Starting with emerging markets
How can Goldfinch transform finance from the start? By bringing DeFi to where it will have the most impact
Goldfinch was built to achieve DeFi’s core goal of expanding financial access. To truly achieve this, the technology needed to be designed so that the barriers faced in most of the world were not duplicated in the new on-chain systems being built.
The network was built to achieve this expansion of financial access quickly by optimizing first for the borrowers who could benefit from crypto the most, and where crypto has the greatest impact. That meant starting with lending businesses in emerging markets.
Lending businesses on Goldfinch propose credit lines to the network’s participants, who can choose to fund the credit lines with investment. Those lending businesses use their credit lines to draw down stablecoins (USDC), exchange the USDC for fiat currency, and then deploy that funding on the ground to end-borrowers in their local markets. In this way, the protocol provides the utility of crypto — specifically, its global access to capital — while leaving the actual end-borrower loan origination and servicing to the businesses best equipped to fairly oversee those functions in their own communities.
Demand for crypto’s liquid, multinational nature is high in emerging market regions. Businesses in these areas face difficulty accessing capital at all, due in part to inherited negative international perceptions, competition with infrastructure and government bond investments, and many more factors.
“For most society-transforming innovations, someone needs to build the infrastructure to enable that new mode of society.”
In contrast, DeFi is borderless, permissionless, liquid, open, nimble, and capital-rich, offering a solution by default to growing business sectors in emerging markets. As the IMF noted in their recent Global Financial Stability Report, DeFi could provide up to 12% in annual savings to borrowers when comparing DeFi vs. Non-Bank Emerging Market sources of lending capital.
Further, as economic activity moves on-chain, a new public good is being created — immutable, on-chain credit histories, a core component of any scalable lending model. Borrowers on Goldfinch today are incentivized in part to repay their loans as their on-chain repayment history becomes public to future creditors.
While the data from credit bureaus in developed markets is usually not freely accessible, in emerging markets those bureaus generally don’t yet exist, or are skewed towards the population’s most wealthy. Providing an immutable, accessible, decentralized, and public way of establishing a credit history by consensus is transformative. Goldfinch envisions a future where financial businesses of all kinds can build on top of this credit infrastructure to trustlessly provide products and services to people everywhere. You can learn more about this impact, and the benefit it brings to DeFi, in Warbler Labs’ CIO Sam Eyob’s post on Goldfinch and Real-world assets.
Emerging markets are not only the place where DeFi capital can see immediate impact, but businesses there also offer immense opportunities for investment growth. According to Partech’s 2021 Africa Tech Venture Capital report, Africa is officially the fastest-growing tech ecosystem in the world.
Historically, it has been difficult or nearly impossible for investors in developed markets to provide direct financing to borrowers in emerging markets. While on the one side Goldfinch expands access to capital for those who need it most, on the other it enables investors to access growth potential often not seen in their own regions. In fact, the Goldfinch’s returns on USDC have been cited by Messari and others as “among the highest in DeFi.”
By breaking down barriers to access, connecting lenders and borrowers across borders, expanding economic growth opportunities, establishing decentralized on-chain credit histories, and offering exclusive opportunities for investors to access previously-inaccessible deals, Goldfinch is already revolutionizing how the world handles credit. These are the first steps in transforming how the financial system functions.
But what about DeFi’s growth?
While the focus on expanding crypto to borrowers in emerging markets is an exceptional opportunity for everyone involved, it doesn’t solve all of the barriers to moving the world’s entire private debt market on-chain.
For most society-transforming innovations, someone needs to build the infrastructure to enable that new mode of society. Goldfinch was built not just to expand access to crypto capital to the areas that need it the most, but also to help innovate and move crypto forward — to a place where it can move away from speculation and into everyday financial activity.
If you’re still wondering how Goldfinch will help DeFi get there, read on for our next post, a syndicated op-ed from Warbler Labs CTO Blake West, on why Goldfinch is key to how DeFi 100x’s…
If you’re ready to dive into how Goldfinch works, read our protocol overview.