TFIP-38: Legacy SAFU governance unlock and treasury reallocation

Proposals
1

Summary (TL;DR)

This proposal addresses a governance and contract-level limitation affecting the legacy SAFU smart contract, which currently holds a significant amount of slashed TRU tokens originating from historical defaults in the tfBUSD TrueFi DAO pool.

TFIP-38 proposes a narrowly scoped, technical action to:

  1. Upgrade the SAFU smart contract to include a rescueToken function controlled by the protocol Timelock; and

  2. Transfer the TRU tokens currently held by SAFU to the TrueFi Foundation Treasury via the Timelock.

This proposal does not seek to resolve or finalize the handling of legacy defaulted loans, recovered assets, or outstanding on-chain artifacts. Those topics are documented for transparency and will be addressed through future governance discussions.

Background: Legacy SAFU and tfBUSD Defaults

In 2022, two borrowers in the tfBUSD TrueFi DAO pool — Blockwater Technologies and New World Holdings / Invictus Capital — defaulted on their loans.

Following these defaults:

  • The SAFU mechanism was triggered correctly on-chain.

  • TRU tokens were slashed from stakers and transferred to the SAFU contract.

  • Defaulted LOAN tokens and Deficiency Claim (DEF) tokens were minted according to the protocol design.

  • The tfBUSD pool was later closed and is no longer active.

At the same time, Archblock assumed the role of Special Servicing Agent (SSA) and has since coordinated recovery efforts through a combination of legal action and negotiated settlements, both on-chain and off-chain.

As a result, the protocol today reflects a mismatch between historical economic handling and current on-chain state, particularly with respect to assets held in the SAFU contract.

Role of Archblock as Special Servicing Agent

Following these defaults, Archblock assumed responsibility as Special Servicing Agent (SSA) for the tfBUSD pool, acting on behalf of lenders to recover value through off-chain means.

This role and mandate were communicated transparently to the community.

Official tfBUSD Default Update

Archblock publicly confirmed:

  • Both Blockwater and Invictus had defaulted

  • Archblock was leading recovery efforts via legal and negotiated channels

  • Recoveries would be pursued and distributed for the benefit of tfBUSD lenders

Forum reference:

https://forum.truefi.io/t/archblock-special-servicing-update/1481 https://forum.truefi.io/t/proposal-for-ssa-advisory-and-legal-services-invoicing/1488

Archblock has since:

  • Initiated bankruptcy and criminal proceedings (Blockwater)

  • Coordinated liquidation processes (Invictus)

  • Tried to recover and distribut funds on-chain but outside SAFU default handling

  • Continued to communicate progress to the community

Critically, no SAFU funds were used on-chain to make the pool whole, and no on-chain buyback or burn of DEF tokens was executed.

Recovered BUSD in the Blockwater Loan Contract

After the Blockwater loan defaulted, a portion of the borrowed assets was repaid directly into the Blockwater loan smart contract prior to the completion of the SAFU handling process.

As of today, approximately 645,000 BUSD remains held within the Blockwater loan contract:

These funds represent on-chain repayments associated with a legacy defaulted loan. Due to the historical handling of recoveries both on-chain and off-chain, and the subsequent closure of the tfBUSD pool, these funds were never reconciled through the standard SAFU default-resolution flow.

TFIP-38 does not propose the immediate distribution, utilization, or reallocation of these BUSD funds.

Current State

As of today:

  • The tfBUSD pool is inactive and cannot be used for further lender repayments.

  • SAFU holds approximately 45.28 million TRU tokens that were slashed during the legacy defaults.

  • SAFU also holds or is associated with other legacy on-chain artifacts (LOAN tokens, DEF tokens, and recovered assets), which are not addressed by this proposal.

  • The SAFU contract does not currently include a generic mechanism for governance-controlled token recovery.

This lack of flexibility prevents the DAO from exercising clear governance control over assets held within SAFU.

Purpose of This Proposal

The purpose of TFIP-38 is not to resolve legacy defaults or distribute recovered funds.

Instead, its sole objective is to:

  • restore governance control over assets held by SAFU, starting with TRU tokens; and

  • enable future, deliberate, and community-driven decisions regarding the remaining legacy artifacts.

This is achieved by introducing a standard rescueToken function under Timelock control.

Why a Limited-Scope Proposal

Legacy default handling involves:

  • partially repaid loans,

  • off-chain recoveries,

  • inactive pools, and

  • unresolved on-chain artifacts.

Resolving these elements requires careful analysis, coordination, and community input. Attempting to bundle such decisions into a single proposal would introduce unnecessary complexity and risk.

TFIP-38 therefore deliberately limits its scope to enabling governance flexibility, without prejudging future outcomes.

Proposal

TFIP-38 proposes the following actions:

1. Upgrade the SAFU Smart Contract

The SAFU smart contract will be upgraded to include a rescueToken function, callable exclusively by the protocol Timelock.

This function enables governance-controlled recovery of ERC-20 tokens held by the SAFU contract.

2. Transfer TRU Tokens from SAFU to the TrueFi Foundation Treasury

Following the upgrade, all TRU tokens currently held by SAFU — approximately 45,284,523 TRU — will be transferred to the TrueFi Foundation Treasury via the Timelock and used as treasury reserve fund for the Rebrand.

These tokens will thereafter be managed under standard DAO governance processes.

Explicit Non-Goals of This Proposal

TFIP-38 does not:

  • burn DEF tokens;

  • burn LOAN tokens;

  • distribute or reallocate recovered BUSD;

  • resolve legacy lender claims; or

  • determine the final treatment of recovered assets.

All such topics will be addressed in future governance proposals following additional analysis and community discussion.

Impact

  • Restores governance control over slashed TRU tokens.

  • Removes a critical operational limitation from the SAFU contract.

  • Improves transparency and auditability.

  • Establishes a clean foundation for future, well-scoped proposals addressing legacy defaults.

Conclusion

TFIP-38 is a narrowly scoped governance-enablement proposal.

It does not rewrite history, alter lender outcomes, or resolve legacy defaults. Instead, it unlocks the DAO’s ability to responsibly manage assets held within SAFU and prepares the protocol for future decisions regarding legacy default handling.

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