GIP-45: Templatize legal agreements for deals

Proposals
1

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.

Motivation :

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.

Benefits :
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

Downside:

  • Up to 70,200 USDC reduction in protocol treasury

Voting :
“yes” means approve the proposal and enable a 70,200 USDC withdraw from the protocol treasury
“no” means do nothing

5 Likes
2

Of course, I vote FOR, because any legal part of the project is very important and professionals should deal with it, which will give legal protection to users.

2 Likes
3

Yes. The lender is protected. Cost savings. Large investors will understand that everything is done perfectly from the legal side

2 Likes
4

My vote is “YES” for a loan agreement template.
I approve the proposal 100%. YES!

2 Likes
5

I don’t quite understand what this will lead to, and also why they didn’t put it to the vote before? My decision is “No”

1 Like
6

What legal safeguards does Reed Smith LLP provide once the contract is drafted? For how long is support provided in case of disputes based on their template?

7

if Reed Smith already has experience in drafting Goldfinch-compliant loan documents, I think it’s worth bringing them into the project.

1 Like
8

The point is that previously there was no single standardized template of agreements. It could be different for each borrower, which took up a lot of time and effort. Now it is proposed to develop such a template and it will give a number of advantages for both sides: for borrowers and for lenders. Personally, I’m going to vote “Yes”

1 Like
9

This makes sense.

Would it be possible to share the template publicly as well?

10

Undoubtedly, a high-quality contract template that reflects the specifics of the use of cryptocurrencies will be very useful:

You can even say that such a template is simply necessary.

But at least one question arises: how universal will the template be and can it be used at least when concluding, say, 50% of all contracts with borrowers?

I vote “YES”.

2 Likes
11

Need to be allowed to withdraw $70,200 from the protocol treasury. My voice is “YES”

12

Great question! They will provide up to 2 million Singapore Dollars (SGD) liability coverage for the legal opinion they provide.

13

Thanks Jeremy! We’re planning do a follow up proposal on if/how the document should be shared more broadly… I think it’s a good idea, but may need some gating features, so that the work benefits the Goldfinch community as directly as possible

14

I’d love to approve the proposal and enable a 70,200 USDC withdraw from the protocol treasure. My decision is “Yes”.

15

It’s quite a reasonable expenditure on the legal part, so I vote “yes”.

// Yes.

16

I think this would bring value to the project and most likely is a cost efficient option.

Maybe next time we have a proposal like this that mentions that the given price is cost effective. It is important to mention the compared prices to illustrate how cost effective it is.

I will vote yes.

1 Like
17

Council has approved the proposal