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TrustToken and TrueFi: Taking Uncollateralized Lending to New Heights

Denis Goncharenko

TrustToken, one of the most trusted stablecoin operators, has been around since the third quarter of 2017. The protocol is building assets and infrastructure that would become the future of finance by “freeing money.” Their TrueCurrencies are the world’s first on-chain independently verified and fully collateralized stablecoins pegged to various fiat currencies like USD, GBP, etc. They currently trade on the most prominent cryptocurrency exchanges like Binance, Huobi, Kucoin, and OKEx.

TrueCoin service bundles asset tokens and lists them on exchanges. TrueUSD, pegged to the U.S.Dollar (USD) is the first stable cryptocurrency issued by TrueCoin in September 2018. It is backed 1:1 with live on-chain Proof of Reserve unlike the more commonly used stablecoins like Tether (USDT) and USD Coin (USDC). Since then the protocol has gone to create four more stablecoins pegged to fiat currencies namely TrueGBP (TGBP) pegged to the British Pound (GBP), TrueCAD (TAUD) pegged to the Australian Dollar (AUD), TrueCAD (TCAD) pegged to the Canadian Dollar (CAD) and TrueHKD (THKD) pegged to the Hong Kong Dollar (HKD).

TrustToken delves into DeFi

In November 2020, TrustToken launched TrueFi, a DeFi protocol for uncollateralized lending powered by the first-ever on-chain credit scores. This token is governed by the holders of the TRU token, the native token of the protocol. The protocol aims to tap into the global $11 trillion traditional unsecured lending industry.

TrueFi serves a threefold objective. It allows vetted borrowers to request loans in stablecoins like TUSD, USDC, and USDT, TRU token stakers to assess the creditworthiness of loans by staking and voting, and allows protocol lenders to earn an annual percentage yield (APY) and TRU incentives. The protocol follows a predetermined public roadmap, according to which it has currently reached phase 4 of the protocol’s development. This phase in the roadmap brings about the TrueFi v4 Update, a major scalability upgrade to protocol’s core infrastructure, and the TrueFi Secure Asset Fund for Users (SAFU) that offers lenders a new layer of protection and serves an important management role critical to the fair automated resolution of defaults.

Functioning of TrueFi

All the borrowing and lending activity on the platform is completely transparent, thus allowing lenders to carefully scrutinize participating borrowers and the flow of funds in their previous engagements with TrueFi. The protocol four-step process that defines its operations:

  • Lenders allocate assets to a lending pool that funds new loans. They are incentivized with interest income and TRU tokens. If there is any unused capital in the pool, it is sent to the Curve.fi protocol to optimize profits.
  • Institutional borrowers are whitelisted using a stringent onboarding process that involves community approval, scrutiny of the borrowers’ business, and the signing of a legally enforceable lending agreement.
  • Once approved, these borrowers can submit a request for capital. The interest rate and credit limit for the loan are determined by an on-chain credit score and are subject to the approval of the community.
  • Borrowers have to return the principal amount along with the associated interest by the time the term expires. Delinquent borrowers are subject to legal action as per the lending agreement.

In terms of protocol governance, TrueFi is built with the objective of progressive decentralization. In the short term, the team will focus on bootstrapping the protocol and distributing native tokens to the users and developers that contribute to the project. In the long term, they aim to become an automated, market-driven credit rating and lending protocol.

In line with the decentralization plan, 39% of all TRU tokens have been allocated to an incentive pool for platform contributors, including but not limited to lenders, TRU stakers, and liquidity providers (LPs). This move would progressively hand over control of the protocol to its users making it completely decentralized eventually.

TrueFi has quickly evolved into a billion-dollar protocol with $1.06 billion in total value locked (TVL). There have been loans originated of more than $532 million and the total amount of loans repaid is over $200 million. With the launch of the TrueFi protocol, TrustToken has involved itself even more in the Decentralized Finance (DeFi) markets and is even attempting to revolutionize it. Top UK loan brokering site Nowloan who focus mainly on individuals with bad credit have commented that this move by Trust Token could spawn a new industry.

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