Moderator: Blair Zhu, Brand Director, Mint Ventures

Moderator: Blair Zhu, Brand Director, Mint Ventures

Interview video:

Link to the original English text of the interview:WEB3 Founders Real Talk with TrueFi Recap

Interview video:WEB3 Founders Real Talk with TrueFi

Interview audio:Interview audio:

WEB3 Founders Real Talk with TrueFi

Blair: Hello everyone and welcome to the Web 3 Founders Real Talk. I'm Blair and I'm Brand Director at Mint Ventures. Today we are very honored to invite Michael, the marketing director of TrueFi, to share some feasible suggestions and insights about Web3 entrepreneurship, as well as the latest developments about the TrueFi project. WelcomeMichael!

Michael: Thank you very much Blair, it's a pleasure to be part of this show.

Blair: Please briefly introduce yourself and the basic situation of TrueFi.

Michael: OK. I'm Michael, and I've been working in this field before it was officially called Web3. When I first joined Twitter, I founded a marketing agency called Truth Cartel in the San Francisco Bay Area, which was mainly engaged in developing market entry strategies for early decentralized finance (DeFi) companies and Layer1 companies. Besides companies like Trust Token, now renamed Archblock and TrueFi, there is also Compound, Algorand and Republic.

Before that, I had been working in the field for many years in media and running my own startup. Now, I have firmly chosen the field of cryptocurrency and focused on marketing. In my future career, I may continue to work in this field. It is a great honor to lead TrueFi's marketing efforts.

Next, I will introduce you to TrueFi, which is the first unsecured lending agreement in the DeFi industry. Now we like to think of it as a credit agreement and provide institutions with a considerable loan scale. We employ a delegated underwriting process that utilizes portfolio managers or the DAO itself to assess the risks and returns of new borrowers or investment opportunities. When these borrowers are approved, they can participate as lenders and invest in various markets. For example, Alameda and other cryptocurrency market market makers, these market makers are not only users but also borrowers, and investors of TrueFi. Then to various investment opportunities in the real world, for example, you can invest in real estate in Texas, you can get in touch with investment opportunities in emerging markets through friends, of course you can invest in financial fields in Latin America and Asia, and you can even use our The FinTech Portfolio invests in FinTech and other sectors in Latin America. Therefore, TrueFi can be said to be the infrastructure layer of global lending, especially credit financing, especially the current $8 trillion credit financing market. As of now (September 27th), we have about $2 billion in loans without any defaults, which is frankly fantastic and very rare. We have roughly 7,000+ token holders, and I think TrueFi is poised to grow into the backbone of global finance in the future.

Blair: Really amazing, thanks for sharing such informative information with us. Then, let’s officially enter today’s topic. As we all know, TrueFi was launched in November 2020. It is a leading credit lending protocol in the DeFi field, and the project has been progressing very smoothly. So we wondered what inspired your team to develop this project in the first place?

Michael: That's a very good question. To answer this question, we need to go back to 2020, or even the early days of DeFi development. At that time, one of DeFi's major promises was to improve the efficiency of capital flow, because it could reduce handling fees, increase transparency, eliminate middlemen, and maintain anonymity. These visions are very beautiful, and they are true for retail users or individuals. However, when you compare that to the credit realm, for example, if you're going to borrow against a crypto asset in your own name, or you want to take out a mortgage, or a car loan, all of which are provided by the "underlying asset" Support, and if you wanted to borrow on credit, cryptocurrencies couldn't really do that at the time because they couldn't have risk assessments of personal identity or credit worthiness, and they couldn't interact with on-chain defaults while collecting payments. So this is a very big problem that cannot be solved as long as unsecured credit is not available. Therefore, the effectiveness of capital flow back and forth has not been greatly improved. All you can do is to lock up capital. Even if you earn a few points of income through fund transfers, you have not saved much cost, nor have you really released The mobility of capital makes it more free.

Let's go back to the period when the company name was still Trust Token (the current company name is Archblock). Back in 2017 we created a stablecoin TUSD and as of the time of this recording it has a market cap of over $1 billion and I think it will hit $2 billion soon and is currently in the top five stablecoins . During the exploration process of issuing stable currency TUSD, we learned a lot of compliance knowledge, mastered a lot of global operation knowledge, and also deeply understood the needs of institutions at that time. Of course we have also built a very strong team.

