Uncollaterised lending in a post-Terra world

Let’s not sugarcoat it: the last six months have been a bloodbath in crypto.

The macro climate has stopped co-operating, with markets tumbling and investors moving risk-off to the extreme. However, while crypto dropped the ball in its own right, there is an important distinction to be made.

Overleveraged players such as Three Arrows Capital and Celsius, whose downfall was part of a spiralling contagion wave that swept across the industry, are very much CeFi, or centralised finance companies.

Celsius marketed itself as a bank, yet in reality was more like a high-risk hedge fund. Ultimately, their investments were ill-advised and insolvency beckoned. Unfortunately, a lot of their customers didn’t realise how their money was being used and where their yield was coming from. Or, more simply, there was a lack of transparency.

DeFi

DeFi, on the other hand, actually ticked along exactly like it was planned. Thanks to the boisterous technology that we call a blockchain, everything transpired just like it was coded to do. Margin-calls and liquidations happened on-chain, where the eyes of the world could see what was happening in real-time.  

Celsius, on the other hand, sent out an email one Sunday evening saying they had suddenly suspended withdrawals, and the rest is history (or, more specifically, part of a very long and drawn-out court process that will take place over the next few years. Ask Mt. Gox investors for more info here).

I sat down with Co-Founder and CEO of TrustToken, who are behind the DeFi lending protocol TrueFi, to discuss this and more. TrueFi brings collateral-free lending on-chain, striving to maximise capital efficiency for borrowers and earning rates for lenders.

Yes – you likely noticed the phrase “collateral-free” there. Overcollaterisation may be commonplace right now in crypto, but the reality is that the model is inefficient regarding its use of capital.

Obviously, there is a trade-off with regards to credit risk – but should every borrower be treated the same, as the DeFi model currently does? It’s a nuanced debate that Rafael and I got into on the podcast – and worth noting that within the first year alone, TrueFi hit one billion dollars in lending without any defaults. Today, it has still not experienced a default.

We also talked about the bear market (kind of hard not to, isn’t it?), we chatted stablecoins – TrustToken also has a suite of stablecoins including the 5^th biggest one on the market today by market cap, TrueUSD, as well as Tether’s reserve situation and a lot more.

Spotify link: here 

YouTube: here

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