Background: On April 11, 2024, Cicada Partners proposal to manage credit pools via introduction of borrowers was passed and executed.

See:

 [TFIP-11] Rebuilding a Risk-Managed Crypto-Native Lending Vertical on TrueFi Proposals

Background: As we enter another crypto bull market, the supply of crypto-native lending has radically transformed following the demise of Genesis, Celsius, BlockFi, Babel, Voyager, et al. Lending to crypto trading firms previously accounted for >90% of crypto lending volumes and based on our estimates still accounts for >95% of volumes even when including the recent $800m+ in T-Bills on chain as “lending”. Nascent market infrastructure creates market fragmentation, which drives inefficiency and…

The goal of this proposal was to help Truefi with TVL by creating pools for borrowers in which to attract lenders to place capital in such pools. Cicada was tasked with the responsibility to source such borrowers.

However, gaining traction on this vertical has been slow at best, with total TVL of these pools totalling about 2.2 million USD, with more than 90% of the lending coming from two addresses.

In the meantime, Truefi DAO has paid:

1.15 million TRU on initiation of this service on April 11th 1.85 million TRU on Sablier Stream between April 16th and Sep 28th 2024 (about 1.5 million so far paid in the stream) And 1 Million TRU paid as a incentive payment for opening 3 borrower pools.

Truefi using about 0.13 USD per token has paid nearly $500,000 of tokens in 4 months for these services, resulting in 2.2 million TVL and sub few thousand dollars of revenue. This has resulted in a fairly disadvantageous economic arrangement for the DAO.

With other incentives potentially coming with disproportionate payments for work versus results, it is value enhancing to discontinue the services provided by Cicada.

Further, for the DAO to continue to attempt to create a “crypto-native” trading firm related lending vertical is a losing game. Instead of trying time again (and again) on this among competitors, the DAO should look to expend its resources and strategy elsewhere to showcase the RWA ecosystem.

Macro-Environment for Trading Firm Lending: As also pointed by Cicada in their proposal, summer-late 2022 brought drastic changes to the meteoric rise of the crypto-native-trading-firm lending/borrowing market with defaults and losses affiliated with the likes of Babel (3% loss to the Orthogonal Credit Maple Pool), Blockfi, Celsius, 3AC, Alameda, Blockwater, Invictus, and Orthogonal Trading. With FTX bankruptcy, trading firms that remained solvent/liquid came under significant pressure with funding being recalled across all lenders, while questioning whether leverage can even be used given the post FTX counterparty risk concentrations that would arise to them.

Among institutions, whale individuals, and projects from that era, can easily point to some within 1 degree of separation who were burned from at least one of these defaults.

Firstly, trust on the under-collateralised or un-collateralised lending evaporated. Any lenders or would be lenders (who have friends who were burned) have more or less refrained from lending unless with trading firms which have long extensive relationships. Even at two years after these events, we see significant reluctance for lenders to lend to newly formed relationships.

Secondly, the largest borrowers who have survived from the previous era, have not come back to lending platforms to borrow – previous borrowers such as Wintermute, Folkvang, Nibbio, Amber, Mgnr, GSR, amongst others. The counterparty risk mismatch with trading partners and lenders have still proven to be a challenge to many firms.

As such, even looking at Clearpool for example, the TVL for dynamic pools are at around 12 million dollars, with lending/borrowing concentrated among three borrowers; Bastion, Auros, and Portofino (Portofiino are under a lawsuit from Citadel). Maple’s uncollateralized pool has 1 borrower and about only 5 million dollars of TVL.

The chances of having this kind of lending-borrowing ecosystem succeeding looks bleak for any player, let alone Truefi. There is little downside to pivot now for Truefi. Furthermore, resource expenses to continue down this path of under/un-collateralised lending is very high. In fact, Fasanara with the highest of credit rating from Credora is at 0 TVL despite the pool being launched.

Interoperability is a key word currently within the classic competitors of Truefi. Maple has launched Syrup to add flexibility to its offerings across all of DeFi. Clearpool has create Ozean, a new L2 blockchain designed for RWA which I believe is envisioned to onboard a network of users beyond the Clearpool ecosystem.

Through one iteration or another, the current borrowers are also or has onboarded with either Clearpool, Idle, and/or Maple. Lenders with any experience are intimately familiar with all of these protocols. Rather than to compete for a limited opportunity set for what is currently a same narrow set of borrowers and lenders, Truefi should seek new pastures, different opportunities, and new partners to increase the utility of the TRU token.

For everyone’s mutual benefit, it is best to make decisions in a timely manner on what way is forward or to take an alternative path. In this case, in the backdrop of tough product market fit and expensive costs for TVL acquisition it is best for Truefi and Cicada to go down separate paths at this point.

On-Chain Tally Actions:

Mint 1 TRU as a memorialize the discontinuation of contract.

Additional 1000 TRU minted to cover Tally Fees.