As we considered our next move as a company at the time, we began to look at our strong foundation. As you know, we have a wealth of legal and compliance expertise, in addition to our constant focus on the needs of the market where there is a real need for the capital efficiencies that credit provides. And, since we are running a stablecoin business, we can say that we are very close to the DeFi space. And stable currency is a building block of the DeFi ecology, so we think we should try unsecured loans.

As we all know, although the DeFi field will bring wealth (expansion), it is also easy to cause (huge) losses. In short, it is indeed very difficult. But if you do it, you're in a trillion-dollar industry. Luckily, we've been doing pretty well so far, have been operating for almost two years, and the first loan was given to Alameda Research, a fairly popular market maker. Since then, we have borrowed $1.7 billion and have now collected $1.3 billion in repayments, again with no defaults. At the same time, we had some really good restructuring and refinancing sessions. We all know that tighter credit markets affect everyone. We have achieved a large degree of decentralization, so we now have a fully developed DAO. Today, it operates independently of Trust Token/Archblock and has its own foundation. The token (TRU) is almost listed on thousands of mainstream trading platforms and has gained widespread attention from the community. We are very excited about this. In addition, we have even attracted the attention of investment institutions like Mint Ventures. Your recent research report is really good, and I like it very much. So it can be said that we have reached a consensus on this issue (try unsecured loans), but in the end what we want to do most is to move global lending to the chain and introduce billions of dollars to the cryptocurrency industry. The first protocol with a market value exceeding one trillion US dollars, we will continue to move forward. For this to happen, it has to start with the institutional market, and it has to be done on-chain. Although we are still in the early stages at the moment, the future is very bright.

Blair: Yes, TrueFi can be said to be truly innovating, and the efficiency of capital flow can be effectively improved. So, are there any challenges in the process? What difficulties have you or your team encountered or had to overcome?

Michael: Of course, we can look at it from several aspects.

As the project progresses, all aspects will change. To develop this project, (although I am not a technical background), we need to set up a team of engineers. The development of this project is actually very complicated, and we must ensure that the technology is foolproof, and this Obstacles forced us to acquire a development agency, EthWorks, which is currently part of our engineering team. And our smart contract side has also expanded from two engineers to eight engineers, and then to about 40 engineers at present. Due to the complexity of development, it is actually re-establishing the lending infrastructure, just like SWIFT, which flows trillions of funds around the world. So technical challenges are bound to exist. But we've come a long way, with five audits, no hacks, no vulnerabilities. Methods such as bug bounties have played a vital role in the technological progress we have made. Therefore, I think the development of this project is a major challenge. If I were a technical person, I would not describe this process so easily. This is the first major challenge we encountered.

Another big challenge we faced was finding the right product for the market. As we all know, in the bull market, people are scrambling to provide loans to market makers in the cryptocurrency market, such as Alameda, Wintermute, etc. We continue to provide hundreds of millions of dollars of huge funds to these market makers every month, and provide very considerable income. From a risk-adjusted return perspective, our yield is extremely competitive and better than the market average or other rates seen in the DeFi market.

However, as the market entered a period of credit crunch, such as the Terra-Luna crash, some of our centralized competitors and partners began to have problems lending. Market liquidity is drying up, and the amount of money lent to these market makers has fallen sharply, while the need for portfolio diversification such as real-world lending has begun to increase. Therefore, the issue of market product fit is also the focus of our thinking. The last big challenge I would say is the always interesting regulatory environment. At least in the market, we cannot build a project out of regulatory constraints. Therefore, we need to always ensure the compliance of project development, for example, how to treat debt tokens? How is control over tradeable debt managed? How to get liquidity without becoming a security? Or how do we build our company into a DAO or some kind of structure in order to continue as a going concern? How to create a master lending agreement and make it enforceable, transparent and effective? How do you manage to set up an organization for recovery of funds in the event of a default? All of these issues would be very difficult if we didn't have an in-house legal team. Of course, we are very proud of the fact that we have a legal team in place since day one, otherwise we would not have been able to address these issues. And this is very important.

