[TFIP-20] Discontinuation of Cicada Partners Managed Pools and Services

[TheSkyHopper]

Background:
On April 11, 2024, Cicada Partners proposal to manage credit pools via introduction of borrowers was passed and executed.

See:

[TFIP-11] Rebuilding a Risk-Managed Crypto-Native Lending Vertical on TrueFi

Background: As we enter another crypto bull market, the supply of crypto-native lending has radically transformed following the demise of Genesis, Celsius, BlockFi, Babel, Voyager, et al. Lending to crypto trading firms previously accounted for >90% of crypto lending volumes and based on our estimates still accounts for >95% of volumes even when including the recent $800m+ in T-Bills on chain as “lending”. Nascent market infrastructure creates market fragmentation, which drives inefficiency and…

The goal of this proposal was to help Truefi with TVL by creating pools for borrowers in which to attract lenders to place capital in such pools. Cicada was tasked with the responsibility to source such borrowers.

However, gaining traction on this vertical has been slow at best, with total TVL of these pools totalling about 2.2 million USD, with more than 90% of the lending coming from two addresses.

In the meantime, Truefi DAO has paid:

1.15 million TRU on initiation of this service on April 11th
1.85 million TRU on Sablier Stream between April 16th and Sep 28th 2024 (about 1.5 million so far paid in the stream)
And
1 Million TRU paid as a incentive payment for opening 3 borrower pools.

Truefi using about 0.13 USD per token has paid nearly $500,000 of tokens in 4 months for these services, resulting in 2.2 million TVL and sub few thousand dollars of revenue. This has resulted in a fairly disadvantageous economic arrangement for the DAO.

With other incentives potentially coming with disproportionate payments for work versus results, it is value enhancing to discontinue the services provided by Cicada.

Further, for the DAO to continue to attempt to create a “crypto-native” trading firm related lending vertical is a losing game. Instead of trying time again (and again) on this among competitors, the DAO should look to expend its resources and strategy elsewhere to showcase the RWA ecosystem.

Macro-Environment for Trading Firm Lending:
As also pointed by Cicada in their proposal, summer-late 2022 brought drastic changes to the meteoric rise of the crypto-native-trading-firm lending/borrowing market with defaults and losses affiliated with the likes of Babel (3% loss to the Orthogonal Credit Maple Pool), Blockfi, Celsius, 3AC, Alameda, Blockwater, Invictus, and Orthogonal Trading. With FTX bankruptcy, trading firms that remained solvent/liquid came under significant pressure with funding being recalled across all lenders, while questioning whether leverage can even be used given the post FTX counterparty risk concentrations that would arise to them.

Among institutions, whale individuals, and projects from that era, can easily point to some within 1 degree of separation who were burned from at least one of these defaults.

Firstly, trust on the under-collateralised or un-collateralised lending evaporated. Any lenders or would be lenders (who have friends who were burned) have more or less refrained from lending unless with trading firms which have long extensive relationships. Even at two years after these events, we see significant reluctance for lenders to lend to newly formed relationships.

Secondly, the largest borrowers who have survived from the previous era, have not come back to lending platforms to borrow – previous borrowers such as Wintermute, Folkvang, Nibbio, Amber, Mgnr, GSR, amongst others. The counterparty risk mismatch with trading partners and lenders have still proven to be a challenge to many firms.

As such, even looking at Clearpool for example, the TVL for dynamic pools are at around 12 million dollars, with lending/borrowing concentrated among three borrowers; Bastion, Auros, and Portofino (Portofiino are under a lawsuit from Citadel). Maple’s uncollateralized pool has 1 borrower and about only 5 million dollars of TVL.

The chances of having this kind of lending-borrowing ecosystem succeeding looks bleak for any player, let alone Truefi. There is little downside to pivot now for Truefi. Furthermore, resource expenses to continue down this path of under/un-collateralised lending is very high. In fact, Fasanara with the highest of credit rating from Credora is at 0 TVL despite the pool being launched.

