Decentralized lending protocol TrueFi’s recourse for recovering bad debts includes old-school solutions that can be time-sapping and costly, such as taking borrowers to court sndr_krisztian reports.
Unlike on DeFi protocols like Aave or Maker – where loans are secured by more assets than the loan’s value and a default prompts an automatic liquidation of the collateral – lenders on TrueFi have no other choice than to trust the protocol’s due diligence on borrowers taking out unsecured loans, because there’s no collateral to seize in a default.
and Voyager Digital, became insolvent after making risky loans with customer deposits to crypto firms. The DeFi platforms’ requirement of ample collateral proved crucial in their ability to avoid losses. Hence, would-be borrowers have to go through TrueFi’s credit and know-your-customer checks and pass the capital requirements to apply for a loan. Those who hold"Defaults are ordinary course in this asset class and critically important to refining risk parameters and pricing over time," Roshan Dharia, head of lending at Archblock, a core TrueFi contributor which oversees borrower relationships on the protocol, told CoinDesk.
TrueFi, in anticipation of a non-zero amount of loan defaults, built in a “default protection” as a backstop insurance for lenders. The protocolThe default protection, however, currently stands at $1.36 million, TrueFi’sshows. That’s only about a third of the outstanding bad debt on the platform, not enough to make lenders whole.
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