Host: Blair Zhu, Brand Director of Mint Ventures
Special Guest: Michael Gasirrek, Head of Marketing of TrueFi
Youtube: WEB3 Founders Real Talk with TrueFi
Podcast: WEB3 Founders Real Talk with TrueFi
Blair: Hi everyone. Welcome to Web3 Founders Real Talk. My name is Blair. I’m the brand director of Mint Ventures. Today I’m here with Michael, Head of Marketing of TrueFi to share some actionable tips, and amazing insights about Web3 Entrepreneurship. Also, there are gonna be some new and fresh updates about the project as well. Welcome, Michael.
Michael: Thank you so much, Blair, a pleasure to be here.
Contents
Quick Intro of TrueFi
Blair: Let’s just go ahead and start with a brief introduction about you and TrueFi.
Michael: Yeah, sure. So, my name is Michael. I’ve been in Web3 since before it was called Web3. I got into Twitter, originally, starting up a marketing agency called Truth Cartel in the Bay Area, to do a bunch of go-to-market for companies that are pretty early in the DeFi space, as well as in sort of Layer one. So companies like Trust Token, now Archblock, and TrueFi, which we’ll talk about today, but also, folks like Compound, Algorand, Republic.
So I’ve been around the block for many years in that space before then, worked in media, and ran my own startups, but now firmly in crypto, got my hands dirty as a marketer, I’m gonna probably do that the rest of my career, and very happily leading the marketing efforts at TrueFi.
To get into what TrueFi does, we are the DeFi’s first unsecured lending protocol. Now we like to think of ourselves as credit protocol. What that means is we make fairly sizable loans, largely the institutions. We use a sort of delegated underwriting process, which uses portfolio managers or the DAO itself to assess the risk and return of incoming borrowers or investment opportunities. Once those get approved, you as a lender could come in and invest in anything from, say, crypto market makers, like Alameda, which is not just a user and borrower, but also an investor in TrueFi, all the way down to real-world opportunities, like investing in real estate in Texas, or emerging market opportunities through our friends, of course, finance, in Latin America, and Asia. And even stuff like FinTechs in Latin America with delt.ai, one of our sort of FinTech portfolios.
So the way to think about TrueFi is we’re an infrastructure layer for global but especially credit, which is a sort of $ 8trillion industry.
Michael: And so far, we’re about $2 billion in, with no defaults declared, which is awesome, and rare, frankly.
And about 7000 plus token holders, and really growing into, I think, hopefully, the underpinning of global finance in the future.
Blair: Wow, very impressive. Thank you for sharing such an informative introduction with us.
Inspiration Source of TrueFi Team
So Michael, let’s just dive into our topic of conversation today. So TrueFi was launched in November 2020, as DeFi first and leading credit-based lending protocol, and the project has been progressing really well. So we would like to know what inspired your team to develop the project in the first place.
Michael: Yeah, that’s a good question. We need to go back to early DeFi.
One of the big promises of early DeFi was that it would make the movement of capital more effective, right? Because it would lower fees, it would increase transparency, it would remove middlemen. And these are all fantastic aspirations. Anonymity is great, and privacy is great. And for the retail user, for the individual, it’s fantastic.
Unfortunately, when you compare it to the world of credit if you’re going to borrow against your name, versus against, say, you are crypto holdings, collateralize borrowing, or you want to get a mortgage loan, or car loan, which are all sort of backed by the underlying asset. If you want to borrow against the reputation, crypto does not have a really strong way to do that, because they don’t have a way to assess the riskiness or creditworthiness of your identity. Don’t have a way to do collections in a way that could interact with on-chain defaults, and so, this is a big, crazy, hairy problem.
And until you figure out how to give credit loans without collateral, it’s not really a big improvement on the effectiveness of capital moving back and forth. The biggest thing you’re doing up is locking up capital. So even if you’re sitting a few bips on the transfer of funds, you’re not saving, you’re not really freeing up capital to move more freely.
So take you back to trust tokens days now Archblock is the name of the company now. We started a stablecoin back in 2017 TUSD, which is, I think, by the time of this recording somewhere in the, one plus billion dollars and soon to be, I think, across the $2 billion range, market cap, stablecoin, in the top five there.
And we learned a lot about compliance, we learned a lot about global operations, we learned a lot about what institutions wanted in that era. And we built a strong team to do it. And so, as we thought about what’s gonna be the next act for this company, we looked to our strong base as a company with strong legal expertise and compliance expertise.
