1/2/3M, respectfully.
-
Vaults Underwritten: Additionally, we recommend three tiers of underwriting-based performance compensation.
-
To align incentives, but lock in a reasonable range of TRU-based pay for both sides, we’d request to get paid in a fixed amount of TRU tokens, which results in the following dollar-based compensation as outlined below:
Model 2, Renewal & Expansion to ABL Facilities:
Cicada requests a 1/3rd base grant and 2/3rds performance grant from the DAO to support our efforts to commercialize TrueFi Lines of Credit and Credit Vaults. Our ask is to expand the DAOs RWA capabilities by offering lending facilities for asset-backed lines of credit. To enable this, we ask for an extension of the timeline to give us greater visibility given loan durations are 6-9mths in tenor:
-
Base Grant: 4.5M TRU tokens, 30% front-loaded, remainder vested over 9 months.
-
TVL-Based Performance Grant: We recommend three tiers of TVL-based performance compensation. If aggregate TVL across Cicada underwritten vaults exceeds $10/25/75M as outlined below, TRU rewards step up by 1/2/3M, respectfully.
-
Vaults Underwritten: Additionally, we recommend three tiers of underwriting-based performance compensation.
-
To align incentives, but lock in a reasonable range of TRU-based pay for both sides, we’d request to get paid in a fixed amount of TRU tokens between $0.025 and $0.1 per TRU, which results in the following dollar-based compensation:
Final Thoughts
Despite the challenges and governance disruptions since assuming the role of Protocol Credit Risk Manager, we remain committed to commercializing lines of credit and other functionalities, and our conviction in TrueFi’s modularity and ease of use remains strong
While TVL growth for the DAO remains challenged in the current environment, Cicada has continued to aid borrowers in the development and pricing of lines of credit while supporting the DAO by ensuring borrowers are appropriately capitalized and held accountable across various market cycles. The successful opening of multiple lines of credit has resulted in greater partnership interest that we think can aid the community to expand into new DeFi-native distribution channels. However, to meet the needs of on-chain lenders, we must expand the scope of yield offerings on TrueFi to include better recourse via multiple means of both off- and on-chain collateralization. By introducing multiple means of collateralizing loans, we will enhance the utility of the TrueFi and position for the continued growth of RWA. Lastly, DeFi infrastructure must open opportunities for non-crypto-native investors to engage with the underlying infrastructure and we are actively enabling this through investments in less cyclical off-chain funding channels and distribution networks.
Best,
Cicada Partners
- For
- Against