#9 – Mike Sall & Blake West: Goldfinch, uncollateralized loans in emerging markets.

Hey everyone — here’s my new conversation with Mike Sall and Blake West at Goldfinch: intothebytecode.xyz/9-goldfinch/

Thousands of people in countries like Uganda, India, and Brazil have been financed by Goldfinch loans through local lenders.

These lenders are largely innovative fintechs in the global south, and have historically fallen into an uncanny valley — they need too much capital for what is available in their local financial markets, and too little capital to navigate foreign institutional markets.

Goldfinch has built a product/protocol that’s being used in the real world -- and this has involved solving some difficult problems..

Borrowers receive funds in USDC and convert into their local currency before paying out to end users. They therefore need to hedge against exchange rate risk. With stablecoins not being available most currencies, this requires interfacing with the legacy system.

Borrowers — like Tugende, the motorcycle taxi lender — are incorporated as local entities and have local compliance requirements around borrowing/lending. The Goldfinch protocol therefore needs to work within the regulatory regimes of these countries.

Goldfinch has built an offchain/onchain KYC system for sybil-resistance and compliance. They’ve thread the needle in building a system that’s pragmatic today, while future-proofing so that it can be upgraded as other models emerge.

Sybil-resistant identity is the holy grail, but is a difficult problem. I’m hopeful continued experimentation with models like web of trust will uncover new possibilities here.

This in turn allows them to design their incentive/security model within the protocol. Things like:

The leverage ratio — how much capital is put to work from the senior pool — scales in part with the number of unique backers who have diligenced a borrower.

Auditors have their work checked with an analogue of a Keynesian beauty contest.

Lastly, Goldfinch uses quadratic voting for governance.

In short, Goldfinch is building a debt marketplace - one that is global, liquid (ie borrowers/lenders can trade out of their positions), and programmable (ie can eventually be the basis of various structured products)

What I’ll be watching for from here:
- How the community navigates the transition to open governance.
- How the protocol incorporates more borrowers, backers, auditors - to operate at growing scale.
- How Goldinfch evolves to include other types of uncollateralized lending.

That’s all. Hope you enjoy!