Our Investment in Goldfinch
A Decentralized Credit Platform
In 2007, Safaricom, the Kenyan subsidiary of Vodafone, launched M-Pesa, the mobile money service that would go on to transform Kenyan culture, and ultimately set a new standard for the world. With M-Pesa, users could transfer money onto their phones, and then send it seamlessly and immediately to each other simply using the VoIP protocols. We take this type of technology for granted today, but this was before the launch of the app store, before the iPhone and Android. Today, nearly ever country in the world has protocols for moving money from one mobile device to another, catalyzed, in no small part, by the creation of M-Pesa. If you want to give someone $5 over the air today, you just do it.
There are 10,000 microfinance institutions in the world, delivering over $120B of small loans per year all over the world. For those institutions, raising capital is a headache –– perhaps like transferring money was before 2007, or distributing media before the 1990s. Global capital doesn’t understand its sources, too often. Translating risk and underwriting into the local languages of a minibus taxi driver, an aspiring programmer, or even someone who needs to finance their first cellphone, is expensive, inefficient, and has too many middle men. 1.7 billion underbanked people in the world today. Billions more with inadequate access to the credit that would bring them opportunity. Enter crypto.
Today, there is over $200B of crypto that can only earn ~0.3%. There has been incredible growth in decentralized finance (DeFi) infrastructure, and lending in particular has proven a valuable place for yield. But it is limited today, and constrained by the places to lend the capital. That constraint is driven by the need for crypto lending to be collateralized. That is, for every 1BTC loaned over a crypto network, another 1BTC is held in collateral. This holds back the entire DeFi movement, as it is a point of massive inefficiency. Enter Goldfinch.
Launching in beta today, Goldfinch solves this problem for both sides of the market. For borrowers, they make raising capital easier and faster by tapping into a decentralized network of underwriters and a new source of capital. For crypto investors, they offer significantly higher yields that are uncorrelated with the markets. With Ethereum-enabled smart contracts, these loans can be direct to borrowers, immediately underwritten, no collateral, secured on a public blockchain, and instantly global. In just a few weeks, they have served thousands of borrowers across four continents. This problem — the translation problem –– is uniquely solved using decentralized finance, and is already working. The blockchain has drastically reduced the cost of becoming a bank, and Goldfinch is building a platform to empower anyone to be a lender, not just banks.
I see a future for this company similar to M-Pesa a generation prior, PayPal before them, or VISA a generation prior still. They are pioneering a new market network in finance, and using the most modern technology infrastructure to enable it. Mike and Blake, who bring deep experience from their time together at Kindred family company Coinbase, have assembled a stellar team of engineers, designers, credit underwriters, and partners to tackle this problem.