We are still grappling with the technical, regulatory, and commercial/product issues we face, but that's the beauty of this business. We are still in the early stages of exploration.

Blair: Yeah, sounds pretty cool. This whole process must be very difficult, and everyone has to keep learning. We all know that in the early days of a startup, all team members have to be generalists, so glad you did.

Michael: Yes, actually in some stages of a start-up, all the members are both the CEO and the nanny, and there are a lot of things to worry about. Especially if you also need to manage a community, many of the similar needs are bottom-up. So it's been an amazing journey, and it's not over yet, and there's still a long way to go.

From a single value point of view, I think we're in an era like traditional servers, we're like Silicon Valley, we're still alive and well, but we're still in an era of building infrastructure, and if you want to start a business, you have to To buy your own server, you must participate in the construction of the infrastructure and be managed by IT experts. This also means that we have not yet entered the era of cloud and DeFi, so we have to concentrate on solving the problem of infrastructure construction. The timing is very good now. But it's also tough work, especially with an unresolved regulatory environment.

Blair: Yes, there was a fair amount of work involved. So, as a new business paradigm, has Web3 found its uniqueness during the project development process? For example, as you mentioned just now, the market fit of the product, how do you accurately capture market insights to develop innovative sustainable products? Because there are too many ideas, innovations and enthusiasm around us, many people will spend several months and resources to develop some projects that they think are perfect, but in the end, they often do not have market appeal. Do you have any comments or suggestions to give them? It is possible that these people are developing their own projects at this moment.

Michael: Of course, I think one of the big problems in this field is that we are easily distracted by things and opportunities that seem bright. For example, develop the next algorithmic stable currency, establish a high-inflation rate, high-yield lending platform, or start NFT airdrops again. These ideas are very good, and I believe that behind their hard work, there must be some very powerful innovations. However, if you really want to achieve sustainable development, it is very important that the essence is not to think of cryptocurrency as a crude extrajudicial place, but as a special technology. As we all know, the existence of Uber is based on mobile phone technology. In the past, when we called a taxi, we had to send the address to the driver, but now, mobile technology enables us to locate the location by simply carrying a mobile phone. Similarly, we need to think about what is the blockchain technology that is expected to disrupt the existing business model in the field of cryptocurrency?

I think a lot of founders in the cryptocurrency space don't really start out with the idea of ​​disrupting an existing business or an existing industry, they start out with an interest or a philosophy, or an academic, or a mathematical model, or an art project, which in their view is very cool. But in my personal opinion, real innovation is finding solutions to specific problems, just like in any other field. What we really want to do in the cryptocurrency space is once we have a solution, see what problems we can solve with it, and any startup founder should do the same. So when we were founded, we wanted to solve one of the problems: Did people maximize credit utility? There is another problem: in traditional finance, institutions need to pay a lot of fees in order to invest profitably, and the operating efficiency is low, so the lenders cannot get the best investment opportunities. This is because it does not make much sense for traditional finance to attract small and micro users. These institutions only want to invest $100,000 or even $1,000, and it is not cost-effective to spend so much energy on such lenders from the beginning, so they will There are issues like operational inefficiencies that we see. So if we rebuild this business on the blockchain, it can be regarded as subverting the existing business, and it is possible to achieve profitability.

We can use the existing business model to improve efficiency and make it available to more people, which is what we will do. This is different from the concept of cryptocurrency. I have seen many projects with lofty visions and the idea of ​​changing the economic paradigm. Although I am also keen to explore and try, this is a new industry that ultimately needs to work hand in hand with Wall Street, regulators and all parties involved. It's a headache, and because of that, some people don't gravitate towards it. But this is a trillion-dollar market, and the market conditions are there, and the business models are readily available. If you can modernize existing enterprises with the help of blockchain encryption technology, then you are in the right direction. If you do something that is unlikely to be possible, then I wish you luck and hope you can innovate, but I think the risk reward is definitely not as high as the return of modernizing an existing industry. What we have to do now is to modernize the existing industry.

Blair: Of course, I totally agree with you. I also think that entrepreneurial teams need to verify that the problems they are trying to solve actually exist, and they need to prove that the solutions they propose are effective and can solve the problems they find. I think this is not only the key to keeping the project, but also the key to making the project bigger and stronger in the future. As the saying goes, a good horse deserves a good saddle, which is also true. We all know that some Web3 companies have a very high turnover rate of employees, so my next question is how to maintain a stable and efficient team?

