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Goldfinch's $20M Real-World Asset Loan Raises Concerns in DeFi Space

Oct 11, 2023 at 10:28 am

In the wake of an African robotaxi company defaulting on a $5 million loan from Goldfinch, a tokenized loan of $20 million has turned sour within a lending pool on the decentralized platform. The borrower, Stratos, made investments in a real-estate tech firm and digital assets that failed to yield the expected returns, as reported by pool manager, Warbler Labs, in a forum post on protocol governance.

The distressed pool had initially extended a four-year loan of $20 million in USDC stablecoins, carrying an 11% annual interest rate, to fintech credit fund Stratos in February 2022, with Warbler Labs acting as the underwriter. Presently, about $7 million of the funds are deemed at risk of loss, as disclosed by Warbler.

Stratos allocated $5 million of the funds to REZI, a real-estate tech firm specializing in apartment rentals in major U.S. cities. Unfortunately, REZI ceased payments and is expected to write down the position to zero. Additionally, $2 million of the funds were allocated to something referred to as POKT, described by Warbler Labs as "not known at the time of the investment." Stratos sold this position at a near-full loss and supplemented loan collateral to cover the deficit.

Warbler Labs stated its commitment to covering all losses incurred by investors in the pool. In a forum post, co-founders Michael Sall and Blake West expressed their disappointment, affirming that Warbler Labs will assume full risk and responsibility for recovery, while also pledging to backstop losses associated with REZI and POKT, excluding their own and Stratos' positions.

The remaining $13 million was directed towards Threecolts, a startup focused on e-commerce marketplace management, which is reportedly performing well.

This incident underscores the risks associated with tokenized real-world assets (RWA), particularly in the realm of private credit. RWAs have emerged as a prominent trend in the crypto industry, seeking to reignite excitement as capital flows dwindle. It also calls attention to the due diligence process in blockchain-based RWA lending protocols, particularly following a series of defaulted loans to crypto trading firms last year.

This development follows another credit event earlier this year involving a Goldfinch pool, when African motorcycle taxi financing company Tugende defaulted on a $5 million loan set to mature in October. The borrower had also violated loan covenants by extending intercompany loans to alleviate the financial struggles of a sister company, as stated in a Goldfinch governance post.

Participants in the governance forum expressed concerns about transparency and auditing capabilities, emphasizing the importance of robust control measures. Some highlighted the potential reputational risk associated with these events, cautioning against undermining the burgeoning narrative around RWAs.

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