DeFi lending platform uses blockchain to offer unsecured lines of credit
Decentralized finance, or DeFi as it is more commonly known, has become increasingly important over the past year.
DeFi is an ecosystem of financial instruments running on top of various blockchain platforms and, at the current rate of growth, it is poised to change the way we think about financial solutions.
One area where blockchain and DeFi are already making a difference is lending.
TrustToken is the company behind TrueFi, which is the premier DeFi platform for unsecured lending and borrowing.
TrueFi’s unsecured lines of credit and its credit model are designed to allow borrowers on TrueFi to acquire a rating similar to that of a traditional credit score. Instead of the community voting on individual or flash loans, trusted users of the TrueFi platform have access to a stable line of credit on more fixed terms.
And if you are wondering what the term “unsecured loan” means, you can replace it with the common term “unsecured loan”. This is a point I raised with Michael Gasiorek, Marketing Manager at TrustToken. If we ultimately want to make cryptocurrency, blockchain, and DeFi as mainstream as fiat, do we need to speak the legacy language as well?
“Definitely, yes,” Gasiorek said. “Our position is to gradually win both conditions: Unsecured loans speak to our beachhead market of widely crypto-savvy DeFi users already familiar with oversized lending and looking for its natural evolution. It worked for the first $ 100 million in unsecured loans. But if we are to achieve the first billion dollars in TrueFi loans, and possibly $ 1 billion per year per month of such loans, we must continue to evolve into globally accepted Wall Street jargon.
Mainstream adoption of solutions like this will rely on other forms of cryptocurrency as well. While Bitcoin (BTC) and Ethereum (ETH) grab the headlines, they are also volatile currencies, prone to huge swings in value. Loans and other forms of financing have traditionally been necessary to be more stable for risk averse lenders. So, stablecoins could be the answer, and TrustToken not only has its own TUSD stablecoin, but will support USDC, a popular stable token.
“It’s fantastic for the crypto market as a whole and for TrueFi,” Gasiorek said. “USDC is the very next asset to come in the TrueFi protocol, likely to be followed by other stablecoins, as well as BTC and ETH. The protocol is designed to independently lend assets – it will eventually support any ERC-20 token, and possibly cross-chain assets. “
The popularity of USDC could create a virtuous cycle for anyone using DeFi platforms that support it.
“The more these assets are adopted in a larger market, the greater the demand for lending,” Gasiorek said. “This means more new borrowers are coming to TrueFi, competing for larger loans, and increasing returns for lenders. The current adoption is the rising tide that lifts all boats. We couldn’t be happier with the success of USDC. “
At present, the value of loans on the platform tends to be 6 or 7 digit amounts, so it is not a consumer loan platform at the moment, but it is a significant advance in DeFi loan solutions.
“To limit the risk of default and ensure the highest utilization rates, it was evident that TrueFi would have to work with the biggest and most reputable players in crypto like Alameda Research, Poloniex and Wintermute Trading,” said Gasiorek. “These funds and exchanges use their loans extensively to transact, provide liquidity, seize arbitrage opportunities or provide liquidity – all of this is part of their loan application, is reviewed by an internal credit committee and has implications on the terms of their loan.
So how do TrustToken and TrueFi make their money?
“TrustToken Inc is a private, for-profit company making money in a few lines of business (stable interest payments, appreciation of its TRU holdings, business services, etc.,” Gasiorek said. “TrueFi is largely the opposite; a decentralized protocol that captures value for no single private operator. Instead, it aims to create value for the lenders, borrowers and TRU token holders who invest and manage the A plan to transfer all of the TrueFi-related assets from TrustToken Inc. to a non-profit foundation is already underway, following a gradual decentralization path similar to other DeFi projects we admire like Compound and Aave . “
Granted, we’re going to be hearing a lot more about DeFi throughout 2021, not just in lending, of course, but all aspects of finance. TrueFi has already facilitated $ 46 million in loans and generated over $ 100,000 in returns for stable lenders.