But we also look at what the market needed. And it really needed this capital efficiency provided by credit. And because we were running a stablecoin business, we were on the edge of DeFi, stablecoins are just a big Lego for all things DeFi. So we thought we would take a swing at uncollateralized lending is this sort of golden goose, the sacred cow might say, of DeFi, this thing that’s really hard to do. If you do it well, it’s a trillion-dollar industry.
And so far, so good, we’ve been operational for almost two years now, and we did our first-ever loan to Alameda Research, a pretty popular market maker. We’ve done about $1.7 billion in loans since then, and collected about $1.3 billion from repayments. Again, no regular defaults. But we’ve had some really good restructuring and refinancing conversations. So, the credit market, and credit crunch have affected everybody. We’ve decentralized a great deal. So we have a DAO, it’s very hands-on now and it’s independent of trust token/Archblock, these days with a foundation of its own. The token is listed on pretty much every major exchange community of tens of thousands.
So very excited about that. And obviously, even catching the attention of folks such as yourself, we have Mint Ventures, which did a really great report on us recently that I really enjoyed. So you can say we’ve been really moving agreement on this.
But at the end of the day, the big thing we want to do is to move global lending on chain and a few billion dollars to crypto, really looking at the first, we will move on to become the first trillion-dollar protocol. And if you really want to do that, you really have to go to institutions. And you really have to move on chain. So we’re just in the early stages of that, but it’s very, very promising.
Challenges that TrueFi Encountered
Blair: Yes, definitely. I would say it’s, it was really game-changing innovation to improve capital efficiency. What kind of challenges did you encounter that you or your team had to overcome during the process?
Michael: Yeah, sure. I mean, let’s visit a few buckets. The buckets all change, as the project goes on.
Building this thing at all, I’m not technical myself, but we’re supposed to be an engineering team, but building this thing is very complicated. And actually getting the technology right. , it pushed us to the point where we actually acquired a development agency, a DevShop, called EthWorks, now under the TrueFi engineering umbrella. And we basically went from something like two smart contract engineers to eight smart contract engineers to now or so smart contract engineers, because building this stuff is very, very difficult. We’re talking about literally rebuilding lending infrastructure, like SWIFT used by, banks to move trillions of dollars around the world. So technical challenges are definitely there. But we’ve done now five audits, no hacks, no vulnerabilities that have been critical of bug bounties and stuff. So building it was, I think, a big challenge. And I can’t really speak to it as well as I could if I was technical, but that’s the big one.
The other one is, I think, figuring out the product market fit. , during the era of the bull market, people really liked lending to crypto market makers, like Alameda and Wintermute, what have you of the world. We were moving vast sums of money, hundreds of millions of dollars a month to these market makers and providing really good yield competitive from a risk-adjusted return perspective against the other things you could see on the TradFi markets(traditional markets) or in the DeFi markets.
But as the market has gotten to the sort of credit crunch with Terra Luna collapse, with some of our centralized competitors, partners, whatever, having some real issues with their lending books. Liquidity has flown out of the market, and there’s a lot less capital to lend to these market makers, and the diversity, the demand for diversity of portfolio opportunities like real-world lending and that kind of stuff has increased. So we’re also thinking about the product market fit.
And the last thing I’ll say is, the regulatory environment has been really interesting. You can’t really build in crypto in, at least the DeFi market without like some legal grounding. And the journey to figure out how to build this thing compliantly. So, for example, how do we treat tradable like loan tokens? how do we manage the sort of controls over tradable debt? how do we allow that? How do we get liquidity without becoming a security? Or how do we build our company as a DAO or some sort of structure so that we can continue to operate indefinitely? how do we create master lending agreements that are enforceable and transparent and effective, while also managing to build an organization that’s capable of pursuing collections in case of a default? These are all these hard questions If we didn’t have our in-house legal team, which we do, we’re very proud of that we’ve had them since day one at this company, then I don’t know how we would have done it, and it’s a big question.
So technical, regulatory, and business/product questions are all about, and hey, we’re still working through all of them. And that’s kind of the beauty of this industry. We’re still on the bleeding edge.
Blair: Yeah, that sounds pretty cool. I mean, it was definitely a really hard steep learning curve for everyone. As we know in early startups, everyone has to be a really versatile, well-rounded player. So yeah, I am so glad you guys made it.
Michael: Yeah, That’s saying like everyone is both the CEO and the janitor at some of these stage startups. And, there are a lot of things to be a janitor about, especially when you have a community managed too. There are a lot of like needs that come from like the bottom up.
So yeah, it’s been a journey, and it’s still a journey, got a long way to go, where I think we’re in like the era of server racks from like a single value perspective. Like, we’re yeah, like Silicon Valley is alive and well at this point. But we’re still in the era of building infrastructure. If you want to build a startup, you have to buy your own servers, and you’d have to build racks. And you have to slide them in and have an IT professional kind of manage that stuff. So we’re not in the era of the cloud yet, and DeFi.
