Getting acquainted with goldfinch
GoldFinch protocol is a decentralized platform from which Borrowers ask for money through a pool.
Because of this, goldfinch allows receiving loans without cryptocurrency collateral.
The difference from other De-fi projects is that the loan is issued only based on the solvency of the company
Goldfinch provides a loan to real economy companies, which is a success and, most importantly, sets this protocol apart from other platforms
At the moment, some companies in the financial sector have already been granted a loan from goldfinch. These companies include Payjoy, QuickCheck, etc.
The main difference from banks is of course the complete decentralization of the platform. Which means that ordinary people can participate in it.
Goldfinch is a marketplace where companies who need a loan and individual investors who can provide it participate.
Now it will be easier for many companies to get a loan, thanks to its worldwide availability. The investor, on the other hand, will be able to participate directly in lending projects.
Now I will tell you more about how Goldfinch works.
In Goldfinch there are several participants in the process. These are borrowers, backers, liquidity providers, and auditors. I will now get into more detail about each of the participants, their roles and functions
1) Borrowers — are the companies that need a loan. Either they create a request for a loan, or backers are looking for such borrowers.
In other words, we can say that borrowers are companies or businesses that put together an application and ask for money through a pool. They are interested in getting a loan from goldfinch
2) Backers.
These are investors of the goldfinch protocol. Their task is also to find potential borrowers. They also do a thorough check on the solvency of the company. The task of backers is among other things to invest the first capital in these companies.
They must also monitor the operation of the company, which can affect the quality of the deal.
If a borrower has payment problems, the function of debt collection falls on the backers.
Backers have the riskiest and the most profitable role in goldfinch protocol.
Backers have the power to control the business. They can ask for additional documents from the borrower, hold meetings and ask questions.
If the backer is sure that the borrower is reliable, he gives the first-loss capital tranche (verification money) from the junior tranche to check the financial solvency of the borrower. If the borrower follows his payment obligations, the Senior pool — Senior tranche is connected. This is additional money from the pool, which is secured by liquidity providers.
3) Liquidity Providers — These are people who invest their money to be used for verified loans. They do not verify borrowers. They just make investments and expect to receive a stable income. Under this scheme, the main risks of capital loss and the analysis of borrowers fall on backers
4) Auditors — people who analyze and audit companies. If the audit is successful, they can receive project tokens.
Auditors are elected after each audit individually. The same auditors cannot audit different companies. They constantly alternate to avoid collusion and to make sure the audit is fair.
The auditors, by voting, give a pass to either a project or a company. That is, the selection is also based on the vote of the auditors. Auditors will receive project tokens as a reward for their work.
If the auditors approve the project, the borrower interacts directly with backers and asks them for money through the goldfinch pool.
Let’s look at an example of how a deal takes place at goldfinch:
Let’s assume that there is a borrower who asks for a $5 million loan at 12% interest. First, the backers invest $1 million in the junior tranche. Next, these funds go to the borrower as the first verification payment. If the borrower’s payments are stable, the protocol allows the remaining funds to be transferred to the borrower, namely $4 million from the senior tranche.
When investors from the senior pool receive all payments back the profit from $4 million will be $380,000. From this amount, 10% ($48,000) will be transferred to the protocol. And 20% of $380,000 will be transferred to the junior tranche for the benefit of backers. Since backers have more risk with their assets, they should have more profit.
As a result, investors from the senior pool will receive a profit of 8.4%. And the backers will receive a profit of 12% which amounts to $120,000 from $1,000,000 of investments. Minus 20% of this amount which they have to transfer to the protocol. For a greater risk, the liquidity providers transfer the amount of 20% to them.
As a result, they get a return of 20.4% on their investments.
That’s how deals are made on the goldfinch platform.
I hope you found it interesting, and thank you for your attention
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