GIP-07: Support Entities on Goldfinch

Summary

In order to allow more people and entities to participate as Liquidity Providers and Backers in Goldfinch, we propose enabling two new UID types: US entity, and non-US entity. This proposal would:

a) Allow both new UID types to participate in the Senior Pool

b) On a case-by-case basis, allow Borrowers to choose which of these UID types to enable in their specific pools.

This will not impact any existing participants, UIDs, or capital already deployed through Goldfinch.

Motivation

Until now, the UID service created by Warbler Labs has only supported individuals. Warbler has recently expanded UID to support entities, and Goldfinch should take advantage of this. There is large demand from entities to supply capital to the protocol — both as LPs and as Backers — and yet currently they won’t be able to do so, even after Warbler enables support. Enabling entities to participate will support significantly more growth in capital for the protocol.

Based on conversations with potential borrowers to understand their different regulatory obligations, we believe borrowers will be comfortable with these new types of participants supplying capital to the protocol. In addition, for individual pools, borrowers can also specify a particular subset of these UIDs if they need.

We therefore propose that the Senior Pool expand the list of UIDs that can supply capital to include these new UID types.

Note: Regarding voting, while it isn’t critical right now, eventually we will probably want to consider how voting interacts with entity ID’s. Since entities can be created more easily, it generally hurts the “unique” aspect of UID, and could have an adverse effect the integrity of the quadratic voting system. This should be dealt with separately in a meta governance proposal. I don’t think this needs to be dealt with right now though.

Specification and Requirements

Here is a summary of the UIDs that currently exist and their current access on Goldfinch:

  • ID_TYPE = 0, Non-U.S. Individual: Can currently vote and supply capital.
  • ID_TYPE = 1, U.S. Accredited Individual: Can currently vote and supply capital → NOTE: U.S. accredited are theoretically already supported in the Senior Pool, but Warbler Labs has not officially rolled out operational support. This is happening very soon. But from the perspective of the protocol, nothing needs to change to support them, and hence we note this as “can supply capital”.
  • ID_TYPE = 2, U.S. Non-Accredited Individual: Can currently vote, but not supply capital.
  • ID_TYPE = 3, U.S. Entity: N/A
  • ID_TYPE = 4, Non-U.S. Entity: N/A

This proposal would enable Type 3 and Type 4 to supply capital on the Senior Pool, and by default it would allow voting (because the current snapshot strategy allows any UID type to vote). From a technical perspective, it only requires a trivial change to this line on the Go.sol contract.

Benefits

  • Allows non-U.S. entities, U.S. entities, supply capital to the Senior Pool, which should greatly increase the available capital to Goldfinch
  • Provides comfort to Borrowers regarding following regulatory rules and requirements

Downside

  • Adds a very small amount of complexity and gas costs to the protocol.

Voting

“Yes” - Permit ID_TYPE 3 and 4 — U.S. and non-U.S. entities, respectively — to supply capital to the Senior Pool.

“No” - Do nothing

Resources

2 Likes

Allowing entities may certainly boost the protocol growth in TVL terms. No doubt for sure.

One thing I would be concerned about the entity is that there may be no personal liability or accountability, and when things move to on-chain decentralization, I think collusion between entities is a possible scenario. I will be concerned about how minorities are heard later, very good thing is that roadmap discusses establishing delegates.

I vote “Yes” with the assumption that entities act rationally.

2 Likes

Vote Yes.

My viewpoint on RWA DeFi is that there needs to be institutional involvement to truly scale - i.e. a (hopefully) very near term future where you have large insurance funds and pension funds participating in the senior, and larger fixed income/bond funds (not just smaller digital asset carve outs and digital asset-focused funds) participating in both the senior and the backer tranches, and this is the next step to getting there.

I definitely share the same concerns that @mans9841 raises, particularly collusion between borrowers and backers against the benefit of seniors (hypothetical example from the top of my head - backer HF and borrower fund collude to create an off-chain sidecar agreement/facility to amend the underlying on-chain loan against the benefit of the senior, despite deteriorating collateral credit and increased risk of RWA undercollateralization of the on-chain loan).

As for minorities being heard - I suspect that most of the larger institutional players that step into the senior will be relatively quiet - that is, they’ll vote with their capital, rather than participating in the governance process. However, there is a risk that some credit hedge funds and activist hedge funds may be more vocal as part of their strategy, but as you said, it seems that Goldfinch is planning to have protections in place to ensure that larger institutional participants will not be able to “bully” the community into governance decisions that go against the benefit of the platform.

2 Likes

Is there a walkthrough of the UID process for entities available for persons to review? I’m interested in how stringent the approval process is and if it will fully protect against an individual forming a type of baseless “entity” to avoid accredited investor laws in the US.

Thanks

GIP-007 is soft approved by council.