Thanks for the thoughtful comments @JeremyKim. We will start with the more ‘technical’ ones and return to the more ‘commercial’ ones later.
Some of the bullet points listed in “Portfolio reporting and analysis” sounds like there will be some sort of analysis done - my personal thought is that if Untangled opines on credit or operational execution, then there may be a deviation from pure reporting (i.e. what trustees for private credit/structured credit deals in tradfi do).
The above is a stylised collateral flows and proposed RWA reporting at the start and end states.
Fund flows: Goldfinch makes Loan 1 (onchain) to a Credit Fund borrower, secured (offchain) by Loan 2 which the Credit Fund has made to a Fintech Originator. Loan 2 could be secured by Loans 3 to Fintechs. So here Loans 3 is RWA collateral for Loan 2 and Loan 2 is RWA collateral to Loan 1 (Pool loan).
Start: Enhanced pool credit reporting
As we would be bound by existing credit agreements, i.e. if an agreement does not provide for ‘looking through’ underlying collateral performance then the credit fund is not obligated to provide data.
At first, we may not require additional access to underlying originators in order to provide enhanced reporting. We can gather information that indicates their ability to repay the facilities from the credit funds from other sources.
The analysis will be parameterised - for example when we report on NAV we will agree with the community on the parameters such as, PD, LGD, …based on industry ranges for the type of underlying collaterals.
Focusing on PD, LGD, and NAV fall short of what rating agencies do when they report on credit risk. If the intent is to do what rating agencies do, then Untangled would have to calculate PD, LGD at the underlying collateral level, roll that up to the debt facilities, then roll those debt facility cash flows up to the GF funding facilities.
End state: “look-through” on chain credit reporting and analysis
Ultimately the health of Loan 1/Pool Loan depends on the health of the loans/collateral made downstream (Loan 2 and Loans 3). Therefore RWA reporting also needs to extend downstream to collateralise Loan 2 and Loans 3. This look-through reporting, however, requires appropriate legal provisions and reporting capabilities of downstream borrowers. This is the target of RWA reporting at the end state.
As we gather more data we will be able to construct better credit models to predict and scenario-analyze credit performance of pool loans.
Untangled’s core business model is to supply RWA collateral to DeFi, not necessarily white-labelling reporting infrastructure. As much as the RWA DeFi industry has the “rising tide raises all boats” mentality, I would imagine that the credit funds borrowing from Goldfinch and deploying via asset-based structured credit facilities see themselves also as suppliers of RWA collateral to DeFi. I wonder how comfortable the GF pool borrowers will be on working with Untangled.
We are not a credit fund but a tech provider. By supplying RWA collaterals to DeFi we meant any RWA asset owners can use our technology to supply assets to DeFi. We have discussed connecting a credit fund in the Goldfinch ecosystem to asset originators that we sourced.
With this proposal, we are not aiming to replicate TradFi but implement a credit reporting system that is fit-for-purpose for RWA DeFi credit today. This system is based on:
- Tokenization of RWA collaterals - each collateral is tokenized into an NFT with appropriate metadata
- Reporting on key credit performance indicators by pools e.g. onchain NAV calc and covenant compliance
- Credit modelling: inputs into NAV calc with PD, LGD appropriate for the underlying collateral asset class as described above.
Receiving a fee, by its nature (especially a fee benchmarked as a percentage of loan balances outstanding), makes the reporting not fully independent.
Regarding fee we see this is as the protocol outsource the credit risk reporting to Untangled. We propose to be awarded fees from the protocol’s treasury, rather than from originators. This is to ensure that we are independent of the originators who we will report on. This is also inline with TradFi industry practice where fees are paid out of the cash flow waterfall.
As to % of loans outstanding this is as you probably know, an industry practice. Our fee is based on principal outstanding which is an objective number that the protocol tracks.
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As to sample reports, we could create a folder and share it with the community.
Finally, we welcome the opportunity to partner with Goldfinch on bridging originators/borrowers to the protocol. We believe we could do this while providing the protocol with credit reporting and analysis with the above specs.