Michael: That's a very good question. As far as I know, there is currently no good way to solve this problem. Retaining talent has always been a huge challenge for the industry, especially in cutting-edge fields. Because there is always something new and more attractive, many people like high-stakes…

Then we can talk about how to design token incentives. I am not talking about golden handcuffs (golden handcuffs refer to the means by which companies use stock options, bonuses and other expected income means to retain talents such as senior managers of enterprises. Generally, there is time to wait. Restrictions, resignation and departure during the period cannot be fulfilled) but should be an effective encouragement. I think the key incentive for early co-founders is to provide enough tokens to attract long-term cooperation. I think this is the biggest advantage of cryptocurrency, building an excellent workplace culture, building products that people really understand, making people feel that they are doing meaningful things and participating in hot cycles. But it can't be exaggerated, and at the same time give people the opportunity to choose and create the environment for them to succeed. Finding the right people is true for all companies without exception. But if compared with Web1, Web2, these tokens can play a greater role in retaining talents because they have long-term value and can have a chain reaction, not just the chain reaction of stock appreciation, but tokens It will itself play a role in encouraging participation. People can stake tokens, vote with tokens, and enforce governance with tokens, so talent is retained. On an ethical level, we all have two identities, one as an employee and another as a token holder when we are not performing our job duties. As a token holder, because there are long-term value-bound projects that are closely tied to cryptocurrencies in a unique way, they are more motivated and willing to participate in forum discussions, make suggestions, and think about token economics and token design. . Of course I also like the cryptocurrency part, other than that, it's a lot of Web1, Web2 clichés... building a real corporate culture so that people can do their best.

Blair: Yes, indeed. Needless to say, tokens are a unique draw into the Web3 space. Web3 has become a hot word, and we have seen more and more people want to work hard in this field. So for those who want to become Web3 entrepreneurs, what advice do you have for them?

Michael: Of course! Regarding cryptocurrency, in fact, no matter how bad the bear market is, and whether winter is coming or not, I think cryptocurrency is still a hot job field, and there are many very good opportunities, and there are many opportunities that are still untapped. So from that point of view, I think we're lucky.

Speaking of skills, I think the cryptocurrency industry already has a strong technical talent pool. Many engineers have started to learn to write various smart contracts. I found that many front-end people are also involved in building a visually better user interface. Of course, as a marketing practitioner, I think that cryptocurrency should be spread more, not only what it is and its usefulness, but also how to use it and its benefits to the general public.

In terms of business development, that is, BD and sales roles, we can start from two aspects. One is to seek to integrate with the protocol, and the other is to join hands with other crypto products to provide a good front end, so that users don't have to think about (the complexity of) the cryptocurrency itself. This is one of the important ways to achieve sales. Integrate your protocol and services into a company with a high-quality front-end experience and a strong user base, such as Robinhood, Coinbase, etc. Such integration will actually have a different impact on the protocol. From another perspective of BD, we have not done our best to attract institutions, such as family offices and banks. As far as the allocation of funds is concerned, the funds that spew out in traditional finance have played their greatest value, while traditional financial transactions have not exerted their greatest value in terms of transparency. In fact, many people are potential investors, and blockchain can realize These.

On the institutional side, we've got a really good practice, and if you're interested in any of those roles, I think it's the best of both worlds. The first is to study a lot. After starting to learn, you will find that there are many great use cases, such as Bankless's podcast and their content output have also created good content, as well as Mint Ventures' research report on the project, and I am a loyal fan of the Financenomics Youtube column , I may have spelled it wrong, but they give a good explanation of some encryption concepts. Andreessen Horowitz- A16Z, they have a lot of material called "Crypto Canon", they also have a collection of must-read books, these are very good resources, they are always available, and a lot of work has been done to put these materials together. Therefore, first of all, it is to understand the industry information, and then to experience it personally. This industry is multi-layered. First set up a MetaMask wallet, try to use the DeFi protocol to recharge some ETH and USDC, try to use these DeFi protocols, feel whether you like it, understand how the transaction works, and consider where the money should be invested. As a job candidate, it is impossible for the other party to value you just because you have a MetaMask wallet, but you can gradually get to know them better. Maybe you can join a DAO, make useful contributions, initiate a proposal to find your own position, and maybe you will eventually get a job, whether it is in a centralized or decentralized company, whether it is through a proposal or a formal recruitment website . It's an upward process, getting into this industry, like a first-time VC in any other industry, maybe start with product management or start with marketing, there's a lot to learn, a lot of battles to fight, and when you feel confident enough , you can bravely challenge. Working in this field is not very different from other fields, and I think now more than ever, it is more suitable for newcomers to enter.

