Goldfinch is a decentralized credit protocol for crypto loans to real businesses. They are basically trying to bridge the gap between crypto-community capital and TradFi credit market. From bird’s eye view, their business model can be illustrated as follows
Though still at early stage of Goldfinch’s grand vision, the platform has seen healthy growth in the past 6–12 months. Besides the fact that aggregate borrowers’ outstanding loans increased from under $10mm to $100mm, I would like to reveal the healthy trend on Goldfinch platform by digging into a few other credit metrics (with the assistance of the Dune dashboard I built over past few weeks https://dune.com/fanhong/goldfinch-finance-credit-monitor).
Note: all the analysis in the above Dune dashboard and the analysis below only includes transaction after August 2021 due to easier data access
- Funding Cost
The funding cost overall has been tightening (moving down) from 11–12% yield to inside (lower than) 11% yield. This indicated a greater adoption of Goldfinch and people can borrow for much better rates on this platform (this is incredible given we are in a macro selloff / TradFi credit markets widening / rates hiking environment in the last 6 months)
I took a closer look of one credit manager on Goldfinch specifically — Almavest. Since August 2021 to Apr 2022, the funding cost went down to 10% from 15% [Financing_Cost](also borrowing size increased from under $1mm to $10mm [Original Drawdown]). This simple great example shows the credit that the Goldfinch community gives to repeated performing borrower
- Leverage
Leverage can be depicted by either advance rate (senior loan amount / borrower amount), or leverage ratio (senior loan amount / junior loan amount). (note that both metrics are equivalent to each other by simple algebra rearrangement). Generally higher leverage ratio (or higher advance rate) means 1) the borrowing requires smaller first-loss portion in these deals and 2) these borrowers obtain higher creditworthiness by the protocol and lenders.. The average leverage ratio across all pools on Goldfinch is about 3.0x (implies 75% of advance rate). That’s a significant improvement from under 1.0x (or under 50% advance rate) a few months ago.
It is worth noting that Goldfinch currently implements 4.0x leverage for new deals. It was agreed upon by the community in proposal GIP-02 as of Feb 2022. (please see the link here: https://gov.goldfinch.finance/t/gip-02-increase-the-existing-leverage-ratio-from-3x-to-4x/789)
Taken Almavest’s series of credit pools as an example again, I see a similar or even more pronounced trend. First pool on record Almavest Basket #2 was not even levered (i.e no senior tranche or 0 advance rate); leverage ratio increased since Almavest Basket #3 and stands at 4.0x as of latest.
- Borrowing Term and Borrowing Amount
Goldfinch’s current aggregate borrower remaining term is about 2.7yr (993 days) for an average financing cost at 10.9%. That’s an extremely competitive level compared to TradFi private market. Recent deals / loans on Goldfinch are financed at 2+yrs term and some are even more than 4yrs. It is an amazing funding source especially considering 1) locking up rates for 2–4yrs in a rates hike environment, 2) there is no penalty for prepay so that borrowers have option to refinance if rates go down in next 2–4yrs and 3) the loan is not amortized (which means no principal payment obligation before the full repayment due). Please note that majority of DeFi protocols offer borrower borrowing term normally at 3–6 months; Goldfinch’s ~3yr borrowing term makes it a uniquely valuable source for borrower to lock in funding schedule.
Aside from financing term, the borrowing amount in the past few deals are constantly increasing / anchoring at ~$10mm (some even as big as $20mm).
Both borrowing term and amount demonstrate that the Goldfinch shows great potential for small credit managers to lock in funding cost.
Summary
Goldfinch has built an innovative approach trying to solve inefficiency in TradFi credit markets. In the past 12 months, it has seen strong growth as well as healthy performance and experienced no 0% loss rates so far. Funding cost, leverage, borrowing term and amount are among major terms used in traditional credit market as barometer; all these metrics have shown better adoption and strong competitiveness of Goldfinch. This is an absolute outperformer as TradFi credit market has weakened meaningfully so far in 2022 and we are in a rates hiking environment. I look forward to continued buildout from Goldfinch team and believe the innovation they push through will help bring out credit access for broader community in a better way.