Interoperability is a key word currently within the classic competitors of Truefi. Maple has launched Syrup to add flexibility to its offerings across all of DeFi. Clearpool has create Ozean, a new L2 blockchain designed for RWA which I believe is envisioned to onboard a network of users beyond the Clearpool ecosystem.

Through one iteration or another, the current borrowers are also or has onboarded with either Clearpool, Idle, and/or Maple. Lenders with any experience are intimately familiar with all of these protocols. Rather than to compete for a limited opportunity set for what is currently a same narrow set of borrowers and lenders, Truefi should seek new pastures, different opportunities, and new partners to increase the utility of the TRU token.

For everyone’s mutual benefit, it is best to make decisions in a timely manner on what way is forward or to take an alternative path. In this case, in the backdrop of tough product market fit and expensive costs for TVL acquisition it is best for Truefi and Cicada to go down separate paths at this point.

On-Chain Tally Actions:

1. Stop Sablier Stream of TRU tokens established by TIP 11

Off-Chain Actions

1. Movement of any multi-sig in regards of the credit vaults or other wallets associated with them to the ownership of the board (with cancellers if appropriate).
2. Have a grace period of 2 months before moving pools to the legacy website (if not already present there anyway)

Post-Off Board Actions

1. Compensate Cicada for 20 hours of Off-Boarding work at 200 USDC per hour once off-boarding actions are completed.

[christiancicada]

Cicada’s Official Response:

While it is true that Market Neutral lending on Truefi hasn’t scaled as initially anticipated, there are a lot of pieces of the puzzle that must be taken into consideration here:

Firstly, we have always prioritized managing default risks for the MNL space and as such have been extremely conservative with selecting and underwriting borrowers to be onboarded on the TrueFi platform. Under the current contract with the DAO, we receive additional TRU compensation if additional pools are opened. If we were to maximize our short-term gain and attempt to extract unjust value from the DAO, we would have added more borrowers to the platform considering there is no shortage of borrowing demand; Bastion Trading, founded by TheSkyHopper, for example, is currently borrowing over $6m on Clearpool. We have reviewed/underwritten over 10 counterparties with many currently on Clearpool and other platforms, but after careful assessment we’ve only selected those we consider have the strongest profile to ensure the integrity of the MNL exposure for TrueFi. The fact is that we act responsibly as a risk manager due to our belief in delivering long term value to TrueFi and the DAO, despite this being perceived as “underperformance” in the short term. The asymmetric return profile of all lending means saying NO to the wrong deals is more important than rubber stamping pool to aggressive borrowers.

Additionally, recognizing the challenge in scaling the uncollateralized Market Neutral Lending (MNL) vertical given the relatively muted lender activities, our strategic plan, as clearly elaborated in Cicada’s and Arkis’ roadmap, is to provide an additional risk management layer to grow the collateralized borrowing vertical on TrueFi, which address the pain point of uncollateralized risk (from lenders’ perspective) and capital efficiency (from borrowers’ perspective). Please find the Arkis proposal here.

We also have invested considerable internal resources, in both manpower and dollar amount (in excess of $30k) in building the RWA (asset-backed lending) on TrueFi. Our commitment to RWA has been clearly articulated in our roadmap and proposal to the DAO forum. We have been working in the background with our legal counsel, borrowers and distribution channels to prepare the launch of the RWA vertical on TrueFi. We currently even have a Proof-of-Concept pool in late-stage negotiations that was expected to open a LoC on Truefi in the next few days. Moreover, if we were to continue our service to the DAO, we are positioned to bring over $6.1MM of additional capital from two other borrowers we currently have on Atlendis (see here https://app.atlendis.io/). If the DAO and BoD are committed to expand the RWA vertical as we have seen from various posts in recent months, this will be the most important alignment to consider given we have demonstrated our track record in executing the RWA strategy. We see Truefi as an important tech platform for building and scaling this initiative, leveraging off-chain capital channels, and we believe our expertise will help TrueFi to realize its full potential.

Cicada has continued to deliver value to TrueFi despite the ongoing DAO drama, Wallfacer’s removal, and a voting attack and lack of Dev support. Throughout this period, we’ve proactively supported the transition from Wallfacer to the BoD, and engaged with stakeholders to formulate the long-term growth strategies with key stakeholders. However, the delay in finding and securing a suitable technology provider, coupled with broader uncertainty, have significantly hindered our ability to execute key initiatives such as deploying ARB token incentives, and confidently advancing the RWA vertical on TrueFi. It is unfortunate that the Board of Directors decided to introduce further uncertainty by proposing a more centralized governance structure in their most recent proposal (TFIP-19) without any sort of plan to service providers.

We appreciate the opportunity to work with TrueFi to unlock the significant value its technology offers. As a risk manager, transparency has been a guiding principle for us from the very beginning - that is why we decided to build our business on a public blockchain. We also urge the community to take a long term and unbiased view in considering our proposal. We welcome constructive discussions on how we can enhance our product offering on TrueFi and further refine our operating model to better align with the platform goals. As such, please post any questions or concerns you might have below or on TFIP-18 and we are happy to work towards a common ground.

Thanks!

[StrategoHoldings]

I need to address an issue that I’ve been hesitant to bring up, but it’s something that requires serious attention at this point.

I was aware that Maple Finance had severed ties with Orthogonal Trading, but I only found out after the last performance bonus was awarded that Orthogonal Credit had actually rebranded to Cicada Partners.

Had this information been disclosed to the DAO before any proposal, I would not have supported Cicada Partners Performance-Based Compensation vote and would have addressed the concerns I am about to raise below.

Context;

Maple Finance severed ties with Orthogonal Trading (nka Cicada Partners) in December 2022 after discovering that Orthogonal had misrepresented its financial exposure, particularly related to the collapse of FTX.

Orthogonal Trading (nka Cicada Partners) failed to disclose the extent of its losses and continued operating while insolvent, ultimately defaulting on a $36 million loan.

The misrepresentation breached Maple Finance’s agreements, leading to the removal of Orthogonal Trading as a borrower and Orthogonal Credit as a delegate, along with the shutdown of their lending pools​.

Maple Finance has since been pursuing legal avenues to recover the funds, aiming to mitigate the impact on its ecosystem.

Sources;

Benzinga

Maple Finance Severs Ties With Orthogonal Trading For ‘Hiding’ FTX Exposure

Latest Crypto Prices by Market Cap

Maple Finance has cut ties with Orthogonal trading due to its $36 million default loan. The lending firm expressed disappointment in Orthogonal, citing its misrepresentation of financial position as a violation of agreements

Q.
Why didn’t Cicada Partners approach TrueFi as Orthogonal Credit?

Q.
Why was there no official disclosure to the DAO about the transition from Orthogonal Credit to Cicada Partners prior to the first proposal?

I think we can all agree it is highly disingenuous for a “risk manager” not to disclose their rebranding after being accused of misrepresentation by Maple Finance.

Such a lack of transparency, especially following allegations that Orthogonal Credit misrepresented its financial exposure, undermines trust and raises serious concerns about their accountability and integrity.

The failure to communicate this significant change in identity only compounds the issue and suggests a deliberate attempt to obfuscate or evade scrutiny.

While I fully understand that the FTX exposure was the result of a series of unfortunate events, Cicada had a duty to disclose to the DAO about the transition from Orthogonal Credit prior to any proposal.

I also firmly believe that anyone within the DAO who was aware of this and continues to support Cicada Partners (formerly Orthogonal Credit) in their work with TrueFi should reconsider their professional backing. Additionally, any personal support given out of compassion should also be reassessed and detached when considering this proposal.

We need to keep in mind that Cicada Partners is not the only risk management team we should consider working with simply because they were the first to be engaged with TrueFi.

I fully support this proposal to safeguard and mitigate potential reputational risks to the TrueFi Protocol.

[Cicada.Partners]

Hi Stratego - From our perspective, Orthogonal Trading was an equity check into the 1st loss of a Maple pool we could manage the LP risk on. Over time, the credit team deferred income into the first loss as well to have skin in the game. Ultimately our team was also rugged along with M11 Credit lenders and we remain creditors.

