RWA Protocol Goldfinch Writes Down $7M of $20M Stratos Loan to $0

Real-world asset loan protocol Goldfinch is writing down part of a $20M loan issued to a U.S.-based credit fund and backstopping the losses.

Goldfinch facilitated a $20 million loan to Stratos, a U.S. based credit fund which is also an equity investor in Warber Labs, in February 2022. Stratos used the funds for three investments: $13M to Threecolts, $5M to REZI, and $2M to POKT.

While Warbler Labs, the company developing Goldfinch, believes Threecolts has been performing strongly, loans to REZI and POKT will be written down to $0, according to an Oct. 7 post on Goldfinch's governance forum.

Souring loans on real-world assets, or RWA, lending protocols are a reminder of the challenges of marrying on-chain transactions with off-chain realities including lack of accountability and transparency.

REZI, a real estate technology company focused on apartment rentals in major U.S. cities, appears to have ceased making interest payments.

POKT's investment was not part of the original proposed use of proceeds but was shared with backers about a year ago. Warbler Labs was not notified of Stratos' plans to invest in POKT, the post said.

Quarterly Reviews

To address the losses from REZI and POKT investments, Warbler Labs will backstop all losses for backers of the loan, excluding Warbler and Stratos, and will collaborate with Stratos to pursue all potential recovery options.

Warbler Labs also provided reassurance regarding the rest of the loan book.

"We believe the rest of the loans and borrowers are in good standing and performing," Warbler Labs co-founder Mike Sall and Blake West wrote in the post, adding that they "plan to share quarterly reviews of all loans and borrowers moving forward."

Community Concerns

However, these developments have raised concerns within the community.

A user named 'Wiz' urged Warbler Labs to conduct a thorough audit of borrowers' financial stability and potential breaches of loan agreements.

"This is the second occurrence of a lack of transparency from a borrower or a lack of auditing capability from Goldfinch. We can all appreciate that Warbler Labs will backstop the loss, but it is increasingly worrying to discover a complete lack of control from the loan underwriter," they wrote in response to the post. "It would be reassuring to have a comprehensive overview of the loan book, rather than discovering every 2 months that a borrower experienced another default."

Trending RWA

RWAs has been one of the hottest trends in DeFi, with a promise to unlock new asset classes and generate attractive yields.

There are $557M active loans on RWA protocols, with a total of $4.4B of loans originated, according to rwa.xyz. Goldfinch is the second-largest RWA protocol by active loans, after Centrifuge, the data show.

In August, Goldfinch had to write down a $5M loan made out to Tugende, a Kenyan motorcycle company. Tugende became insolvent after lending $1.9M of the borrowed funds to its Ugandan subsidiary, in violation of the loan agreement and unbeknownst to the Goldfinch community.

As the community awaits further updates and actions, these recent developments highlight the importance of transparency, oversight, and frequent audits in the world of decentralized finance.