Blair: These are very practical and actionable suggestions. I think especially Web3 startups face a more intense competitive environment than Web1 and Web2, and their pace is faster. Michael just shared a lot of views, such as: how to deal with challenges? How to grow the company's business? How to motivate the team? How to enter the industry? So let's take a look at TrueFi's recent progress.

You mentioned at the beginning that only in the first year of TrueFi’s establishment, $1 billion in default-free loans has been achieved. As of today (September 27), there has not been a default situation, or it may be trapped in the DeFi and CeFi explosions in June. So can you share what risk management strategies TrueFi has implemented? Any experiences or advice to share with other practitioners?

Michael: Of course. This question is also very good to ask, but it is also difficult to answer, because it requires a lot of professional knowledge, and there is no experience in the cryptocurrency industry. A better way is to form a credit risk committee, and we also have a compliance team that does a lot of background checks on potential borrowers and their assets. Some will also require identity verification (KYC-Know Your Customer), and the borrower can confirm, for example, "I am a non-US citizen" so that I can avoid supervision, or confirm whether I am from a sanctioned country. These are difficult questions, and I can only provide a broad framework, some content and information that can be used for reference, and share some perspectives on how to think about credit risk management.

From my perspective, there are actually three models of how to underwrite risk-adjusted returns. If the lender comes to borrow money, and they offer to give 8%, you say OK, and I accept it. But what is the risk level? How should the risk level be assessed? Have you considered all these? Since I am not an expert in this area, I will explain it in layman's terms and try to provide some ideas to solve this problem. The models that can be used to talk about the difficulties faced by institutions at this specific level include: the centralized underwriter model that is popular in traditional finance. In fact, to some extent, this method is also very popular in the encryption industry. Projects like (I'll mention some names here) Celsius, Voyager, Galaxy, etc. all use this pattern. The model is to have an internal credit committee, which can be regarded as a personal loan book that you manage, which is actually very popular in the first version of DeFi. But in this space, the risky bets that currencies have induced, what I call the “centralized underwriting model for cryptocurrencies,” have clearly lost their credibility. In traditional finance, non-cryptocurrency assets are still popular, and most industries choose to be underwritten by banks. But the centralized underwriting model in cryptocurrencies has become extremely unstable, so there is a great need for the other two models. (I'll explain them right away) These two models are more transparent and inclusive in terms of information exchange, and they have opened up a truly decentralized credit rating model, relying on collective wisdom to decide which borrowers can continue to borrow and which loans can be approved. We have a steering committee and a credit committee within Trust Token, which provide advice and play a role similar to parents. All in all, when the borrower comes in, our token holders (community) may sort out relevant materials, let the borrower state his views, the amount he wants to borrow, and how he wants to use the loan, and then our Token holders will give the answer (Yes/No) whether to lend. Most people will get No, few people get Yes. Over time, this model has proven effective as it gets projects up and running smoothly. But sadly it didn't scale well because getting the community to deal with every potential loan and deal with every potential borrower was extremely time consuming and the community didn't quite have the expertise, not just opportunity specific risk adjustment Knowledge about benefits, but also things like the market for specific borrower interests. Just like some communities you know, no matter how big the community is, many of them just like our twitter, or like some NFT airdrops, nothing more. Are they really counting...like credit experts in the real estate market? I highly doubt it. So I think that the fully decentralized group brainstorming model may not actually be able to expand further. So we've now shifted the direction of what we call -- the delegated underwriting model, where the community doesn't designate a specific borrower or a specific creditworthiness of the loan, but instead appoints a corresponding expert, someone who has the expertise of a specific underwriter.

