MakerDAO-style Vaults vs TrueFi-style Unsecured Loans

Overcollateralized Vaults: Users lock assets (e.g., ETH, wBTC) to mint DAI. This provides extreme protocol security with a 150%+ collateralization ratio, insulating lenders from default risk. This model is ideal for permissionless, non-custodial borrowing against volatile assets.

Stability Fee Governance: Borrowing rates (Stability Fees) are set by MKR token holders via decentralized governance. This creates a predictable, non-speculative cost for borrowers, optimized for long-term stability over market cycles. Best for strategic treasury management and stablecoin issuance.

Unsecured Lending: Loans are issued based on off-chain creditworthiness and on-chain repayment history, requiring no upfront collateral. This enables high capital efficiency for borrowers and higher potential yields for lenders, targeting institutional and corporate crypto-native entities.

On-Chain Credit Scoring: TrueFi uses a stake-for-credit model where borrowers stake TRU tokens. A decentralized portfolio manager (the TrustToken DAO) underwrites loans, assessing real-world financials. This introduces counterparty risk but is optimal for working capital loans to known entities like Alameda Research or BlockTower.

Overcollateralization Requirement: Borrowers must lock assets (e.g., ETH, wBTC) at a minimum 110-170% Collateralization Ratio (CR). This provides a robust safety buffer against volatility but ties up significant capital. Ideal for users with large, non-liquid crypto holdings seeking leverage or stablecoin exposure without selling.

Risk is managed via immutable smart contract parameters (liquidation ratios, stability fees). No subjective underwriting. This creates a transparent, non-custodial system proven by $5B+ in Total Value Locked (TVL) and survival through multiple market crashes. Best for protocols prioritizing censorship resistance and deterministic outcomes.

Unsecured loans mean lenders fund 100% of loan value without overcollateralization. This enables higher potential yields (APYs often 8-15%+) as lenders are compensated for underwriting risk. Attractive for yield-seeking capital comfortable with delegated credit assessment via TrueFi's on-chain credit scores and stTRU voting.

Qualified institutions (e.g., Alameda Research, Amber Group) can borrow without posting collateral, unlocking liquidity for trading, market-making, and treasury management. This requires passing a staking-based vote by TRU holders, introducing a human-governance layer. Optimal for established crypto-native businesses with strong reputational capital.

Primary risk is volatile collateral triggering automatic liquidations (e.g., 13% penalty). During market crashes, this can create cascading sell pressure. Borrowers also face opportunity cost from locked capital. A poor fit for borrowers needing flexible, non-volatile collateral or maximum capital efficiency.

Lenders bear direct default risk if a borrower fails to repay. While TrueFi's $1.5B+ total volume has a high repayment rate, losses are socialized. The system relies on TRU holder diligence, introducing governance attack vectors and subjective decision-making. Unsuitable for risk-averse capital seeking pure algorithmic guarantees.

Overcollateralization (100%+) enables permissionless, trust-minimized lending. Users lock assets like ETH (stETH, rETH) or Real-World Assets (RWAs) to mint DAI. This model is battle-tested, securing $8B+ in Total Value Locked (TVL). It's ideal for leveraging existing crypto holdings without counterparty risk.

Liquidation risk is systemic. During high volatility, users face automatic liquidations if collateral value falls. This requires active management or use of keepers. The model is inefficient for institutional working capital, as it locks more value than is borrowed.

Zero-collateral underwriting unlocks efficient capital deployment. Protocols like TrueFi and Maple Finance use on-chain credit scoring and delegated underwriters to assess borrowers (e.g., Alameda Research, Wintermute). This is optimal for Treasury management and institutional working capital, offering higher yields for lenders.

Relies on legal recourse and underwriter diligence. While defaults are rare (e.g., TrueFi's $3.4M FTX exposure), they shift risk from market volatility to counterparty solvency. This introduces off-chain trust and potentially longer recovery times via legal channels.