Goldfinch: Bridging DeFi Lending to the Real World

With the parabolic growth of DeFi, and the increasing demand for financial capital in the real world, Goldfinch might be the final piece of the puzzle.

Goldfinch is a decentralized lending protocol for uncollateralized loans that aims to integrate into the real-world. Goldfinch was founded by ex-Coinbase employees Mike Sall and Blake West. Since launched, Goldfinch has raised $1M in funding from stakeholders that includes Kindred Ventures, Coinbase Ventures, IDEO CoLab Ventures, and Stratos Technologies.

Defi lending and borrowing

DeFi borrowing and lending is one of the breakthroughs for DeFi where they provide non-custodial lending and borrowing services with the addition of liquidity mining which became the catalyst for the “DeFi Summer” in 2020. However, these DeFi lending are overcollateralized, making the capitals of lenders inefficient with excess collateral to be unused in these protocols.

Hence the need for zero-collateral lending. Besides maximizing borrowing and making sure lenders’ capital is put to work, borrowers can be able to take out loans without exposure to the underlying protocol. One of the zero-collateral solution provided by CREAM v2’s Iron Bank is providing cross-protocol loans where strategies from whitelisted protocol can be able to borrow from the Iron bank. Another form of zero-collateral lending was proposed by Aave through its Credit Delegation mechanism by removing collateralization through a debt underwriter, who delegate their Aave credit line to someone of their choosing. These are indeed innovative solutions for maximum capital efficiency but the fact that these DeFi protocols are still siloed in a closed-loop ecosystem brings the limitation of bridging between CeFi and DeFi.

Current real-world pain points

Meanwhile, in the real-world, microloans for individuals or small businesses especially in emerging markets are increasing in demand. However, traditionally it’s nearly impossible to make these loans as it’s expensive for banks to underwrite because they don’t know their borrowers. Therefore, these microloans are issued by individuals or services rather than banks or credit unions which poses higher difficulties and risks for both lenders and borrowers. This shows there’s a huge market needs in decentralizing the underwriting process in order to allow anyone to lend in a more simple and secure manner in a way that bank and loan services can’t today.

Goldfinch Protocol

Goldfinch protocol aims to serve as a basis for a decentralized underwriting service, which also provides yield and interests for holders who deposit into the pool. The protocol works by extending credit lines to lending businesses or even individuals to lend out fiat by exchanging stablecoins from the pool into the open market. This way, the protocol enables lenders from across the globe to tap into the capital in order to provide lending services in respective regions.

According to Mike Sall’s Medium post, since the launch of the protocol in December, Goldfinch has partnered with several highly reputable lending businesses such as PayJoy in Mexico, QuickCheck in Nigeria, and Aspire in Southeast Asia. So far, they have collectively drawn down $1M from Goldfinch protocol and deployed it to thousands of end borrowers.

In the current phase, the Goldfinch protocol operates as a crypto version of a credit fund, and the Goldfinch team is acting as the first underwriter and that they are setting terms for the lending

business based on a rigorous underwriting process. In the next phase, a decentralized version of the underwriter network will launch where anyone can act as an underwriter and stake junior debt capital on the protocol’s borrower. In the final phase, the protocol will be able to support smaller lenders and eventually individuals by bringing end-user loans on-chain, providing lenders tools, thus build upon a complete decentralized underwriter marketplace.

Final Thoughts

In conclusion, this project is just publicly announced therefore it still lacks documentation for further reading. However, the Goldfinch protocol idea on integrating DeFi into the real world and bringing financial inclusion to the open market is what attracted me the most. Besides, as an active DeFi user, I’m constantly intrigued with how fast DeFi lending and borrowing grows and it's potential to disrupt vertical industries and as for Goldfinch protocol to succeed, financial regulators and policymakers will need to acknowledge the potential of DeFi and continue to work together so that we may see more integrations of Defi into the real world in order to achieve global financial inclusion.

PS: These are not financial advice and are my own opinions and my experiences with DeFi. I might miss some facts. Thanks for coming.