DeFi Lender Goldfinch Hits $100M in Loans as Crypto-to-Real World Model Picks Up Steam
A16z-backed Startup Targets Lending in Developing Economies
By: Owen Fernau •Dive
Crypto is a circular system where whales borrow money against their assets to pump up ponzi schemes and dump those tokens on retail traders betting those coins are the future of finance.
That’s one way to think about crypto.
Another? Crypto provides loans to people doing business in non-crypto sectors of the economy. Blake West is pushing this angle.
West is the co-founder of Goldfinch, a platform that “brings crypto loans to the real world.” On April 26, Goldfinch’s loanbook hit $100M. Last February, the protocol had $1M in loans. The milestone shows there’s a dire need for unsecured capital, especially in the developing word, West says.
Active Loans since Goldfinch’s Inception. Source: Dune Analytics
“Goldfinch is offering these real loans that are tied to real world activity [and] still has really good yields,” West told The Defiant.
He noted that yields on protocol Compound Finance are around 2% while Goldfinch’s senior tranche is more than 8%. The protocol offers the senior tranche to passive investors and a higher yielding junior tranche to “backers” who actually propose and negotiate with borrowers on a per-investment basis.
Unsecured lending, especially to smaller borrowers, is a high-risk business. It isn’t just defaults that platforms have to worry about. Regulators, too, can swoop in with new rules to safeguard borrowers, which can raise the cost of capital and daily business operations. Throw in the volatility of crypto and it would appear risks can be even greater.
West says Goldfinch’s loans are not tied to demand within crypto, so the rates deviate from those stemming from demand to yield farm, for example. Instead the protocol makes loans to companies like Greenway which distributes highly efficient and safe cookstoves in India. The platform is making loans in 18 nations, including Brazil and Kenya.
The model has attracted heavy hitters: In January, Andreessen Horowitz led a $25M investment round in the startup; hedge fund manager Bill Ackman also took part. A16z General Partner Arianna Simpson said Goldfinch was positioned to bring DeFi lending to borrowers in emerging economies who lack collateral to obtain conventional loans.
“Goldfinch is a decentralized credit platform that broadens the pool of potential lenders beyond just banks,” Simpson posted.
To that end, Goldfinch counts fintech companies among its borrowers, which facilitate loans in their respective fiat currencies. West says the next step for these fintech companies is to lend directly to their customers’ wallets.
Goldfinch has rivals. West said projects like Centrifuge, Maple Finance, and TrueFi are making moves in the unsecured loan space. He contends “unsecured,” meaning the loan isn’t collateralized, is a misnomer because the debt is backed by off-chain assets.
For example, when a smartphone finance company borrows money from Goldfinch it gives people smartphones on payment plans. If people default, the phone company shuts off their service. Customers probably don’t want to owe money on a useless phone so they’ll be motivated to service the loan to the company, which in turn pays back Goldfinch.
“Basically all the loans we do are secured and in fact are collateralized,” West said.
In light of such dynamics, West prefers to call Goldfinch a “credit protocol,” instead of an “unsecured lending protocol.”
Still, for all the loan volume growth, Goldfinch’s native token is cratering. GFI has lost almost half its value since it went live on Jan. 11, according to CoinGecko. Of course, the DeFi market has been swooning, with the market cap for the top 100 names in the sector down down 16% in that period.
GFI’s 90-day performance. Source: CoinGecko
While lending is fraught with regulatory and payment risks, Goldfinch’s $100M milestone suggests credit protocols with real world utility are emerging as a new growth area in crypto.
“Margin trading and stuff just only goes so far, but once you start tapping into real economic activity, that’s when DeFi can go into trillions of dollars instead of tens of billions,” said West. “I don’t think people in the crypto markets quite understand that this is where the growth in DeFi is gonna come from.”