Goldfinch Finance. Differences from other DeFi protocols.

Goldfinch is introducing DeFi technology into the real economy, so we should definitely familiarize ourselves with it now because Goldfinch’s goal is to change the essence of credit and make it more understandable for a wider audience.

What is DeFi?

Decentralized Finance (DeFi) is a decentralized, publicly available, and trust-free ecosystem of financial applications/services based on public blockchains, mostly Ethereum.

Goldfinch is a fast-growing decentralized protocol whose main advantage is collateral-free cryptocurrency lending. The Goldfinch project is built on the Etherium blockchain with its standard ERC-20 token.

How does work?

The Goldfinch protocol consists of four main participants: borrowers, sponsors, liquidity providers, and auditors.

Borrowers are participants who are looking for funding, and they offer pools of borrowers for evaluation. Borrower pools contain the terms that the borrower is looking for, such as the interest rate and repayment schedule.

Backers evaluate the borrower pools and decide whether or not to provide first-loss capital. Once sponsors provide capital, borrowers can borrow and repay through a pool of borrowers.

Liquidity Providers — provide capital to the senior pool to generate passive income. The Senior Pool uses a leverage model to automatically distribute capital to the Borrower Pools depending on how many sponsors are involved. When the senior pool allocates capital, a portion of its share is redistributed to the sponsors. This increases the sponsors’ effective return, which encourages them both to provide riskier first-loss capital and to do the work of evaluating the borrower pools.

Auditors — vote to approve borrowers, which is necessary before they can borrow. Auditors are randomly selected according to protocol, and they do human-level due diligence to protect against fraud.

GFI — Token used for management votes, auditor rates, auditor voting rewards, sponsor rates, early sponsor rewards, and other potential rewards for the entire participant protocol.

How is Goldfinch different from other DeFi protocols?

The current situation in the DeFi segment is that everyone who has borrowed $1 provides ~$1.5 worth of assets, and this in many ways hinders the development of the system.

However, this is a great opportunity for those who already have some capital to increase their working capital by locking some of their funds in DeFi protocols rather than selling them. In most cases, a borrower needs a loan at a time when they can’t make one.

This is what Goldfinch is trying to change. Not having to provide collateral will open up access to capital, where proven companies in emerging markets can offer their loan terms, and sponsors will decide whether or not to invest in the pool.

The protocol will support all small lenders who do not yet have a loan servicing infrastructure, to the point where anyone can make loans, even individuals. The protocol will do this by providing loans to end-users down the chain, providing self-service tools for lenders, and relying on a dynamic underwriter market.

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Mark Zilla

Crypto-enthusiast, You-Nube blogger, social media commentator, node-runner, and crypto fan.