Authors: Alexandre Liege, Alvin Hsia, Charles Packer, Jeremy Kim
As an investor on Goldfinch, we would like to use FIDU to invest in select Junior tranches to get Backer NFTs without incurring withdrawal costs and without forfeiting GFI rewards. We believe that it will bring additional liquidity into Junior tranches.
FIDU as the entry point for investing: It will make it easier for Senior Liquidity Providers to act as Backers when they spot a junior investment that they find attractive. We believe that Senior investing is a good entry point for newcomers to the Goldfinch protocols, so this would lower the barrier to becoming a Backer. It will also enable institutional investors to place their capital in senior tranches to earn a passive income while they scout junior investment opportunities on Goldfinch.
Junior financing predictability: Part of the funds in the FIDU will thus become available to invest in Junior tranches. Over time, patterns will emerge on the volume of financing that converts from FIDU into junior investing opportunities.
We seek to invest in Junior tranches as Backer but Junior investments are not always available. Until such an investment is available, we need to place our funds in a liquid asset outside of the Goldfinch ecosystem. Currently, when there is no junior investment available, we can farm yield on Compound and other protocols but we would rather place our funds in FIDU (to earn yield from borrower pools + compound yield).
The main issue currently is that if we use FIDU staked for less than 12 months, we have to forfeit part of our GFI rewards to redeem the USDC and use them to invest in a junior tranche. This is because the GFI distributions received from liquidity mining unlock linearly over the first 12 months of staking. This means that while one can withdraw their FIDU whenever they like, if they withdraw before 12 months, they will forfeit some of their GFI distributions. For example, after 3 months they’d forfeit 75%, after 6 months they’d forfeit 50%, and so on. After 12 months, they will continue to receive distributions, and will never forfeit any GFI.
The second issue is the withdrawal fee. A charge of 0.5% is applied to all redemptions of FIDU.
Both of these issues result in structural incentives that keep investment capital earmarked for junior tranches, outside of the Goldfinch ecosystem.
To make it economically viable to store funds in FIDU to invest in junior on Goldfinch, we propose to enable FIDU holders to use their FIDU to invest in junior tranches at the exchange rate without incurring penalties on GFI rewards and without paying withdrawal fees.
- Enable FIDU holders to exchange FIDU for backers NFTs without incurring withdrawal fees nor forfeiting GFI rewards. A user would exchange their FIDU for an NFT representing their investment in a junior tranche. Behind the scene, the following would happen:
- Swap FIDU in a transaction fee-less exchange for USDC via the Pool.sol contract
- Burn the FIDU in Pool.sol
- Deposit USDC into the TranchedPool.sol in exchange for a Junior NFT
- Makes it easier for Senior Liquidity Providers to act as Backers when they spot a junior investment that they find attractive. It makes it possible to have a Goldfinch-centric investment strategy.
- Enables borrower pools to fill up faster since senior capital already locked in FIDU can also be invested in Junior.
- Since FIDU can be used to invest in Junior, it would make it easier to estimate the availability of financing for borrowers.
- There may be some additional volatility in the availability of senior capital for all borrowers.
“Yes” - No cost/forfeit to swap FIDU into Backer NFTs
“No” - No change