While much of what transpired has been voiced in the public domain, we can give you some backstory.

The founders of Cicada all came into and met in the Maple ecosystem, had extensive credit experience and a shared vision to reduce fees in direct lending by using stablecoins and smart contracts. Through the ecosystem, Sefton was introduced to Orthogonal Trading who was an early investor, seemed to have a “reputable” brand in the space, and was keen to move into credit, but had no credit experience whatsoever. Orthogonal Trading agreed to seed the equity at risk for a credit pool, which he then agreed to later come on, underwrite, lead due diligence, and build out a team. Borrower origination came via Ortho’s trading contacts, but Ortho had limited interaction with the founders of Cicada given time zones and responsibilities and we worked closely with borrowers, LPs, and the Maple team.

Post Orthogonal Trading default (we found out through Maple, fwiw), Maple partnered with us to make a clear statement supporting our operational independence. If you ask around to anyone that has worked with our team in the space regarding our connections with what happened at the trading arm of Orthogonal you will quickly find little evidence of any involvement whatsoever (Maven 11 included, who has the biggest ax to grind against Orthogonal). Further to this point, Cicad launched the Osprey Total Return product on Maple in 2023, but failed to find product market fit and later discontinued in early 2024.

It was a terrible situation that hurt a lot of people financially, particularly the founding partners. As you might know, but to be clear, Orthogonal Credit’s lenders were not harmed in the situation. As for our performance, we are quite proud of having underwritten nearly $850m in volume, with only one defaulted loan to Babel, resulting in strong outperformance vs. peers and most assets classes at the time. We were also instrumentally in removing all Alameda exposure across the platform, well in advance of FTX.

We as a team are extremely proud to have moved on from those events with a battle-hardened team, investors, and LPs, some of which shared in the unfortunate consequences of bad actors, but with a vision to make the space better.

Finally, to answer your two specific questions: 1) Any assets of Orthogonal Credit were part of the on going bankruptcy and Cicada was a new business seeded in 2023; 2) As far as we were aware everyone, including you, were well aware that the founding team of Cicada were also rugged by the unfortunate events. Apologies if that wasn’t clear from yourside. We have nothing to hide.

[StrategoHoldings]

Interesting, I don’t remember seeing that comment from Tyler. I like Tyler, so i do support his posts with simple fast likes from time to time.

That said, I still believe that referencing comments from others after the fact doesn’t substitute for properly disclosing information to the DAO regarding the transition from Orthogonal Credit before any proposal is made.

Let’s be honest and not undermine anyone’s intelligence here. If Orthogonal had a very successful past without any negatives, I’m sure the very first line in your proposal would have been something like this: “Attention! We have some great news, Orthogonal Credit has rebranded to Cicada Partners.”

Regarding the audio link you mentioned:

I didn’t listen to that specific audio,

I started this thread: All Things DeFi.

I typically just use relevant keywords to search on Spotify to gather relevant information for the DAO to make better informed decisions. In this case i simply searched “Cicada Partners” and simply posted the link.

I have nothing further do add to this discussion.

It’s time for the DAO to move forward and refocus on building with an in-house team, just as it did during TrueFi’s early days, when the protocol achieved its greatest success.

This time, we can continue to develop a well-rounded, solid DAO governance structure with a holistic, bottom-up approach, driven by a skilled internal team that prioritises TrueFi’s best interests—free from personal agendas or distractions tied to external company success or failures.

[TheSkyHopper]

As we have left this for 2 days and arrived around the midpoint of the 3-5 day period of discussion. Here is a poll of for and against:

• Agree with proposal:
• Disagree with proposal:

[sebdavies]

I have known and delt with the folks at Cicada for a couple years and find them to be honest and professional.

[rafaelcosman]

I have also found the Cicada folks to be honest, professional, and communicative. While we haven’t gotten as much TVL with them as we might like, I think they are the type of team we can partner with to significantly grow TVL over time. They have a real lending business and real lending experience. That’s what TrueFi needs. Not more tech products without a clear path to market.

