Aave, Compound, and Maker are all popular options for DeFi users looking to take out a loan. To do so, however, requires the user to post collateral worth more than the loan amount they want to draw. Phrased another way, Aave, Compound and Maker all offer overcollateralized borrowing. The widespread availability of this shouldn’t come as a surprise given the risk mitigation that collateral provides in an ecosystem lacking identity and credit. While the loans are safer, the collateral required also makes them far less capital efficient.
Uncollateralized loans, on the other hand, are the key to unlocking capital efficiency in the DeFi loan markets. There are several challenges to making this work, but TrueFi appears to be tackling them successfully thus far. In this post, we’ll examine how TrueFi works and what’s been driving its growth.