Crypto borrowing without crypto collateral.
Today I would like to talk about one of the most promising projects in the field of decentralized credit loans - Goldfinch Finance (www.goldfinch.finance)
A little bit about Goldfinch Finance
As the company itself explains in its whitepaper, Goldfinch is a decentralized protocol that allows to carry out a crypto loan without a crypto-pledge. How can I understand this? Goldfinch uses the principle of “trust through consensus” and allows the borrower to prove their creditworthiness by evaluating other participants. In the future, the assessment of participants is used for automatic capital allocation. To put it simply, the borrower does not need to provide his crypto assets to receive a loan, and the company itself sponsors it from its reserves, relying on a competent assessment of the creditworthiness of this borrower.
This figure shows the scheme of functioning of the Goldfinch.Finance economic system.
As we can see, there are four types of participants in it:
This is a participant who wants to receive funds from the pool of borrowers.
Participants who provide the first tranche of capital to individual pools of borrowers. The Sponsor has the right to conduct additional checks, ask the Borrower to provide additional papers, or schedule and hold a live meeting, or a meeting via video link. Since the Sponsor transfers his funds to the borrower, he is directly interested in a detailed check of his creditworthiness and decency. In order to ensure a transparent relationship between the Borrower and the Sponsor, there is a participant Auditor.
A participant who receives a reward for a detailed check of the Borrower before referring him to the sponsor. Thus, the Auditor is the first link in the relationship between the Borrower and the Sponsor, checking the reliability of the first, and organizing the contact of the first with the second participant.
If the Auditor and the Sponsor are satisfied with everything, then a loan is issued to the Borrower. It consists of two tranches, the first is a small tranche from the Sponsor’s funds, the second is a tranche from the so-called pool provided by liquidity providers.
4. Liquidity Provider
Participants who provide capital to the pool, from which, after the decision of the Sponsors, a loan is issued to the borrower at the agreed interest rate. These participants receive passive income from providing their own funds for the ecosystem.
There is a difference between a Sponsor and a Liquidity Provider, despite all their similarities. Each of them allocates 10% of the loan yield to the reserve pool. But also, Liquidity Providers allocate an additional 20% from the Senior Pool to the Junior Pool, since the Sponsors are entrusted with additional work to verify the Borrower, and it is also the Sponsors who issue the first (most risky) tranche.