Getting to know Goldfinch. Basics of work
I welcome everyone! In this article I will tell you what Goldfinch is, why the project was created, as well as the basics of work
Goldfinch is a decentralized lending platform for providing unsecured cryptocurrency loans.
At the moment, there are no such solutions in Defi lending, collateral is required everywhere. Goldfinch is the missing piece that could open up access to cryptocurrency lending. This is especially true for private investors looking for new sources of investment.
The project is already cooperating with credit companies that have been successfully operating for many years. In the future, there will be much more of them. It is also worth noting the cool team and sponsors on board.
The team’s mission is to create a decentralized lending platform that will expand access to financial services.
The creators are confident that there is a huge untapped lending potential in the world. Goldfinch is the solution to this problem.
Let’s get to the fun part.
How does the Goldfinch protocol work? To understand how a protocol works, you need to know everyone involved. There are 4 of them. Below is a diagram of the protocol. The source can be found in the description of Lesson 3 of Module 1. I advise you to immediately open it in a separate window.
1. Borrowers (borrowers, people who want to take out a loan, get money) are various organizations that need credit.
2. Backers (I will call them “bakers”, because some people have a confusion with investors / sponsors / supporters, etc.) — these are people who provide their funds to borrowers in order to receive income. Any person can be a baker; this is one of the advantages of the protocol. Not only a bank, but also any of us can become a creditor.
3. Liquidity Providers * LP * — (liquidity providers) are people who also provide their funds to borrowers in order to receive income.
4. Auditors are people randomly selected by the protocol who perform human-level verification to protect against fraud.
IMPORTANT! Bakers and liquidity providers are people who want to generate income by providing their capital. BUT!
Bakers provide their capital as firs-loss, that is, the capital of the first loss directly to the junior tranche of the pool of borrowers. They carry greater risks, but they also receive higher returns compared to liquidity providers. (high profitability appears due to the provision of 20% of the profit of the senior pool).
Liquidity providers provide capital in the Senior pool, which itself automatically distributes funds to the senior tranche of borrowers. LP — bear less risks in case of non-payment of the borrower, but also receive a lower profitability compared to bakers.