The idea is this: for example, if you manage a real estate portfolio with a desire to get more capital so you can invest other capital in real estate, then you are the best person to run that portfolio if you come into our community and say: "The way I want to use this fund is this, and this is what I offer you as an investor in this fund. Here's how my fund has performed over the past two years..." Then we'll Through the portfolio manager, designate this person as the person responsible for working with borrowers to identify new opportunities and gather information to see if those opportunities are problematic. It also designs the capital structure, specifies the outflow of funds, the inflow of funds, timing and interest rates, and sets fees in the portfolio. This delegation model avoids the risk of being an agreement, as a centralized underwriter, or as a decentralized underwriter, leaving the underwriting to the real experts responsible for the success or failure of the portfolio. So who benefits from it, accessing capital that would otherwise be unavailable?

So, I think we've finally found the right model for community engagement, where we're putting professional decisions in the hands of experts with this centralized paternalistic oversight and focus on the delegation model. So, to give a rough answer, I'd say, leave the question to the experts, because this is technical territory, maybe even more technical than some smart contract writing.

Credit is an extremely complex issue that requires deep expertise and careful planning, so once again we have found the best "designer". This goes back to the question of recruiting - i.e. getting jobs to the right people. We believe that someone with expertise in a particular field is the right person to run a portfolio in that field.

Blair: Exactly, it's a lot of information to process. Project development is always accompanied by a lot of risks, such as counterparty risk, regulatory risk, etc., but I think the key is to carry out active risk assessment, and good management is crucial to the business, and then it will have a great impact on the sustainability of the business. Big impact, because we have witnessed many lessons, such as certain products can climb to the top, but also can plummet and crash in a day. Sadly, this has happened recently. But in addition to that, I think business scale is also the key to ensure that the project is completed on schedule. Recently, we have witnessed TrueFi update some products and launch some new business lines, for example, a single borrower portfolio, about TrueFi’s new Product, can we talk about it? Or do you plan to open up new markets with new products?

Michael: Of course, let's talk about some TrueFi products. How to market a product is not an easy question, so I have to admit frankly that we are still figuring out the right way to share it with the masses. You have the freedom to operate in TrueFi, especially as there are more and more things to do.

In fact, I want people to think about TrueFi like this: When you come to TrueFi, you definitely want to get capital, so if you are a single borrower pool user, you need to answer some questions. The first is: Who will manage your portfolio? Is it a DAO? This DAO is a kind of permissionless DAO pool that will distribute funds to cryptocurrency market makers or other combinations, and this is our largest pool of funds today. Frankly speaking, DAO manages a pool of funds that provide different loans to various entities, do you want to manage the pool as your own borrower? So that means you need to set the relevant terms yourself so that people will only lend money to you when they come in. But most people can't do it, because there are not many people waiting in line to lend you money. But borrowers in high demand can do it, as an example: a lot of people want to fund Alameda because they are good at capital allocation, have excellent risk-adjusted returns, and as a sophisticated capital allocator, they set The interest rates are more competitive and the reason they don't give you much return on capital is because they think they can get that money at a better price. I'll explain "single borrower pool" here later.

I just mentioned the portfolio manager, so as a portfolio manager at TrueFi, you need to formulate strategies to allocate funds, and you need to tell the specific strategies. Then we'll let you know if the community agrees with these strategies and if we're a good fit for you. Therefore, you need to make decisions such as: How to allocate capital? How much risk are you willing to take? Then you can get the funds. A single pool of funds allows you to efficiently set up a capital pool from which loans can be taken out and provide a specific return, but be aware that the borrower is also the manager, which is great for individuals like you and me. Of course, the premise is that it is legally compliant. If the borrower requests to lend directly to Alameda, we require them to pass identity verification (KYC). Frankly, retail investors can hardly do this. Therefore, a single borrower pool is an effective way to give you access to quality businesses in the cryptocurrency space and beyond through licensed lenders who offer competitive terms and have the creditworthiness of your choice to invest in To whom the funds are lent. So, that's our single borrower pool.

Blair: It sounds like TrueFi has been steadily expanding and trying to become a capital-efficient source of liquidity for crypto businesses.