And so we’re here getting our hands dirty in the trenches, building the infrastructure, which is a great time to be early, but it’s hard work. And it’s especially because of the regulatory overhang.
How to Capture Market Insights
Blair: Yeah, it’s gonna be a lot of work. Since Web3 is a new business paradigm, what differences you have spotted in your process? You just mentioned that product market fit, how do you capture accurate market insights to develop something like game-changing, sustainable products that people really need? Since there have been a lot of ideas, innovations, and hype going around, people could spend months of their time and resources developing something they believe is a perfect fit, but ended up with really little traction or options. Is there any advice or recommendations for those people that could work on their own project?
Michael: Yeah, sure. I think one of the hardest things about the space is, it’s actually really easy to get distracted by shiny objects and opportunities, building the next, algorithmic stablecoin, or like high yield lending platform based on high inflation. And they’re like doing another NFT drop. These are all fine ideas. And I’m sure there’s some really beautiful innovation behind the bleeding edge of them for sure. I don’t discount that.
But if you really want to build a sustainable business, then it really helps to not think about crypto as this wild west, per se, to think about it as a particular technology, the same way that, your mobile phone was technology that allowed Uber to exist, where previously you would have to call a cab and give them an address. The mobile technology allows you to have GPS coordinates with you, and to do it all, from your phone on-site. The same way to think about that is what is the blockchain technology enabling that would disrupt an existing business? And I don’t think a lot of founders in the crypto space really start with the idea of disrupting an existing business or an existing industry. They have a great idea of a fun sort of philosophical or academic or mathematical model, or maybe an art project that they think is going to be cool.
But I think, unfortunately, what things happen is, it’s a solution looking for a problem. And what we really want to do in the crypto space like any other startup founders should be doing this is you want to be actually looking for a problem when you have a solution. And so when we said TrueFi, we had a few problems. One of the problems was that folks were not getting maximized utility they could be in DeFi.
Another problem is that in TradFi, they pay vast sums of money and have operational inefficiencies from moving money around and lenders were not getting really good opportunities because it wouldn’t make sense to appeal to the small fry, who wants to put in 100,000 bucks or 1000 bucks in something when it costs so much money to proposition them to offer their money to in the first place. So there are these, like market inefficiencies that we saw that are actually like, Hey, we’re disrupting an existing business.
And if we rebuild this on blockchain, there’s a path to profitability. There’s a there’s an established business model that we can make more efficient, and we can make more, accessible to people, and that’s a business. That’s not a crypto idea. , we’re like changing the paradigm kind of, new moonshot prospect, which I’m all for, and I like experiments. But this is a new degree business, and, eventually, have to start working with Wall Street people and regulators, and what have you to do it, right? It’s a grind, which is why I think some people didn’t go after it.
But it’s a trillion-dollar opportunity. The market is there, the business models are there. And, if you can start by trying to modernize an existing business using the technology of blockchain, and crypto, then I think you’re on the right track. If you’re just going to do some sort of pie and sky moonshot projects and more, best of luck to you, and hope you find something innovative. But the risk-reward there is not as high I think, it is actually trying to modernize an industry like we’re trying to do here.
Blair: Yeah, definitely. I 100% agree with you, like startup teams, they probably will need to validate that the problem they’re attempting to solve is real. And their proposed solutions would prove effective in solving the problem. So I think that will be the key to how to make your project not only survive but also thrive in the future.
How to Maintain a Stable Team
Well, a good product is built by a good team. So the next question is about how to sustain a stable, but efficient team since there are someWeb3 companies that are suffering from a really high turnover rate.
Michael: Yeah it’s a good question. And this isn’t there’s not a great answer to this question. Retaining talent has always been like a big industry challenge in a sort of like bleeding edge fields because there’s always something new and shiny to work on. And a lot of folks with high-risk appetites. We could talk a little bit about how you design token incentives and that kind of stuff to create kind of these like not golden handcuffs but incentive alignment I think that’s actually a key part to like give people that worked with you early-days enough tokens to make them long term committed. I think that’s the biggest thing crypto has going for it. Build a great culture of a place to work at, building a product that people actually give a damn about, so that it feels like you’re working on something useful in the next hype cycle.
