This article was first published on TrueFi - Medium
What happens in the event of a loan default on TrueFi?
All investments carry risk. The best investments typically offer the highest returns at the lowest possible, best understood risks. In the case of crypto investing, certain risks are common across every DeFi protocol, and others are unique to each platform.
This post will briefly explain TrustToken’s approach to common DeFi risk vectors, then go deep on the primary risk to lender & staker funds on TrueFi: borrower default.
It assumes familiarity with TrueFi, the unsecured lending protocol: read our litepaper or watch our intro video to get started, then join our Discord to discuss your questions and feedback on this piece.
Standard DeFi Technical Risk
One of the most common threats to any DeFi protocol is hacking. Whether through a code exploit or using flash loans, a particularly aggressive hack can drain the majority or even all of a protocol’s stored funds.
The most common prevention is rigorous code audits. TrueFi has undergone two deep audits:
- By Slowmist of TrueFi V1 completed on November 21st, 2021
- By ETHworks of TrueFi V2 completed on February 17th, 2021
In both cases, the TrueFi core team received the audit results and solved any major threat vectors in advance of the code going into production, as is our standard. TrustToken is also recruiting an auditor to work on retainer through the launch of V3 and V4.
Limiting Vulnerable Capital
TrueFi is also designed in such a way that only a small minority of the protocol’s assets are ever at risk of attack: when the lending pool’s assets are successfully utilized for loans to borrowers or earning on Curve, they cannot be drained from TrueFi in a direct attack targeting the lending pool.
Generally, the pool aims for a 70% utilization rate, meaning only 30% of TrueFi’s pool assets are possibly ...
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TrueFi - Medium