Michael: That’s right, and I have an interesting idea: I hope that we will not only serve cryptocurrency-native companies. Of course, we are in the cryptocurrency market, and it is easier to deal with people who know what they know, but it is very difficult to only work in the cryptocurrency field. It is difficult to become a billion-dollar enterprise, at least not in this era. So I think it's important, and interesting, to have access to people in need in the real world, like in the U.S. or Canada where the funding channels are competitive and the market is well capitalized. However, for financial technology companies in Latin America or emerging transportation companies in Southeast Asia, just like investment portfolio management companies like Chorus Finance, it is difficult for them to obtain funds.

These countries actually have financing difficulties. The local borrowing costs are very high and the loan terms are very complicated, but at the same time the market is full of vitality and the demand for services is large. If we can borrow funds efficiently, we will not only serve the cryptocurrency market, but also emerging markets And mortgages for home purchases, such as our partner in Texas, Tyler from USDC.homes is doing these things. In this way, we are a unique market player in the global financing field, which is our ultimate goal, and we will continue to adjust the technology of cryptocurrencies, but cryptocurrencies are the bootstrap, mainly in how we organize operations, I Think we're ready.

Blair: This answer probably already covers part of the next question I want to ask, because originally I wanted to ask that borrowers usually use funds for arbitrage and market making, but with the overall cryptocurrency market downturn, borrower profit margins have shrunk significantly, So it can be said that the demand is shrinking. For TrueFi, how to achieve business growth in a bear market environment? But you pretty much answered the question above, now is an excellent time to expand into the market for non-cryptocurrency companies.

Michael: That's right. In fact, this question should be answered in three steps, or possibly four steps.

First of all, don't misunderstand what I just said, cryptocurrency market makers and borrowers desperately need capital, they can't wait to get it now, and they are even willing to pay high interest rates, because these people like volatility, they like the market Stormy seas, like to buy on the cheap. So they will find ways to borrow as much money as possible, but unfortunately there are not so many. They want to buy ETH at a low price, or even buy all currencies at a low price. They like the ups and downs of the current market. All of these are opportunities brought by various interest rate spreads and volatility, so borrowers have Demand, but unfortunately not enough liquidity.

Next, let’s talk about where to find liquidity. We thought of a way to get more institutional funds. Our former parent company TrueFi, formerly known as Trust Token, is now called Archblock. As we all know, it issued TUSD. Archblock only focuses on one thing, which is to find institutional funds and clear the inflow of institutional funds. With billions of dollars sitting idle, family funds seek high-yielding investments, but that money is reluctant to invest in bonds or stocks in an inflationary economy. And we have a professional team engaged in this work. We talk to large investment institutions and family offices. These funds are very interested in this, but they don’t know how to enter the cryptocurrency market, so they will wait and see for a while before taking action. But in our case, funds can play the most effective role, so institutional funds are a major source of liquidity, and we have a professional team for docking.

Another thing worth paying attention to is the DAO treasury and there are a lot of them. We had a deep chat with MakerDAO, they want to deploy real-world asset-backed products, real-world asset allocation, etc. We have been approved to allocate 100 million US dollars through MakerDAO, and the situation of Frax is similar. They also want more funds to invest in real assets, and we can achieve this goal. We have also communicated deeply with Frax. But not only that, we also have touches with Wonderland, GuildFi, etc. They decided to put the treasury on us because we do corporate debt, crypto market maker loans and also real world lending. As a result, more and more treasuries are adopting this approach. I think we can provide enough quality services to these DAOs with large treasuries that they can be compared to family offices, they are just a large family of token holders. We see this as a great opportunity and a focus for TrueFi's business development team, who are dedicated to finding such funding sources for TrueFi. In my opinion, the ultimate answer to the problem lies in expanding more real-world new opportunities. The options are diverse, including various things you see in other DeFi, and combining these development opportunities into different protocols. For example, at the end of the quarter, when we were doing the Q4 earnings update, we did a lot of standardization of vaults and loans to be compatible with the new vault equipment standard, and you can freely add to your vault, or other yield-generating On the treasury, you can get corporate debt directly from TrueFi, just like adding a liquidity provider pair or Lido configuration, it’s like adding an interest-bearing plug-in to the treasury’s programmable elements, so we hope to attract capital flows by providing such as real-life lending We hope that by standardizing the form of the treasury, we can provide a highly composable method to add diversity to the treasury and investment portfolio to obtain borrowing.