And, I think it also can’t be overstated. They just give people a lot of agency and put them in a place to succeed, which is to every company and find the right people. But if there’s any specific in Web2 versus Web3, it’s that these tokens do play a larger role in retention because they have this sort of long-term value alignment not just alignment in…you’re gonna appreciate the stock value. But also these tokens are by nature participatory, you can stake them, vote with them and pursue governance actions. And so it makes every person in the company if you’re trying to retain talent. Ethically we wear two hats, they wear the hat of an employee and they do their day job. And then when they leave the day job, they put on the hat of being a token holder. And as token holders, they actually have maybe a little extra incentive to participate in the forums and discord and to make proposals and to think about tokenomics and design because their long-term value is tied to its project in a way that is unique to crypto. So I like that component of pretension that crypto offers, but besides that, it’s blocking and tackling a lot of the same old stuff from Web1, and Web2, building a real company culture, and letting people do their best.
Advices for Newcomers to Web3
Blair: Yeah. The Token is something specific that people would get engaged in Web3 world. Since Web3 has been a really like buzzword I would say, we can see there are more people that are just interested in building their own career in this space. So what advice would you give to someone trying to become an entrepreneur? Or even go get a simple job on Web3?
Michael: Yeah sure. Well, there is crypto despite, whatever a bear market we might be in now or whatever winter might be ahead. I think it’s still a very popular place to work. There are a lot of really good opportunities and there are a lot of leads that get built. So I think we’re lucky in that regard. When it comes to the skill sets, I see most needed in crypto. I think that we’ve built a pretty good technical talent base. There are a lot of engineers who have learned to write beautiful smart contracts and a lot of front-end people who are getting involved now and building better UIs in crypto that I’ve seen before. I think that will probably be a little underserved from more of the business side of things.
And so I’m biased as a marketer myself, but I think we need a lot more help in getting the message of crypto out there, not just what it is and why it’s useful, but how to use it and what appeal it offers to the common person. And I think we also probably could use a little bit more of a developed hiring pool in more of our BD and business development kinds of sales roles in two ways, one particular to pursue integrations from DeFi protocols and other crypto sorts of products, and then sort of services into things that have a beautiful front end, such that users don’t have to think about crypto, but that’s one of the big pathways to adoption on the retail side. Integrating your protocol and integrating your service into the front end of something that’s already beautiful and has a high user base. Maybe a RobinHood or, Coinbase or what have you, like those integrations, would really change the game for a DeFi protocol. And that’s a BD play, a sales play.
And then, on the other side of sort of the BD side is, I don’t think we’ve necessarily gotten as much traction in getting the institutions to play ball as we could, the family offices, the banks, you think about the amount of money sloshing around in TradFi and not all of that is necessarily most optimized for value, in terms of going to the right place or reaching them that most amount of people as prospective investors or seamless transparent. Blockchain does actually help allow this stuff. And I think we’ve made the best possible case for the institutional side there.
And if any of these roles sound interesting to you then, I usually think of it as a two-pronged approach. First of all, learn a lot. that really does look like, it’s doing your own education. there are a lot of great amazing uses that weren’t around when I got started. I think of the Bankless podcast as well as their newsletter, Mint Ventures, you guys have some really good content too. And there are the research reports you are interested in particular projects. I’m a really big fan of the… Financenomics. I think it’s called “Financenomics”- YouTube channel, I might be mispronouncing that. But they’ve got really good explanations on some crypto concepts. Andreessen Horowitz- A16Z has a lot of really great, what they call “Crypto Canon” that are must-reads for the era. These are all amazing resources. They’re all out there. People have put a lot of work into getting them together.
And the first thing I’ll do is educate yourself about the whole thing in the industry. And then, I think you need to get your hands dirty. And there are levels to this game, go set up a MetaMask and try some DeFi protocols, fund it with a little bit of Eth, a little bit of USDC and try some DeFi protocols. See how you like it and understand what the problems are and see where we’re putting your money makes sense. You’re not really going to be taken seriously as a candidate if you have a MetaMask wallet if you’re trying to apply for a crypto job. And then, and that keeps going maybe you start participating in a DAO and making useful contributions. Maybe you make proposals to the DAO to actually find your role. Maybe you will eventually put an offer in to gain employment at either a centralized or decentralized company in some way, whether through a proposal or form like a formal job off-site like an offering. There’s an escalator process there. But like getting into it or any industry that you’re entering VC for the first time, you’re entering product management or first-time earning marketing for the first time. Got to learn a lot, gotta get into the arena, gotta have a few battles. And then when you’re you’re feeling pretty brave, you can take on the champion by getting a job in space. It’s not so different from any other field. And I think it’s it’s better suited to new entrants now than ever.
Risk Managements Strategies of TrueFi
Blair: Wow. Those are some really actionable tips, especially since Web3 startups actually face a more competitive and fast-paced environment than Web1 and Web2. Michael just shared some insights in terms of how to deal with challenges, how to grow your business, how to keep your team motivated, and how to get your hands dirty in Web3 industry.
