Erik Tverskoi
5 min readSep 25, 2021


An introduction to Goldfinch

Now there are more and more mentions of the Goldfinch project on the web. And today I will tell you why this is great news.

Imagine the situation — you need to borrow cryptocurrency. But there is a problem: the larger the loan amount, the greater the amount of collateral, often measured in Ethereum (ETH). And you may not be able to post collateral due to various circumstances. That’s it, cryptocurrency lending is closed for you… That’s how it was before the Goldfinch project was created. This protocol is being created to solve one of DeFi’s biggest drawbacks — loans without any collateral.

The protocol itself is based on providing lines of credit to borrowers. These companies then use the lines of credit to obtain stable coins from the pool, to then exchange them for fiat. Later, they place the fiat on their local markets. Ultimately, the protocol provides the utility of cryptocurrency through access to a lot of capital, while leaving the actual provision and servicing of the loan to the businesses best suited for it. In order to generate their own income, cryptocurrency holders can make deposits into the pool, and when borrowers return the interest back to the protocol, the interest is immediately paid to all participating investors.

How Goldfinch is different from other DeFi lending protocols

This begs the question of how safe is an unsecured loan? The Goldfinch protocol allows borrowers to demonstrate creditworthiness based on the collective assessment of other participants, not just on their crypto-assets. The company calls this the “trust through consensus” principle. Later, this collective assessment is used to assess signal quality to further automatically allocate capital. By removing collateral from this chain, the protocol will noticeably increase the number of both potential borrowers who can access cryptocurrency and potential providers of capital. Many experts believe that this will be a coup in the cryptocurrency world, opening up access to this market for most of the world!

There is now an increasingly clear trend of investors looking for new sources of income. Many are considering cryptocurrency because it is more stable than their local currency. And in a situation where both borrowers and investors are looking for crypto opportunities — inevitably both parties will transact through crypto. And in order to do this with new investors, there needs to be an organized marketplace that allows all this activity to take place. That’s what Goldfinch is doing — creating a huge new market.

It should not be forgotten that the coronavirus has deprived many companies of a decent amount of investment, including from the government. Many potentially successful projects were forced to stop their work, because it is quite difficult to quickly find a new source of financing in the form of a bank or private investor. It is safe to say that most of these projects will be implemented just through Goldfinch.

Key differences between the Senior Pool LP and Backer roles

The Goldfinch protocol consists of four main participants: Borrowers, Backers, Liquidity Providers and Auditors. Also consider the work of the trenches.

Borrowers. These are companies looking for financing. Next, backers check the pools offered by borrowers. Backers invest their own capital. The pools contain the terms and conditions that the borrower would like to receive. As an example of mandatory clauses, the repayment schedule and the desired interest rate on the loan.

Tranches. Borrower pools have both junior and senior tranches. Backers provide capital to the junior tranche, and the senior pool provides capital to the senior tranche. When the borrower makes payments, the Borrower Pool allocates the amount first to repay the interest and principal of the senior tranche and then to the interest and principal of the junior tranche.

Backers. Backers evaluate pools of borrowers and decide whether to provide capital with the first loss. After backers provide capital, borrowers can borrow and repay loans through the pool.

Liquidity Providers. They provide capital to the senior pool in order to generate passive income. The Senior Pool uses a smart contract to automatically distribute capital between pools of borrowers depending on how many backers participate. When the Senior Pool allocates capital, a portion of its share is redistributed to backers. This increases their effective return, which provides an incentive to both provide primary risk capital and do the work of evaluating borrower pools.

Auditors. Auditors are a kind of manual review of borrowers and pools for errors or fraud. Before borrowers can withdraw any capital, they must be audited by auditors, who will vote to confirm borrowers.

I hope that with this detailed explanation I have answered all possible questions. Although I guess there is only one left — Is this all theory or has it already been tested in practice? Goldfinch already has partners all over the world:

QuickCheck. The company is originally from Nigeria. They are engaged in providing quick loans to the population through a mobile app.

ALMA. It is an accreditation fund that raises capital from backers through a pool of Goldfinch borrowers. In this way they already provide financing to a number of companies from various fields in several countries.

PayJoy. It is a Mexican company that also provides the ability to easily take out a loan through a mobile app.

I could talk about the Goldfinch project for a long time, and discuss its potential even longer. I tried to make the most detailed and useful for readers article — I hope that’s exactly what it was for you.

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