What is TrueFi (TRU)?
Users who have received loans are left unprotected due to excessive collateralisation, which typically exceeds 125% of the loan amount. At the same time, borrowers are exposed to liquidation risks in the event of a collapse in the asset's value pledged as collateral. New DeFi platforms, such as TrueFi, have started to emerge as game changers and seek to address the current problems of decentralized lending protocols.
What is TrueFi?
TrueFi is positioning itself as the first decentralized, modular infrastructure for collateral-free on-chain lending. Approved borrowers can receive loans in tokens:
- ftUSDT,
- ftUSDC,
- ftTUSD,
- ftBUSD.
The protocol was launched in November 2020 on the Ethereum blockchain. The project was backed by significant funds such as A16z, BlockTower, and Founders Fund. TrueFi raised $12.5 million in investment in a single round and held a successful public token sale (ICO). Since its launch, TrueFi's platform has originated over $2bn in loans, and lenders have received over $40m in interest income from interest paid.
In 2021, the protocol has expanded its range of products and services to provide users with functionality for steering and managing digital assets.
How does TrueFi work, and what problems does it solve?
While "decentralized loans" do not require lender approval and use collateral for insurance, this imposes several limitations on users, especially companies.
The fact is that borrowers need to put up collateral that exceeds the loan amount by 25% - 200% to get a loan. This approach is not critical for small loans, but what if a company needs to get a loan for an impressive amount? Imagine: to get a $1 million loan through Aave or Compound, for example, a company would need to pledge between $1.25 million and $3 million in digital assets. The picture becomes even bleak if a company needs to get $10 million or more.
At the same time, if the collateral is cancelled, lenders will be unprotected: they won't be able to be compensated if the borrower fails to repay the funds. TrueFi's protocol solves both of these problems.
TrueFi is a hybrid blockchain-based collateral-free lending protocol that combines the properties of decentralized (DeFi) and centralized finance (CeFi).
What makes the TrueFi protocol special is that loans are only available to financial institutions that pass a strict solvency check. Here's how it works:
- Competent platform participants verify the institution — this is the centralized part of TrueFi;
- Once the company has been successfully vetted, the process moves to the decentralized level (DAO), where TRU native token holders vote to approve the loan to the selected institution. Then, everything happens the same way as in all other lending protocols — via blockchain.
If the borrower defaults, TrueFi covers the lenders' losses from a reserve fund with TRU native tokens, but if this amount is not enough, they suffer losses — this is the main drawback and risk of collateral-free loans on this platform.
In addition to borrowers and lenders, members of the TrueFi ecosystem also include portfolio managers who manage digital assets on the blockchain of Web2 companies. Like borrowers, portfolio managers must pass community approval before accessing TrueFi's smart contract to manage assets.
TRU Token
TrustToken, or TRU, is the native management token of TrueFi's decentralized lending platform, used to vote for proposals put forward for the development of the platform and approvals of loan applications by institutions.
In addition, the TRU token is used to reward liquidity providers, providing a high annualized staking rate of return (APR). TrustToken is issued on the Ethereum blockchain in compliance with the ERC-20 standard and is available in all EVM-compliant wallets, such as Trust Wallet or MetaMask.
As of December 2023, 1.073 billion TRU tokens are circulating on the market, out of a maximum of 1.45 billion. The token flooded onto exchanges in November 2020, and TRU reached its price peak of $1.04 as early as August 2021. TrustToken then became cheaper, along with other cryptocurrencies, until early 2023. By December, TRU's price had risen to $0.56, still 94.6% from its all-time high, and its capitalisation was $59.8 million. TRU tokens are still traded on well-known decentralized and centralized exchanges.
TrueFi's outlook
2021 TrueFi was one of the most significant protocols regarding the number of blockchain assets in it: in August, this figure reached almost $790 million, according to the monitoring service DeFi Llama. However, by the end of 2022, the protocol's TVL had already dropped to $3.7 million — a 213-fold drop.
This was not only due to the falling value of cryptocurrencies amid a prolonged bear market cycle but also for other reasons. In October 2022, the TrueFi team announced the default of crypto investment firm Blockwater Technologies — the company could not repay its $3.4 million debt. Subsequently, TrueFi's TVL continued to fall, and in December 2023, the figure was only $71,700. However, this fact hasn't stopped the TRU native token from growing roughly 2x since the beginning of the year.
Despite the global plans to collaborate with many institutions and the support of large foundations, the platform is not in high demand. The project team has not yet presented a roadmap for 2024 but continues to work on developing TrueFi.