Next, let’s check out some progress TrueFi has accomplished. you just mentioned in the beginning that TrueFi, within the first year alone TrueFi hit $ 1 billion in lending without any defaults. Today it still has not experienced a default. And also you guys have successfully survived from previous “DeFi situation”. What kind of risk management strategy have you been implementing? And is there any experience or advice you would share with other practitioners? Because they may need some advice.
Michael: Yeah, sure. It’s a good question and it’s a difficult question I will say because it requires such a level of expertise that isn’t really found in crypto broadly speaking, the idea of having a credit risk committee, but also we have a compliance team that does a lot of background checks on prospective borrowers and what have you. Some lending pool actually requires you to KYC so that, the borrower can confirm that you are, say, a “non-US person”, so they avoid the regulatory hurdles there or that you’re not sanctioned, you’re not urging them to sanction countries. These are all these hard trick questions.
So what I’m going to try to do is, I’m gonna try to offer a very broad like something, like the transferable knowledge here that actually offers is I want to offer you a perspective on how to think about risk management in credit. And the way that I see it is, there are actually kind of three models to how to do underwriting of incoming risk-adjusted return financial opportunities, right? You’ve got like a borrower coming in, they’re gonna say they’re gonna offer you 8%, you’re like okay cool, but at what risk level right? And so what do you do to assess that? and I’m going to speak in pretty broad terms because I’m not an expert on this space and I have to admit that it really does take an expert to talk about this in an educated fashion.
But I can at least offer the perspective of here are the ways you can solve this problem. So, speaking to the situation that some of the folks at this particular tier are in. There’s the centralized underwriter model which is popular and TradFi and, to some degree popular in crypto. we can think of folks ranging from, I’m gonna need some unfortunate names here, Celsius, Voyager, Galaxy. Whether they’re Celsius or Voyager to Galaxy brothers in this space. The centralized model of underwriting, which is to say you have an in-house credit committee and you might think of it as kind of a private loan book that you manage. This has been very popular in the first version of DeFi, I use the term loosely. But, because the currency led to really risky betting in this space. This what I call a centralized underwriting model in crypto has lost a lot of credibilities. It’s still obviously very popular in traditional finance for non-crypto assets, right? That’s where most of the industry is and the banks do underwriting.
But the centralized underwriting model in crypto I think has gotten, really shaky and there’s a big demand for one of these two other models I’m about to explain, that are a lot more transparent and a lot more permissive in terms of the information exchange. One of the beginnings was a truly decentralized credit rating model. We allowed the, you might say, wisdom of the crowd to dictate which new borrower would be allowed to come on and which loan would be approved. We had a steering committee of sorts, a credit committee that at the time was an in-house Trust Token that would give advice and, would play a sort of paternalistic role in this.
But by and large, you had true token holders saying “This borrower came in to put a forum post together.” Stated their thesis stated their goals about how much they wanted to borrow, what costs, and how they want to use the capital. They said yes or no to them. Most people got no and some got yes, and then, over time that model proved to be reasonably effective to get things off the ground, but unfortunately, it doesn’t scale very well, because it’s a very time-consuming process to have a community engage with every possible loan for every possible borrower. And the community doesn’t exactly have the expertise, not just on the risk-adjusted return of a particular opportunity but also on the given market of a particular borrower’s interest. So there’s the community of, thousands of people, some of them just like our Twitter, or like their NFT drop. Are they exactly credit experts on the real estate market? I doubt it. And so I can’t in good confidence see the fully decentralized, like the wisdom of the crowd model is actually ultimately scalable. And so we’ve moved to, in the present these days, what we call a “delegated underwriting model” where the community does not designate the creditworthiness of a given borrower or given loan, but they designate the expertise the validated expertise of a particular underwriter. And the way to think about that is if you, for example, manage a portfolio of real estate and you desire to get more capital so that you could make other capital investments in real estate, well… You could be the perfect man to run it.
And if you come to the TrueFi forum and say “Here’s how I plan to use funds appropriated to me. Here’s the kind of return I can offer you as an investor in my fund. Here’s how my fund has performed in the last two years.” We would say, with a portfolio manager, we would designate you as the person responsible for sourcing new opportunities with borrowers, and collecting on those opportunities if there should be any problems. Designing the capital structure for how much money should go out, how much money should come back in when and what rate setting the fees in your portfolio. And this delegated model removes the risk in TrueFi as a protocol as a centralized underwriter, or as a decentralized underwriter and instead puts the underwriting in the hands of a true expert who feels very very responsible for the success of that portfolio. And who has the benefit from the success of having capital access they wouldn’t have otherwise? So I think we finally found the right medium of community engagement, like a little bit of centralized paternalistic oversight and this sort of primary focus on this delegated model where we put expert decisions to be made in the hands of experts.
