Summary (TL;DR)

This proposal seeks approval to preserve lender recovery value by authorizing the conversion of 645,405.81 BUSD currently held in the Blockwater Loan smart contract into USDC or USDT, in light of the announced deprecation of BUSD.

The conversion is expected to incur an approximate 1% execution cost, resulting in an estimated 638,951.76 USDC/USDT, and is intended solely to** mitigate the risk of BUSD becoming illiquid or valueless over time**.

Background

Following the historical default of Blockwater in the legacy tfBUSD pool, a partial repayment equivalent to approximately 19% of outstanding principal was repaid and remains held today in the Blockwater Loan smart contract, denominated in BUSD.

These assets represent one of the remaining recovery paths available to lenders affected by the Blockwater default. They are not held in SAFU and are not part of the active DAO treasury, but they remain economically relevant to the resolution of legacy defaults.

BUSD Deprecation Risk

Paxos, the issuer of BUSD, has publicly announced the halt of minting new BUSD tokens and the progressive wind-down of the asset. While BUSD remains usable today, it is broadly understood that:

• BUSD liquidity is expected to decline over time;
• long-term usability and market support are uncertain;
• the probability of BUSD becoming illiquid or effectively valueless increases if no action is taken.

In this context, continuing to hold recovery assets denominated in BUSD exposes lenders to asymmetric downside risk with no compensating upside.

Problem Statement

Absent action by governance:

• lenders risk recovering 645,405.81 BUSD that may eventually have negligible or zero value;
• the DAO would knowingly allow a recoverable legacy asset to deteriorate;
• the opportunity to preserve meaningful recovery value may be lost permanently.

This proposal does not attempt to modify historical defaults, restructure liabilities, or accelerate distributions. Its sole purpose is asset preservation.

Proposed Action

The DAO is asked to approve the following high-level mandate:

• Authorize the conversion of 645,405.81 BUSD currently held in the Blockwater Loan smart contract into USDC or USDT.
• Accept an estimated ~1% execution cost, resulting in approximately 638,951.76 USDC/USDT.
• Ensure that the converted stablecoins remain designated for Blockwater-related lender recoveries.

Implementation Steps

Step 1 – SAFU Redemption

As a first step, the DAO will execute a redeem operation on the SAFU smart contract, which will result in the following:

• Transfer of BUSD from the Blockwater Loan smart contract into the SAFU smart contract.
• Burning of the corresponding LOAN tokens held by SAFU.

While the DAO’s initial preference was to preserve LOAN tokens, this outcome is technically unavoidable given the design of the legacy contracts. The resulting on-chain transaction will serve as an explicit and verifiable record that the LOAN tokens were burned solely in furtherance of the objectives of TFIP-39, namely asset preservation for lenders.

Step 2 – SAFU Rescue to Treasury

Following the SAFU smart contract upgrade approved under TFIP-38, the DAO will invoke the newly introduced rescue function to:

• transfer the recovered BUSD from the SAFU smart contract to the TrueFi Foundation New Treasury address.

Disclaimer: At the time of publishing this proposal, TFIP-38 has not yet been voted on or executed. As a result, the rescue function may not be available during Tally simulation, and simulation errors may occur.

Execution of TFIP-39 is therefore explicitly conditional on:

• TFIP-38 passing governance vote; and
• TFIP-38 being successfully executed on-chain.

If TFIP-38 is not approved and executed, the transactions described in this proposal will not be executed and would otherwise revert.

Step 3 – BUSD Conversion

Once the BUSD is held in the TrueFi Foundation New Treasury, the DAO will proceed with:

• the conversion of 645,405.81 BUSD into USDC or USDT;
• accepting an estimated execution cost of approximately 1%;
• ensuring that the resulting USDC/USDT is not used for any other purpose, and remains designated exclusively for Blockwater-related lender recoveries.

Execution Authority

All on-chain actions described above will be executed through the DAO’s standard governance execution mechanisms, including Timelock execution via Tally, in accordance with established governance procedures.

Governance Intent

The intent of this proposal is to obtain community approval for the objective and outcome, namely:

• extracting the BUSD recovery assets from the Blockwater Loan smart contract;
• converting them into USDC or USDT to preserve value;
• preserving all existing LOAN and DEF token balances, without triggering burns or lifecycle finalization mechanics.

Conclusion

TFIP-39 is a narrowly scoped, risk-mitigating proposal intended to prevent the avoidable impairment of lender recovery assets. By authorizing the conversion of BUSD into a more durable stablecoin, the DAO acts prudently in the face of known asset deprecation risk while preserving full flexibility for future legacy resolutions.

Next Governance Steps

As the proposals does not fall under the simplified governance exemptions, the proposal will require the following steps:

1. Tally Vote: Otherwise, the proposal will be posted to Tally for the final vote.