Goldfinch

Introduction Goldfinch is a decentralized protocol that allows for crypto borrowing without crypto collateral. A core limitation of current crypto lending protocols is that they require overcollateralization with crypto, which prevents the vast majority of borrowers in the world from participating. By incorporating the principle of “trust through consensus”, the Goldfinch protocol creates a way for borrowers to show creditworthiness based on the collective assessment of other participants rather than based on their crypto assets.

Goldfinch Overview

The Goldfinch protocol has four core participants: Borrowers, Backers, Liquidity Providers, and Auditors. Borrowers are participants who seek financing, and they propose Borrower Pools for the Backers to assess. Borrower Pools contain the terms a Borrower seeks, like the interest rate and repayment schedule. Backers assess the Borrower Pools and decide whether to supply first-loss capital. After Backers supply capital, Borrowers can borrow and repay through the Borrower Pool. Liquidity Providers supply capital to the Senior Pool in order to earn passive yield. The Senior Pool uses the Leverage Model to automatically allocate capital to the Borrower Pools, based on how many Backers are participating in them. When the Senior Pool allocates capital, a portion of its interest is reallocated to the Backers. This increases the Backers’ effective yield, which incentives them to both provide the higher-risk first-loss capital and do the work of assessing Borrower Pools. Lastly, Auditors vote to approve Borrowers, which is required before they can borrow. Auditors are randomly selected by the protocol, and they provide a human-level check to guard against fraudulent activity.

Borrowers

Borrowers are participants who seek financing from the protocol. They propose terms to Backers to supply capital to their Borrower Pools. Borrower Pool Creation A Borrower Pool is the smart contract through which Borrowers borrow and repay capital. Any Borrower can create a Borrower Pool and define the terms they want. Creating a Borrower Pool is like proposing a “term sheet” to Backers. It does not guarantee the terms will be accepted, since Borrowers then need to convince Backers to supply junior tranche (first-loss) capital. The amount Borrowers can borrow is based on how much Backers supply, combined with the amount the Senior Pool allocates based on the Leverage Model.

Backers Backers evaluate Borrowers and supply first-loss capital on their Borrower Pools. Backers can achieve higher returns when the Senior Pool leverages them with additional senior tranche capital. Supplying to Borrower Pools Backers look at Borrower Pools as investment opportunities. They evaluate the information Borrowers provide and decide if they want to supply capital to the junior tranche of a Borrower Pool.

Auditors

Auditors perform human-level checks on Borrowers to confirm they are legitimate, helping to secure the protocol against fraud. Borrowers need the approval of Auditors to borrow from Borrower Pools.

Liquidity Providers

Liquidity Providers supply capital to the Senior Pool in order to earn passive yield. The Senior Pool automatically allocates their capital to the senior tranches of Borrower Pools.

Governance

Governance is managed by a community DAO and has the ability to perform maintenance functions and parameter adjustments via decentralized governance votes, including:

● Upgrading contracts

● Changing protocol configurations and parameters

● Selecting Unique Entity Check providers

● Setting the rewards and distribution of GFI

● Pausing protocol activity in the event of an emergency.

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