And so, if I’m going to give you a broad answer, I’m gonna say leave this question to the experts. This is a very technical field, even probably more technical than some of the smart contract writing. Credit is, a really sophisticated problem and it requires sophisticated individuals and sophisticated design. And we found the best designers to really again. It goes back to your hiring question. You put the right people in the job and really good portfolio managers as the right people and we think of the folks who have expertise in a particular field as being the right people to run portfolios in that field.
Blair: Yes, that’s a lot of information to process. Apparently, there are like tons of risks that could occur like, counterparty risk and regulatory risk. But I think the point would be having a proactive risk assessment and management are pretty critical to the business. And then you will impact business sustainability very much since we have seen a lot of lessons have already happened. And, there are some products that can go really high but they can also fall apart in one day. Unfortunately, even recently.
New Products Introduction of TrueFi
So yeah, but other than that, I guess the business scale is also the key to keeping the project thriving. So, recently we’ve seen that TrueFi updated some products, and also we can see some new business lines. For example, there’s one single borrower portfolio. So can you elaborate? Can you elaborate more on these new products or are you guys planning to expand this new market with your new product?
Michael: Yeah sure. So let’s talk about some of the TrueFi products. We’ve, the idea of how you market your products is actually not an easy question. And so I will admit freely that we’re still figuring out the right way to share with people all the things you could do on TrueFi, especially as the set of things you can do grows.
So the way I would invite you to think about TrueFi is when you come to TrueFi as a person wanting to access capital, which is what a single borrower pool user might want to do is, you actually get asked a few questions. Number one is who’s going to manage this portfolio that you want to spend up? Is it going to be DAO? Is going to be a kind of permissionless DAO pool that will allocate the funds to crypto market makers or other portfolios, right? That’s what our biggest pools are today. These DAO-managed pools make all kinds of loans to all kinds of entities. Do you want to manage the pool as your own borrower, meaning you want to basically set the terms and people will come in who are only going to lend to you? And not a lot of people can get away with that. Not a lot of people have folks line in there around the block to lend to them. But the most in-demand borrowers do, and one example for us is Alameda, a lot of folks want to give Alameda money. They see them as very smart capital allocators with a pretty good risk-adjusted return. And Alameda being a smart capital allocator, gets to set rates that are a little more competitive than their rivals. They’re not going to offer you as much return on your capital because they believe they can get that money at a better price. So these single borrower pools I’ll get into just a moment. The last version of this that we also have is like, I talked about these portfolio managers. As a portfolio manager, you’re going to spend up a fund with a whole strategy. And you’re going to tell us what the strategy is and we’ll let , if the community will pick these, if this is the right place for you to do that. So you make a decision about how you want to allocate the capital and how many risk tranches you want to do. And then effectively you get spit out this product. The single bar pool product effectively allows you to set up a pool of capital from which you can take out loans and offer a particular return. But the borrower is also the manager, and that allows individuals like you and me, provided we are, compliantly able to do that within our jurisdiction and we pass KYC if that’s what the borrower requests to lend directly to Alameda, and frankly, there’s not a lot of ways for retail users to be able to do that.
So the single borrower pools are effectively a way for you to get privileged lender access to some of the best companies in the crypto space and beyond who are saying hey, I want to borrow I’m willing to give these competitive terms and so creditworthy. I’m going to be a little more selective about whom I can accept money from. Our rate, I will be willing to pay. But hey, if this is for you, then you can go ahead and participate in this pool. And so that’s a single borrower pool.
So it’s an accrued dynamically-like product. It’s for both lenders and borrowers, they get to both enjoy that.
Blair: Wow, that’s really impressive. I mean It sounds like TrueFi has continued to expand its footprints to become, I would say, the most capital-effective liquidity source for crypto-native companies.
Michael: We like to think so. And hopefully, it is also interesting too, if I may also hopefully not crypto-native companies only right? So, of course, we’re in that market. And it’s easier to work with people who know this industry than not, but you’re not going to get to become a trillion-dollar company by working with crypto alone, not in this era. So I think it’s important to get capital access to real-world borrowers. And it’s interesting because, as you think about in America or Canada, where capital access is pretty competitive cos it’s a pretty efficient market. But capital access in Latin America for growing FinTech business or in Southeast Asia for an up-and-coming transport company trying to build a fleet of Tuktuks. Chorus Finance, which are folks at Chorus Finance do as a sort of portfolio manager. These are hard problems to finance in a country where the cost of capital is very high and where the terms for borrowing are very onerous.