I hope that they see this as a long term partnership with TrueFi, and, given that TrueFi has invested in the relationship with them, that they will continue to invest in TrueFi and bring significantly more TVL to the platform.

Hence I am voting No on TFIP-20.

[StrategoHoldings]

@Cicada.Partners @CicadaSefton Could you please provide any further details about your joint partnership with Atlendis Labs thats not wriiten in this article? And maybe @Gregoireljda could jump in also.

Thanks in advance

Crypto Lending Market Outlook: 2024

[ProfessorDegen]

I also disagree with this proposal. I’ve been tracking TrueFi for about 2 1/2 years and only recently interested in contributing based on Cicada’s involvement.

This platform needs reputable asset managers with top tier borrowers and legitimate (doxxed) contributors.

The days of yield farming and prop shop lending are fleeting. Like it or not, be ready to usher in TradFi players or bleed your tokens into irrelevance.

[StrategoHoldings]

@ProfessorDegen

be ready to usher in TradFi players or bleed your tokens into irrelevance.

I fully support it, as long as TrueFi remains the priority. It’s crucial that resources are not diverted to build products for other projects or protocols with personal affiliations, or to use TrueFi funds to develop products that are then claimed as their own. 100% of TrueFi’s funds should be dedicated to advancing our own goals and innovations, not 99%, 100%!

Additionally, all relationships with other projects, whether involving internal team members or service providers, must be disclosed.

I unfortunately know for a fact—and others do too, though they choose to turn a blind eye—that funds given from one protocol are sometimes used to finance other projects or personal ventures. This issue needs to be acknowledged and addressed, not ignored, and It needs to stop or Truefi will bleed into irrelevance

[TheSkyHopper]

As per TFIP 16 & 16.1: 72 hours have passed since this original post and there has been time for to community to view the proposals and the relevant thread.

Therefore, the snapshot process again as per TFIP 16 & 16.1 is up for a little more for a 48 hour term.

https://snapshot.org/#/truefi-dao.eth/proposal/0x6469d688b5bcb16033b283b023f1beb5dacae238b3fbed6c49fec0590fd2865d

[Alexis]

Hello @StrategoHoldings, Alexis here, CEO of Atlendis Labs, the software company behind the Atlendis protocol.

We worked together with Cicada for over a year and built jointly a short term credit vertical focusing on different RWA types of businesses but mainly trade finance.

We were focused on the legal and tech part of the stack and Cicada on the credit underwriting and structuring while BD was done jointly.

We ultimately booked c. $7m in deal volume over the last six months, but the JV unfortunately took too long to scale in our allotted timelines and both teams decided to focus on areas where they saw better unit economics and the ability to scale longer term.

For Atlendis, that decision lead to the pivot to Rialto, where our DASP license and tech gives us a competitive advantage in terms of fiat on/off-ramping fees vs the rest of the competition. We remain in close contact with the Cicada team and are ready partners in the coming years as they’ll require on/off-ramping for any RWA-based asset-backed lending on TrueFi.

[StrategoHoldings]

Hey @Alexis

Nice to meet you

Can i ask, what jurisdiction your Digital Asset Service Provider licence is in? Im thinking France, yes?

Thanks in advance

[Alexis]

Pleased to meet you as well,

Correct, our DASP is issued by the AMF (Financial Market Authority) in France but our clients are global.

[TheSkyHopper]

Given the small amount of TRU left in the Sablier Stream - a Tally Proposal will go up with a simply transaction of mint 1 TRU simply to memorialize the vote on execution if it is passed (and executed).

This is no worse from the position of the current stream recipient.

[TheSkyHopper]

The proposal on tally has been posted.

Tally | TrueFi | [TFIP 20] Discontinuation of Cicada Partners Managed Pools...

[StrategoHoldings]

Thanks @Alexis

I’m curious to know what brings Atlendis to the TrueFi forum in 2024! Would love to hear more about it