Let’s not sugarcoat it: the past six months have been a bloodbath for crypto.
Macro conditions stopped cooperating, markets plunged, and investors pushed risk to extremes. Still, while cryptocurrencies themselves took a hit, an important distinction must be made.
Several highly leveraged players, such as Three Arrows Capital and Celsius, whose collapses were part of a contagious spiral rippling through the industry, were largely CeFi—centralized financial firms.
Celsius marketed itself like a bank but behaved more like a high-risk hedge fund. Ultimately, reckless investments led to insolvency. Unfortunately, many of their customers didn’t understand how their funds were being used or where returns originated. In short, transparency was lacking.
DeFi
By contrast, DeFi largely behaved as designed. Thanks to the underlying technology—blockchain—transactions played out exactly as coded. Margin calls and liquidations happened on-chain, visible to anyone who wanted to inspect them in real time.
Celsius, on the other hand, sent an email one Sunday evening announcing a sudden suspension of withdrawals, and the rest is history (or, more precisely, the beginning of a long, protracted legal saga likely to continue for years—ask Mt. Gox investors for details).
I sat down with the co-founder and CEO of TrustToken, the team behind the TrueFi DeFi lending protocol, to discuss these issues and more. TrueFi offers unsecured on-chain lending and aims to maximize capital efficiency for borrowers while delivering attractive yields to lenders.
Yes—you probably noticed the term “unsecured.” Overcollateralization has become standard in crypto lending, but that model is capital-inefficient.
Clearly there is a trade-off when it comes to credit risk—should every borrower be treated the same way the current DeFi model does? That’s a nuanced debate Rafael and I explored on the podcast—and it’s worth noting that within its first year TrueFi originated $1 billion in loans without experiencing any defaults. To date, it has not recorded a failure.
We also discussed the bear market (what else?), stablecoins—TrustToken operates a suite of stablecoins, including TrueUSD, currently the fifth-largest by market capitalization—and contingency options for Tether, among other topics.
Spotify link: here
YouTube: here
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