Author : aaron
Summary : Pay up to 70,200 USDC from the Goldfinch treasury to Reed Smith for a loan agreement template that can be used by borrowers for Goldfinch deals. The template aims to adapt traditional debt mechanics for on-chain mechanisms, standardize deal terms and reduce deal execution cost and timelines.
How would the template agreement help?
Legal agreements enshrine lenders’ rights and security off-chain. These agreements are very costly, complicate deal processes and cause execution delays. Creating a standard agreement with high quality legal guidance will address key pain points for Goldfinch participants:
- Lender protections: Lenders want to see that on-chain lending is backed by high-quality off-chain contracts. Engaging high-quality Legal counsel will provide comfort to investors that these agreements have been drafted professionally. The standard agreement will also create a point of reference for lenders when assessing credit agreements as it relates to the fundamental risk factors Lenders should be protected against.
- Catering to on-chain mechanics: Real-world debt agreements don’t contemplate funds being raised on-chain. Many standard mechanisms, including repayment, lender decision-making and sending notices, aren’t suited for on-chain lenders. This template will make all the adjustments needed to reflect the on-chain mechanics that are unique to Goldfinch debt.
- Cost and time savings: Borrowers and investors can pay between $50,000-200,000 to draft bespoke debt agreements and drafting often takes six months to complete. DeFi aims to disrupt cumbersome TradFi processes, and removing significant costs and time around legal execution helps reduce cost for Goldfinch participants.
Why engage Reed Smith for the project?
- Pedigree: Reed Smith is a premier, international law firm with extensive experience advising clients on a variety of corporate matters, including cross-border private debt deals.
- Knowledge about Goldfinch: In early 2022, Reed Smith drafted a Singapore regulatory analysis of Goldfinch and worked closely with the Goldfinch community to understand the protocol. They were also hired by several prospective borrowers for legal agreement drafting, so their team already has experience drafting Goldfinch-compliant loan documents.
- Cost: Reed Smith is charging a very competitive rate for the templates and opinion. Their team recognizes that working with Goldfinch is an entryway to deeper experience and more mandates in the DeFi space, so they are leaning in with competitive rates.
Specification & Requirements :
Reed Smith will produce:
- Template facility agreements: Reed Smith will produce a Singapore Law-specific and generalized template facility agreement
- Legal opinion: A legal opinion to accompany the Singapore Law template agreement
- Callable loans: Clauses to capture the call rights of lenders for the callable loan type, recently approved by the community in GIP-42
The cost is capped at $65,000, which amounts to $70,200 after 8% VAT.
Once the reports are complete to satisfaction, the amount owed will be drawn from the Goldfinch treasury, converted to USD, transferred to Warbler Labs and used to pay Reed Smith on behalf of the Foundation.
After completion, the templates will be available for Borrowers to use for Goldfinch deals. The first callable deal, launching in the next few weeks, will make use of the template.
See “Motivations” for full description of benefits, which include:
- Make real-world documents fully compatible with protocol mechanics
- Increase transparency of off-chain legal arrangements
- Lower cost for borrowers
- Faster deal execution
- Professional documents for investors
- Up to 70,200 USDC reduction in protocol treasury
“yes” means approve the proposal and enable a 70,200 USDC withdraw from the protocol treasury
“no” means do nothing