Summary: Offering TrueFi borrowers anonymity in requesting loans is expected to unlock hundreds of millions of dollars in new borrowing from the world’s most reputable institutions. As recently approved by TRU holders, all borrowers will complete the same rigorous onboarding process — including the signing of an enforceable loan agreement — and be given a credit score that will set terms on their access to capital.
The highest rated borrowers will be allowed to mask their company names publicly and pay a nominal premium on their loans for anonymity. The borrower will build credit history under a pseudonym, and in case of default, their identity will be publicly revealed.
Since the launch of the TrueFi protocol in November 2020, the TrueFi team has talked to nearly 100 prospective borrowers across a variety of sectors, both in crypto and traditional industries. To date, the protocol has originated almost $220m in collateral-free loans.
The most consistently requested feature among interested borrowers, especially traditional institutions, is private borrowing. We estimate this feature can unlock another $200–250m of borrower demand.
In general, borrowers want to borrow on an anonymous basis for any of the following reasons:
- Borrower doesn’t want to (or is prohibited from) publicly revealing certain attributes of their business, such as their assets under management or revenue.
- Borrower doesn’t want to disclose or is prohibited from disclosing their participation in the cryptocurrency or DeFi industry publicly.
- Borrower doesn’t want to publicly reveal their need for capital, especially to competitors.
Diversifying and growing borrowing activity is critical to the growth of the protocol and, with the support of TRU holders, TrueFi will begin offering private borrowing starting immediately. Read on to learn how private borrowing will work.
Private borrowing is made possible by the launch of on-chain credit scoring and the TrueFi Rate Model. The terms of loans made on TrueFi are no longer purely based on borrower reputation, but on a credit score determined by rigorous analysis of an applicant’s financials, risk exposure, operational history, executive backgrounds, and more — as explained in our V3 launch announcement.
Where TrueFi V1 relied on the wisdom of the crowd (in the form of TRU voters) to gauge a borrower’s creditworthiness based on their public reputation, V3 relies on a credit model that makes a borrower’s public reputation less critical.
Requirements of Private Borrowing
- No change to borrower review process: TrustToken will continue to perform the exact same compliance and underwriting process for public and private borrowers, with no change in risk analysis and borrower whitelisting. TrustToken will know the identity of all borrowers, whether or not their identity is revealed publicly, for compliance and collections purposes.
- Strong credit score: All borrowers will receive a credit score, which will be made public and will be used to determine loan parameters including loan amount and interest rate. Borrowers who elect private borrowing must be considered “high credit quality” and achieve a minimum threshold credit score.
- Requirement of a public post: All new borrowers will continue to publish a post in the TrueFi forum seeking approval to borrow. However, they may do so with the company name redacted. The posts will require a description of the borrower, explanation of credit support and use of funds.
- Loss of anonymity in case of default: Reputation continues to remain a critical underwriting parameter, and any private borrower will be unmasked and made public in the event of default.
- Risk-adjustment premium: Borrowers who elect to borrow privately will be subject to a nominal risk premium in interest rate.
TrustToken aims to retain an independent third party (such as an accounting or law firm) to validate via attestation the borrower’s identity, receipt of required diligence materials, and completion of all compliance and underwriting requirements in the near future, thereby decentralizing TrustToken as a trusted third party in the borrower onboarding process.
If approved, a borrower will be able to make TrueFi loan requests under a single pseudonym tied to their business and whitelisted wallet. The borrower will build repayment history under this pseudonym and will benefit from anonymity until the borrower opts into going public or fails to repay a loan in full or on time.