Here are four that improve liquidity: institutions, DAOs, composability, DeFi lending, and more. I think borrowers have a high demand for funds, but the interest rate is also high, so there is also a need for liquidity.

Blair: It seems that TrueFi's plan is quite complete, and I hope to see more potential in the future, and at the same time develop in coordination with other DeFi protocols and have more innovations. The last question may be a bit tricky. As we all know, in the field of cryptocurrency, those who take the lead always get the biggest pie. As more and more projects of the same kind emerge, how should they maintain their first-mover advantage?

Michael: This is also a good question. We had strong competitors from the very beginning, precisely because they inspired us to develop rapidly, and we learned from them and learned from experience.

One of the lessons we have learned from our competitors is that there is too much focus on the risk-reward of incentives, and some competitors give outsized incentives just to get money. But our approach is smarter, we give less than half of the incentives of our competitors to attract funds, I think this is conducive to the long-term healthy development of the token, so the first point is a reasonable and sensible risk return.

On the other hand, the risk of our betting is so low that we have formed a credit committee consisting of internal staff and a few others. We have seized the opportunity of lending. Although there are many choices in the market, we have no record of default. This is something that many peers cannot do, including centralized institutions. We will not name them here to avoid their pressure. And the decentralized peers are not so lucky, they do face problems in their lending business, in my opinion, because we have a history of strong risk management, so we can get more funds. In the long run, what we can do is to build the best products and let as many people as possible know about our products. In fact, many competitors have brought us inspiration. In terms of infrastructure construction, we are constantly urged. Although they have existed longer than us, they are not attractive enough. This also shows that we must create high-quality products. We have always wanted to create products with the same characteristics, which means: products that exist in the traditional financial industry but not yet on the chain. During this process, engineers will research the lending market, which will also help create various product features.

Give two examples of what we're doing now, and (in my opinion) designed to attract more funding. There are two main groups that need this type of product. The first product is the standardized treasury, which is the credit module of other smart pool businesses in DeFi. If we can serve the standardized treasury, then suddenly DeFi will have exposure to corporate bonds. This is unprecedented. In terms of institutions, we mainly focus on two aspects. One is around grading/layering. Taking Alameda as an example, we choose the risk-return level. When the risk level is the lowest, the return is lower than other tiers, but we must also pay attention to the impact of forced liquidation. If the risk-return layer above this, or the first two pools default, others will be liquidated first. As an institutional investor, you can choose the pool of funds you are interested in and take the smallest risk. At the same time, we are also in the capital formation period. For example, I am an institutional investor and I only want to lend one loan, but I have double the loan amount to be released. I will put the inferior funds, which is the layer with higher risk Funds are released first. Specifically, if I put 1 million, I need 2 million as a guarantee. If the above steps are not completed, the loan portfolio cannot be launched, and funds cannot be allocated for operation. Institutional investors bluntly said they want such products, so we designed them specifically, which means that regardless of whether government agencies, banks or other institutions will be our service targets, what we do is not only to build these products, but also to promote them continuously to Appropriate way to present to the public.

I have always tried my best to introduce that we have an excellent team, tell the story of TrueFi, and showcase the various products we have developed. At the same time, we have Archblock as the backing. Conference, seize the opportunity to introduce to the organization. I don't know if other teams have this two-pronged approach, or we have a four-pronged approach, focusing on product and focusing on publicity. Focus on DeFi and institutions, our experts cover all aspects. In short, I am very optimistic about our own long-term development prospects, especially the progress of the token economy is imminent, so that the success of the protocol can be reflected in the token value.

In short, the prospects are bright and the future is worth looking forward to. I sincerely invite interested colleagues to participate. Now DeFi has fundamentally subverted the development trajectory of traditional banks. To quote a sentence from my favorite movie "There Will Be Blood", we will absorb the resources in their hands and penetrate every inch of territory. Let banks see innovation and let them transfer to the chain, so that it is expected to become the world's first trillion-level agreement, with a goal of 2 billion US dollars, we will wait and see.