Introduction to Goldfinch-a new word in DeFi
So. What is a Goldfinch ?
Goldfinch is a decentralized protocol that allows you to make crypto loans without crypto collateral. Let’s talk about this in more detail. After all, the topic of crypto-loans is absolutely not new. There are already many similar offers on the market. The sphere of DeFi is rapidly developing. However, Goldfinch is different from other DeFi lending protocols.
1. The first and most basic difference is the absence of cryptosystems. This is the very stumbling block that slows down most of the initiatives in DeFi. This requires separate funds and efforts and stops the process of interaction between borrowers and investors. How is this point eliminated in Goldfich? The protocol does this by using the concept of “trust through consensus”: that borrowers can show creditworthiness based on the collective assessment of other participants, rather than based on their crypto assets. This concept, in turn, is protected by the principle of “Unique Entity Check”. A huge number of people on the planet do not have sufficient funds to take out a loan using a loan. An exemption from this clause will add a lot of loan users. Just think about how this will increase the market volume.
2. The second difference is the scalability and decentralization of the protocol. The absence of a crypto loan condition will give access to borrowed funds to a huge number of users. However, there is also a problem on the other side. A huge number of small and medium-sized investors are also unable to participate in the market due to the different conditions of the classical lending and loan market. In Goldfinch, almost every investor has the opportunity to use their funds.Even a small capital can equally participate in the market. Thanks to the blockchain technology, any borrower from one country and any investor from another can communicate in the protocol. There are no borders and restrictions.
How does the protocol work?
The protocol works by expanding credit lines for lending to enterprises.
All roles in the protocol can be divided into 4 cohorts : These are Borrowers , Backers, Liquidity Providers and Auditors .
Everyone has their own important role. These borrowers are the very people who want to get a loan for their goals and business. Borrowers use funds from Borrower Pools.
They, in turn, are formed by sponsors and liquidity providers . Borrower pools have both junior and senior tranches. The Backers provide capital to the junior tranche, and the Senior Pool provides capital to the senior tranche
After the pool is formed, borrowers use crypto funds from the pool and exchange them on the spot for the currency they need. Backers form a senior tranche and operate with riskier funds, but in return they receive more income.
Liquidity Providers form a senior tranche and receive a lower income. They are closest to the classical understanding of investors giving loans. They don’t choose the Borrower pools. Backers choose the Borrower pool where they want to invest, interact with borrowers and control what and how funds are allocated in the pool, because they are most interested in the success of the loan, since in case of non-payment of funds by the borrower, their funds will be lost in the first place.
Auditors exercise control over Borrowers and monitor that there is no collusion between the participants in the process. They check the documents, check that it is real, etc. Without their approval, the Borrower pool cannot be launched into operation.
Prospects of the Goldfinch protocol
Thus, both small and large players with greater and lesser risk and profitability can participate in the lending process. And it has persistent protection measures that do not require much money and time. Such a product is simply necessary in the current realities. The proof is the verification of the protocol’s operation in emerging markets and this is already happening. The Goldfinch protocol launched in December with several highly reputable lending businesses participating, including PayJoy in Mexico, QuickCheck in Nigeria, and more to be announce. That is, the project already has working precedents. We can only observe its rapid growth and development.
Thanks for your attention! In the process of writing the article, official materials from the site were used https://goldfinch.finance/ and the project’s whitepaper.
Written by the user discord b_u_ggg#3791