TrueFi lending pools fund loans to borrowers who request loans from the protocol. Loans must be approved by the protocol and meet risk / return criteria set by the protocol. Uncollateralized lending has a higher risk profile than other markets and thus should provide higher returns.
Lenders can lend stablecoins to TrueFi lending pools, which use predefined strategies to lend to creditworthy borrowers. See below for a brief demo:
TrueFi lending pools are controlled by TrueTrading, an affiliate company of TrustToken, Inc. The TrueFi lending pools only lend to a whitelist of trusted borrowers, and any excess capital that is not actively loaned out may be deployed in a DeFi protocol.
Lenders who lend to the TrueFi lending pool receive TrueFi lending pool tokens ("LP tokens"), which represent their proportion of lent capital in the TrueFi lending pool.
No. Lenders can redeem LP tokens any time idle funds are available in the pool. Lenders pay an exit fee in order to withdraw instant liquidity from the pool. This fee is calculated dynamically, depending on what proportion of the pool is idle vs. lent to borrowers.
Additionally, LP tokens can be traded on secondary markets, such as Uniswap.
There are no fees for lending funds into lending pools. To withdraw funds, lenders may pay an exit fee.
While borrowers are usually willing to pay higher rates for uncollateralized loans, these higher yields do not come without risks. Compared with collateralized lending, uncollateralized lending has two major risks:
Potentially increased risk of loss: Protocols that require collateral are protected by that collateral in case of default. While this allows such platforms to be less selective in approving loans, uncollateralized loans come with a much higher standard of trust that must be met by a borrower. In case of default on an uncollateralized loan, a delinquent borrower will have been assessed for creditworthiness before the loan was made and will face both reputational damage and legal action.
Potentially lower liquidity: While instant withdrawals are becoming a norm for new protocols, uncollateralized lending may not offer the same flexibility. Most borrowers for uncollateralized loans are interested in fixed-rate, fixed-term loans for predictable repayment. This means lenders who fund such loans need to be comfortable locking up their assets for the duration of the loan. TrueFi offers an alternative: the ability to withdraw their proportion of the pool tokens which would consist of stablecoins and loan tokens that you hold to maturity. You can redeem the loan tokens for the stablecoin at the end of loan terms.
You can learn more about how TrueFi mitigates risk here.
TrueTrading is currently responsible for pursuing legal recourse if a borrower defaults and may be replaced by another non-profit entity in the future as TrueFi progressively decentralizes.
Lending pool token holders can farm TRU by staking their lending pool tokens (tfTUSD, tfUSDC, tfUSDT, or tfBUSD) on the Farm page.
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