Crypto is a circulation system in which whales borrow money from their assets to strengthen their Ponzi schemes and dump their tokens to retailers betting that their coins are the future of finance.
It’s one way to think about cryptography.
another? Crypto provides loans to people doing business in the non-cryptocurrency sector of the economy. Breakwest is pushing this angle.
West is the co-founder of Goldfinch, a platform that “brings crypto loans to the real world.” On April 26, Gold Finch’s loan book reached $ 100 million. Last February, the Protocol received a $ 1 million loan. Milestones, especially in developing terms, indicate the urgent need for unsecured capital, West says.
“Gold Finch offers these real loans related to real-world activities [and] We still have a really good harvest, “West told Defiant.
He said the protocol compound finance yield is around 2%, while the Gold Finch senior tranche is over 8%. The Protocol provides senior tranches for passive investors and high-yielding junior tranches for “backers” who actually propose and negotiate with borrowers for each investment.
Unsecured lending, especially to small borrowers, is a risky business. The platform isn’t the only one to worry about. Regulators can also ambush new rules to protect borrowers, which can increase the cost of capital and the cost of day-to-day operations. Introducing cryptographic volatility can make the risk even greater.
West says Gold Finch’s loans aren’t tied to demand within cryptocurrencies, so they’re different from, for example, the demand to create a farm. Instead, the protocol finances companies like Greenway, which distributes highly efficient and safe cooking stoves in India. The platform has loans in 18 countries, including Brazil and Kenya.
This model attracted blockbuster companies. In January, Andreessen Horowitz led a $ 25 million round of investment at the startup. Hedge fund manager Bill Ackman also participated. A16z’s general partner, Arianna Simpson, said Goldfinch is in a position to provide DeFi loans to borrowers in emerging economies who lack collateral to obtain traditional loans.
“Gold Finch is a decentralized credit platform that expands the pool of potential lenders as well as banks,” Simpson posted.
To that end, Gold Finch counts as borrowers fintech companies that promote lending in their respective fiat currencies. West says the next step for these fintech companies is to lend them directly to their customers’ wallets.
Gold Finch has rivals. According to West, projects such as Centrifuge, Maple Finance and TrueFi are moving in the area of unsecured loans. He argues that “unsecured,” which means the loan is unsecured, is a misnomer because the debt is backed by off-chain assets.
For example, when a smartphone finance company borrows money from Gold Finch, it gives people a smartphone with a payment plan. If people default, the telephone company will stop their service. The customer probably doesn’t want to borrow money on a useless phone call, so they are motivated to give the company a loan and the company repays Gold Finch.
“Basically, all the loans we make are collateralized, and in fact they are collateralized,” West said.
In light of this dynamics, West prefers to call Gold Finch a “credit protocol” rather than an “insecure lending protocol.”
Still, Goldfinch’s native tokens have become a crater for all lending increases. According to CoinGecko, GFI has lost almost half of its value since it was released on January 11. Of course, the DeFi market is growing fast, with the market capitalization of the top 100 companies in the sector dropping 16% over that period.
While lending carries regulatory and payment risks, Goldfinch’s $ 100 million milestone suggests that real-world useful credit protocols are emerging as a new growth area for cryptocurrencies. doing.
“Margin trading and the like have only progressed so far, but once you start using real economic activity, DeFi can reach trillions of dollars instead of tens of billions,” West said. I am. “I don’t think people in the crypto market have a complete understanding of where this is where DeFi growth comes from.”