My introduction to Goldfinch Protocol

DeFi is developing by leaps and bounds. Huge funds have been pledged, large amounts of borrowed and used funds. The market is saturated with products. But not everyone can get access to credit despite decentralization. So what is missing? The Goldfinch Protocol is missing. I will briefly describe what it is and how it works below.

Goldfinch is a decentralized credit platform for crypto loans without collateral. This is the main and main difference between this project and the mass of all DeFi projects. The absence of a collateral requirement opens the door for a huge number of borrowers who cannot afford to spend extra funds.

The main function of the protocol is to provide loans for borrowers in cryptocurrency on the one hand (through the Borrower Pool) and use the protocol as an investment platform for lenders on the other hand. The Borrower Pool itself is powered by Junior and Senior tranche. For this purpose, 4 roles of participants work within the protocol.

4 Roles in Goldfinch Protocol

Let’s get acquainted with them:

1. Backers. Backers are the basis of the investment flow in the project. Backers evaluate Borrowers and provide capital with the first losses in their pools of borrowers. Backers choose to Borrower Pools for themselves. Their assets are more risky because the first payments to the pool are based on them. In this regard, they receive more income. Backers interact directly with borrowers. They can enter into additional agreements with them. Backers are most interested in the borrower successfully paying off the debt. They collect information, consult with other sponsors. Early backers in the pool receive a large return.
2. Liquidity Providers.These are investors who provide funds for the Senior Pool. These participants receive rather passive income. They don’t choose the Borrower Pool. The profitability and risk are lower here. Liquidity providers provide capital to the Senior Pool in order to receive passive returns. Then the Senior Pool automatically distributes this capital to the senior tranches of the Borrower Pools in accordance with the Leverage Model. In order to compensate the Backers for both the evaluation of the Borrower Pools and the provision of capital with the first loss, 20% of the nominal share of the Senior Pool is redistributed between the Backers. This just reduces the profitability. But LP is a more stable passive income. Without the LP tools, the operation of the protocol would be unstable.
3. Borrowers. These are those who are looking for financing, who want to get a loan for their business. They express their conditions for financing. Size..terms and other conditions. Backers, in turn, can agree or not to these conditions. The amount that Borrowers can use consists of two components:
   a) The calculated limit based on the capital provided by the Backers, and the additional amount of leverage of the Senior Pool
   b) The total total capital provided by the Backers in this Pool of Borrowers, plus the remaining capital in the Senior Pool.
   c) The Limit Of The Borrower Pool
4. Auditors. Auditors are randomly selected among the Backers. They check the legitimacy of Borrowers and their business. Without the permission of the Auditors, the Borrower Pool can never be launched. Auditors also protect the system from collusion of its various participants. Such a system of a certain self-control is a necessary condition for its survival and development.

Let’s look at an approximate scheme of the protocol:

The scheme schematically explains the financial flows in the system and shows the difference in the work of Liquidity Providers from Backers. Liquidity Providers do not interact directly with Borrower Pools. Both groups jointly create a piggy bank for use by borrowers.

The prospects

The prospects for the project are huge. The impressive composition of Goldfinch Protocol investors also speaks about them. The first goal of the project is developing markets. The work is already underway and there is a success. There is no doubt that Goldfinch will soon become extremely popular. We’ll see soon!

The material was created by the user Tatiana#3266

More info here: https://goldfinch.finance/ and https://twitter.com/goldfinch_fi