Goldfinch: A Strong Contender in On-Chain Private Credit Markets

Goldfinch is an on-chain credit protocol that allows off-chain entities to access credit without crypto collateral. By utilizing different credit tranches and the collective due diligence of the community, the protocol allows individuals to define their credit risk based on individual risk appetites and desired exposure. Goldfinch currently provides loans to companies in over 28 countries through loan originators that are often credit funds. As of today, it has around $100M in active loans with significant growth in 2022, as shown by the chart below.

Supplying Credit

There are two methods by which one can provide liquidity to potential borrowers. The first is by being a backer that supplies capital to individual borrower pools. The second is by being a liquidity provider and depositing into the senior pool, where capital is automatically allocated across all borrower pools. Backers and liquidity providers have different seniorities on the debt hierarchy. Liquidity providers own the senior tranche of the debt, while backers own the junior tranche of the debt that is first to take on any losses.

Backers

Backers provide liquidity to individual credit pools. They act as secondary credit underwriters, conducting their own due diligence on individual pools, and are the first to lose if a pool defaults. To help with their due diligence, each investment pool has a data room. Each data room includes documents that traditional investors are likely used to, including PPMs, subscription docs, and other legal agreements.

In return for providing liquidity, a backer receives an NFT. The NFT tracks the total amount supplied and how much capital has been redeemed. Backers may withdraw interest payments as they are paid by the borrower, but the ability to withdraw principal is dependent on the pool term as proposed by the borrower. External parties such as AlloyX and the Goldfinch community have launched marketplaces for secondary NFT sales, allowing backers to exit their position before the pool term deadline.