Despite the enthusiasm that has swept the so-called web3 space in recent months, most of the largest sums of investor money have appeared to be directed toward firms that reach people in the United States. However, an increasing number of companies are focusing on poorer countries, where traditional centralized banking institutions have struggled to meet the needs of their consumers.
Goldfinch is a cryptocurrency startup that is developing a decentralized lending protocol that will allow businesses to obtain cryptocurrency loans without having to possess large quantities of cryptocurrency. Most lending platforms nowadays rely on an end user’s existing crypto collateralization to determine whether they’re a good loan candidate. Securing valuable crypto assets in excess of the loan’s worth provides for safer lending, but it also turns off a lot of potential loan recipients who don’t have large crypto holdings.
The Bay Area startup wants to take a more blended solution to crypto lending with its protocol, building up capital pools and allowing fintech organizations outside the U.S. to make their case to lenders operating on the protocol and get access to funds while showing non-crypto collateral.
The startup tells TechCrunch it has closed $25 million in funding from Andreessen Horowitz’s crypto arm. Other backers include Coinbase Ventures, SV Angel, Blocktower, Bill Ackman and Heli-cap. Founders Mike Sall and Blake West previously worked together at Coinbase before starting Goldfinch in July of 2020. The firm raised an $11 million funding round last June.
But since pooled investing outside of securities regulations isn’t permitted in the United States, Goldfinch is for now ignoring the American market in favor of tapping networks of investors elsewhere — who are primarily focused on developing countries, where obtaining a loan has historically been difficult. The nations having the most loans through the protocol are Kenya, Nigeria, Uganda, and the Philippines.
Tugende, a Uganda business that lends motorcycle riders to borrowers who set up payment plans to buy the bikes over time, is one of the protocol’s backers. Greenway, a company established in India that produces and loans clean cook burners to low-income families, has also received funding.
The Tugende team has put a lot of thought into finding the correct incentive mix for their platform, allowing backers to accept different levels of risk and direct engagement in the platform. Lenders can manage their risk by dividing their overall pool of capital into “junior” and “senior” divisions.
While junior investors can make direct bets on which organizations they want to support, the senior pool automatically diversifies the junior pool’s portfolio holdings. Because the senior pool is paid out first, it is a less active, more safe wager, but lenders in that pool forfeit a significant percentage of interest in favor of riskier junior pool backers who accept greater risk with more possible gain.