And yet the market is very vibrant and has a high demand for the services that are being offered. And so, if we can be as effective a capital borrower to not just crypto markets but say emerging markets or to mortgages and Texas which we’re doing with our friends Tyler at USDC.homes. Then we’re getting then we’re becoming a really interesting player in global finance. It’s the ultimate goal we’re going to fine-tune this technology with crypto, but crypto is the bootloader. That’s how we’re bootstrapping this thing. And I think we’re ready.
Blair: You may answer my next question partially because, as far as we know, I was going to ask TrueFi borrowers mainly to use the money to do arbitrage and market making, but with the whole crypto market cooling down and the profit margin for the borrowers has shrunk a lot. And I would say the demand side is downsizing. So how to pick up more business in the bear market for TrueFi but, yeah, you answered that probably that’s going to be a good timing to expand to a non-crypto company.
Michael: It’s kind of like a three-part answer in my opinion maybe four. The first thing I’ll say is like don’t get us wrong. Crypto market makers and borrowers are very much looking for cash. They would love some cash right now. In fact, they’re paying very high rates for it, because they love volatility. They love these choppy waters. They love buying things cheap. They’re actually trying to borrow as much capital as they can. Unfortunately, isn’t much of it around because they want to get Eth at a cheap price. They want to get all coins at a cheap price. They like the up-and-down ping-pong market that we’re in right now because all of this is opportunity for mixed spread and in turn volatility. So the demand for borrowers is there. Liquidity, unfortunately, is not there.
So let’s talk about how we’re going to find liquidity. One of the opportunities that we’re thinking about is sourcing more institutional capital. We have our sort of parent, former parent company TrueFi, parent company Trust Token-TUSD once called Trust Token, which was famous for launching TUSD back in the day. Now it’s called Archblock. Archblock is focused directly on one thing, sourcing the institutional capital and making it as easy as possible for institutional capital to flow in. The billions of dollars locked up and family funds looking for a really good yield that they’re not really going to find in, let’s say, the bond or stock market in a sort of overheated inflationary economy. We have a very dedicated team to do that. We’re having a conversation with, bulge bracket banks with family offices that money is really interesting. It doesn’t really know how to go in yet, it’ll be a little while before it does. But we think we’re going to be one of the best places to put that money to work. So institutional capital, I think is one place to source liquidity and we have a team dedicated to it.
The other thing that is really interesting is you look at the treasuries of DAO. There are a number of them. We are in deep conversations with MakerDAO who wants to do real-world asset-backed real asset allotments at the release allocations there, we got approved for a $100 million dollar allocation through MakerDAO already. And the same with Frax. Frax also wants more money for real-world assets and we’re one of the good places to do it. Deep conversations there but not just there. We’ve got companies like Wonderland with GuildFi. These are all companies that, they’re just imagining treasuries. But they decided that they wanted to put their treasuries to work in TrueFi where we’re doing corporate debt and your crypto market maker lending and also real-world lending. And so, you’re starting to see more of this DAO Treasury adoption. I think we have a really good offering to make to DAO’s with large treasuries that are comparable to family offices, these are just a big family of all token holders. So we’re seeing that as a good opportunity for us. And that’s what the TrueFi BD team is focused on. TrueFi is a dedicated team trying to source that kind of capital into TrueFi.
And I guess the final answer in terms of trying to solve this problem is by adding a lot of new real-world opportunities on very diversified from the kinds of things you would see in other places in DeFi and by making those opportunities composable with other different protocols. So for example, by the end of this quarter with our Q4 update, we’re doing a lot of standardization of our vaults and our loans themselves to be compatible with a new device standard of vaults. We expect that you’ll be able to add to your yearn vaults or another vault in DeFi that pretty much seems sort of yield. You’ll be able to add corporate debt from TrueFi, just like adding LP pair or Lido allocation as a yield-bearing addition to this, to the composable, elements of your vault. So, effectively that’s to say, we hope to attract some of the DeFi capital liquidity by offering something that is not found in DeFi elsewhere, real-world lending and we hope that we source that lending by offering the most composable way to add some diversification to your vault, to your portfolio in the form of these standardized vaults making real word loans.
So those are the kind of four ways treating liquidity, institutional, DAO, composable sort of deeper loans. And I will say borrowers are still very much in demand for capital and their rates are high. So there’s still some demand for some liquidity there.
How to Keep First-mover Advantage
Blair: Oh, that sounds like a really solid plan, looking forward to seeing more potential synergy with other DeFi protocols and with other businesses. Looking forward to seeing more innovations happening on TrueFi. So here’s my last question.
