The Introduction to Goldfinch
Goldfinch is a decentralized protocol that allows you to borrow cryptocurrency without any collateral.
It is well known that one of the main disadvantages of existing crypto lending protocols is that they require excessive collateral of cryptocurrency, which, in turn, does not allow a large number of borrowers to participate in such projects.
The underlying principle of the Goldfinch protocol is “trust through consensus”, which provides the ability to prove creditworthiness via a collective assessment of other participants, rather than based on their crypto assets.
Besides, the protocol can use the mechanism of collective assessment as a means of automatic capital allocation. Since there is no need to pay off the cryptocurrency collateral, there is an increased opportunity to attract potential borrowers and capital providers who can multiply their income by investing.
To understand the essence of this protocol, it is necessary to analyze the role of its main participants: Borrowers, Backers, Liquidity Providers and Auditors.
Borrowers are participants who need funding and offer Borrower Pools to Backers for assessing, containing the lending (crypto-funding) conditions, in particular, the interest rate, loan terms and repayment schedule.
Backers, in their turn, are involved in the Borrower Pools’ assessment and, based on the performed assessment, make the decision whether it is rational to provide early financing or not. In case of a positive decision of Backers, Borrowers are able to borrow and repay loans through the Borrower Pool.
Liquidity Providers are participants who replenish the Senior Pool with their own funds to generate passive income. The Senior Pool is based on a leverage model that allows capital to be automatically allocated to the Borrower Pools depending on how many Backers are investing in them. The part of the capital inflowed in the Senior Pool is redistributed among sponsors, which motivates the latter one to evaluate the Borrowers Pools more carefully and invest their funds.
Finally, Auditors verify the authenticity of the data received from Borrowers so that the latter will be able to obtain a loan in the future. In addition, they receive a reward in the form of GFI tokens for providing face-to-face security to a protocol that randomly selects them, requesting them to pass identity verification in order to protect against fraud.
Thus, thanks to the Goldfinch protocol, the crypto lending procedure becomes more possible and open to a larger number of Borrowers. Moreover, if you have a strong desire to support this project, you can become a participant by creating and distributing content related to Goldfinch.
Russian version: Here
The article was prepared by: Annette_95#5521
Useful links: