By
Chimamanda U. Martha
March 28th, 2024
Goldfinch aims to solve the issue with overcollaterization in the DeFi space while bringing together creditworthy loan providers and borrowers.
On Wednesday, June 16, decentralized credit platform Goldfinch announced that it has raised $11 million in a funding round led by Andreessen Horowitz (a16z). The San Francisco-based company said that the capital will help to further improve the offerings in the DeFi space. Goldfinch aims to solve the issue of “overcollateralization” in the existing DeFi market structure.
Goldfinch in the DeFi Space
This term is popular in DeFi where DeFi lenders require traders to pledge 150% in crypto as a bond against potential default. This high percent of collateralization is valid if traders are dealing with highly speculative assets like crypto. But what if the conventional borrowers need these funds just for home or business purposes.
Goldfinch aims to solve exactly this issue going ahead. The official blog post notes:
“By removing that collateral requirement, though, the Goldfinch protocol can unlock an entirely new level of borrowing capacity. This is what will finally allow crypto to break out into global debt markets”.
Launched just a few months back, the decentralized credit protocol has grown 2.5x with loans. Interestingly, Goldfinch is not going just after the big markets in DeFi. Rather, it is finding untapped opportunities in markets like India, Indonesia, Mexico, Nigeria, Singapore, Thailand, and Vietnam.
Goldfinch’s Backer Program
Along with the funding, Goldfinch also announced its Backer Program yesterday. This is basically an incentivized program which the protocol will pilot over the coming months. Additionally, the Backer Program will give the community direct access to the protocol.
Goldfinch also noted that it’s “the first time DeFi users will be able to provide crypto loans directly to emerging market borrowers”. Goldfinch also presented its whitepaper that explains the working of the protocol. the whitepaper explains that the decentralized credit protocol Goldfinch employs a concept called the “trust through consensus”. Here, borrowers can show their creditworthiness based on the collective assessment of the participants instead of showing their crypto assets.
The protocol will then use this collective assessment to automatically allocate capital to the borrower. This will essentially eliminate the need for high crypto collateral while offering a means of passive yield. This way Goldfinch aims to expand its ecosystem of potential capital providers and capital borrowers.
“We’re excited to partner with the a16z crypto team and a number of other backers who share in our vision. This gives us the resources we need to build on the protocol’s momentum,” notes the official blog post.