GIP-18: Reduce payment grace period to 45 days from 90 days

Authors : aaron

Summary : Reduce the number of days of ‘grace period’ before the protocol marks a loan payment in default from 90 days to 45 days. The change will more closely reflect the grace periods of off-chain loan documents and flag credit quality issues on-chain more quickly

Motivation :
The current 90 day grace period is too generous, whereas 45 days better reflects when a late payment should start being provisioned as a default/writedown

Grace periods are specified in off-chain legal agreements and the number of days varies from loan to loan. These grace periods in the agreements dictate when a borrower can be considered in ‘default’ and thus when lenders can take action to call a default

45 days of grace period is roughly in line with the grace period in existing loan agreements for Goldfinch pools. Setting a grace period less than 45 days would flag a default on-chain before lenders would have any rights to enforce off-chain, so we believe less than 45 days would not be advisable

Specification & Requirements : Update the LatenessGracePeriodInDays parameter of GoldfinchConfig from its current value of 90 to 45.

Benefits :

  • A shorter grace period actively flags when a loan is facing credit quality issues and allows the community to engage the borrower to remediate the issue earlier
  • Payments that are more than 45 days late suggest a decent change of non-payment, so starting to reflect these writedowns in the protocol is a better reflection of the true financial position of borrowers

Downside : None

Voting :
“yes” means adjust the protocol payment grace period from 90 to 45 days
“no” means no action taken

1 Like

Being an active member of the community as well as both a backer and a liquidity provider I vote “yes” for this Proposal to be approved. I firmly believe that this initiative is another way to secure backers’ funds more. Simply speaking, borrowers should become less negligent before setting up pools, as they wouldn’t have a longer grace period anymore. Backers would also become more successful in filing recoveries in the court in case of default, as less time would pass to let borrowers cover their tracks. This Proposal is also indirectly improving borrower transparency.

I think this change will benefit everyone involved in the protocol. I vote “Yes”.

I fully support this proposal, as long as it does not affect the attractiveness of the protocol in any way. The identification of the pre-default state should take place as early as possible.