And it may be a little bit tricky because there are more similar projects emerging and how do you plan to keep your first mover advantage? As we can tell, first movers always share the biggest pie in crypto space. So how to keep your first-mover advantage?
Michael: It’s a super good question. So, we’ve had some very strong competitors from pretty early on. And we.. like that it makes us move faster and we definitely learn a lot from them.
One of the things that we’ve done since the early days against direct competitors is we’ve done since the early days against direct competitors. We’ve focused a lot on the risk-return of our incentives. So some of our competitors, our direct competitors, actually shell out a lot of incentives to get the kind of capital they have in the books. We’re being very smart, we’re spitting out about 50% or less of the incentives that our competitors do in order to attract capital. And I think that’s good for the long-term health of the token. So smart risk return on incentives.
The other way, we bid with a very very slight risk. We have a very involved credit committee comprised of both in-house and our people. And we’ve taken on lending opportunities that were, as the market is proven to have been pretty good choices. We’ve had no defaults and not all our competitors are both centralized and we’ve named some names there are some people in real distress. And our decentralized competitors have not had such luck. And they’ve had some real issues with their lending books. And so, I think by virtue of being able to show a really strong risk management history, we’re probably going to be able to track more capital there.
Now, longer term, the best thing that we can possibly do is build the best product and then get that product out in front of as many people as possible. And so, I think if I were to confirm where we live, there are other competitors that we look to as inspiration for us, and kind of like fire in our butt in terms of the infrastructure they’ve built they’ve been around longer than us event but they haven’t gotten as much traction. And so that’s where it comes to building a great product. We really want to build what I call “feature parity”, meaning the same sweat products you would find in traditional finance except on chain, and so it really looks like getting engineering teams to look at what’s happening in the lending markets and really helping build those kinds of features. So I’ll give you two examples that we’re building now that are really designed to attract more capital, because, they really are built for two different audiences that want to use this stuff.
The first one I already told you about standardized vault. Those are lending books into other vaults around DeFi, so suddenly DeFi gets more exposure to corporate debt which never had before. And the institutional side we’re doing two sorts of big updates. One is around tranching, which we’ll look at a particular say to, let’s say again, maybe Alameda in this case, and select your level of risk and return. And at the lowest level of risk, you’re also going to enjoy the least return compared to the other tranches. But you’re also only going to be looked at in, affected by liquidations if the two tranches ahead of you to two pools ahead of your default, or others are liquidated first. So you can then choose as an institutional investor to take the least risky bet in a particular pool that you’re interested in. And also, during this time, we’ve also instituted what’s called a capital formation period, which means that as an institutional investor you could say I only want to form capital if there is double the amount of money in the junior tranche, the more risky tranche as I’ve put it. So if I put in a million, I need 2 million as security and the portfolio won’t launch until that happens and that portfolio won’t be able to allocate capital to work. So these are all designed for institutional clients who have asked us for this direct thing. That means either MakerDAO or banks and so on. So we’re building for that. And here it’s not just building these things, it’s also messaging them and properly getting them in front of people.
So, I’m doing my very best to get these things described well and have a really good team behind us in terms of telling the TrueFi story and messaging the various products we have. But we also have the benefit of Archblock behind us, which is basically going door to door, bank to bank family office to family office with a pitch deck in hand and, conference speaking slots trying to sell this up to the institutions. So I don’t know of any other team that has this two-pronged approach that I guess you could say fourth-pronged approach, where we both focus on product and messaging, we focus both on the DeFi and the institutional world. And we have experts in every corner of this to do it.
So I’m very bullish on us, long term especially, tokenomics updates to come that will hopefully continue to attract the success that the protocol goes into the value of token. And so, I think there are bright days ahead and it’s still early. It’s so early. So I really invite folks who are interested in being on the cutting edge of something. Effectively, DeFi truly and earnestly disrupts banking rails. To steal a quote from “There will be blood”, a favorite movie of mine. We’re going to drink their milkshake. We’re going to hopefully just get underneath the skin of banks hopefully and make them see the innovation here and have them move on chain, and then hopefully become the world’s first trillion-dollar protocol and process. Now $ 2 billion in, just watch.
Blair:Yeah, we’ll see. That’s definitely a very compelling story. It’s really great to see that TrueFi has very comprehensive tactics to improve capital efficiency as always, engaging more businesses with proper risk management.
Thank you for being really informative and insightful, and I really appreciate your time and look forward to seeing more accomplishments and innovations happening on TrueFi. Also, I hope everyone could find something helpful from today’s conversation in your own Web3 journey.
