Goldfinch Protocol— Bringing crypto loans to the real world.

4 min readSep 27, 2021

There has been an incredible growth of DeFi in recent years, the total amount of borrowed assets constantly continues to increase. How to take advantage of this opportunity and bring crypto loans to the real world? Founders of Goldfinch Protocol know how.

So what is the Goldfinch Protocol?

Goldfinch is a decentralized credit platform, building one of the biggest missing pieces of DeFi: loans without collateral. This is the missing piece that finally unlocks crypto lending for most people in the world. Why is this so important? Well, that’s because DeFi is a very fast-growing market, the total amount borrowed across crypto networks keeps rising more and more. But it has one serious limitation — all of this lending is overcollateralized. For every $1.00 someone borrows on these networks today, they must first put up ~$1.50 of another asset they already own. This collateral requirement holds the whole system back.

On the other hand, these loans are useful primarily for margin traders and crypto holders who don’t want to sell their positions, not for the world outside the DeFi.

DeFi has a massive opportunity to transform access to capital, but it will only be possible once it can make loans without collateral. Removing this collateral requirement is key to crypto breaking out into global debt markets. And Goldfinch solves this problem, removing the collateral requirement. That’s what will finally open crypto lending to most people in the world.

How does it work?

From the beginning, Goldfinch founders wanted to build for the borrowers who can benefit most and where crypto can have the greatest impact. This led them to start with lending businesses in emerging markets. They have the most to gain (and the highest demand) because the inefficiencies of traditional finance limit the capital that can flow into these markets.

The protocol is already serving thousands of borrowers across India, Mexico, Nigeria, and Southeast Asia.

What’s also important — high-quality borrowers provide expected 10–14% APY from real-world activity uncorrelated with crypto.

The protocol works by extending credit lines to lending businesses. These businesses use their credit lines to draw down stablecoins from the pool, and then they exchange it for fiat and deploy it on the ground in their local markets.

On the investor side, crypto holders can deposit into the pool to earn yield. As the lending businesses make their interest payments back to the protocol, they’re immediately disbursed to all investors.

Liquidity Providers supply capital to the Senior Pool. The protocol automatically allocates the Senior Pool to the senior tranches of Borrower Pools.

Borrowers propose pools (with terms like the interest rate) for the Backers to assess

Backers supply capital to the junior tranches of Borrower Pools.

If you want to know more about all the processes, I suggest you to read the official whitepaper of the project. It describes full mechanics of interaction between LP’s, Backers, Borrowers and Auditors.

How to get involved?

Recently Goldfinch Community launched Flight Academy: a program for Backers to learn and teach about global debt capital markets. The Flight Academy is a program for the Backer community to teach and learn from one another. It will last about 6 weeks, and will include educational content, token rewards, and various special awards. The goal of the Academy is to a) provide the community with basic vocabulary and tools to start evaluating debt deals and b) establish norms that will help the community develop over time.