SAFU (Secure Asset Fund for Users)
The SAFU is an overhaul of how TrueFi handles borrower defaults. The SAFU smart contract is responsible for all bad debt accrued by the protocol. The SAFU has been initially funded by TrustToken and the funds will help cover defaults.
In case of a loan default, TrueFi lending pools will transfer all bad debt assets to the SAFU in exchange for the full expected value of those assets. Then, the SAFU will slash staked TRU tokens, up to 10% of the defaulted amount. If the value of these slashed tokens is not enough to cover the default, the SAFU will use its funds to help repay the affected lending pool for lost funds.
In the event of a default, the following occurs:
- 1.Up to 10% of TRU is slashed from the staking pool and transferred to the SAFU to cover the defaulted amount, equal to the principal amount plus the full amount of expected interest (“Defaulted Amount”)
- 2.All the defaulted LoanTokens will be transferred from the lending pool to the SAFU
- 3.If the current SAFU funds are insufficient to cover the defaulted loan; the SAFU can sell TRU for the respective borrowed asset at its manager’s discretion
- 4.If the value of the SAFU funds can not satisfy the defaulted loan:
- 1.The difference between the defaulted loan and the SAFU is calculated (“Uncovered Amount”).
- 2.The SAFU will issue ERC-20 tokens representing a claim for the Uncovered Amount (“Deficiency Claim”).
- 3.Then, the affected lending pool will receive a Deficiency Claim for the Uncovered Amount, assuming its successful recovery.
- 4.The affected lending pool will have a first-priority claim on the funds recouped through arbitration for the Deficiency Claim amount.
- 5.If a debt is repaid:
- 1.The recouped funds will be used to purchase the asset that the Loan Token was originally denominated in, which will be transferred to the LoanToken contract.
- 2.The SAFU will burn the Loan Tokens for the underlying value of those tokens (“Recovered Amount”)
- 3.The SAFU is going to repurchase the issued Deficiency Claim tokens from the lending pool up to the Recovered Amount.
- 4.If there is a remainder of the recovered funds after repurchasing the lending pool’s Deficiency Claim, the SAFU keeps those funds.
- 6.If any portion of the original loan amount is not repaid after the completion of the legal recovery process; the lending pool’s remaining Deficiency Claim tokens are going to be burned thus reducing the LP token price.
The SAFU replaces what was called “Liquidator” in previous TrueFi versions. Therefore, it will have permission to slash TRU from the staked TRU pool.
The funds in the SAFU will be managed by an approved address, automating as much capital management as possible through DeFi. In the initial version, the funds' management will be somewhat centralized to maximize the capital efficiency when making exchanges between tokens. For example, the price impact of exchanging TRU on decentralized exchanges is much higher than the impact of OTC or centralized exchange opportunities.
Nevertheless, following the ethos of progressive decentralization, future unlocks will include updates to the SAFU which will further decentralize the management of the SAFU funds.