GIP-62 and 63 both failed when voted on. However, it was one of the closest votes we’ve seen in Goldfinch history. Also, there continues to be much discussion within the community about helping backers of LendEast and perhaps other pools in the future. This proposal offers a new take, which is hopefully a compromise that can bring agreement from both sides.
Specifically, it proposes reducing the overall amount of GFI that could ever be used from 1.5M to 1.2M while increasing the per pool total cap from 30% → 45%. There would still be 10% set aside for legal fees. So this means a total of 2 pools could have this protection (45 + 45 + 10 = 100).
The rest of the proposal would be the same as GIP-63. I have rewritten those details below for clarity.
Motivation
The Lend East situation has been a significant shock to the Goldfinch community. There are also other borrowers that may default on their loans. The Goldfinch Treasury’s GFI holdings can help lenders. Proposal GIP-62 provided one approach, GIP-63 provided another. Both met with resistance, but I think this proposal is a strong compromise between the two. By lowering the overall amount, it should assuage some concerns that perhaps too much GFI is being used. And by increasing the per pool amount should better ameliorate losses. The tradeoff is that it would only work for one other hypothetical pool besides LendEast rather than two.
Specifications and Requirements
To balance all of these comments mentioned in GIP-62 and 63, I propose the following.
The Goldfinch community should use up to a maximum of 1.2M GFI, which can be gradually converted over time to USDC to cover losses across all pools. Based on recent GFI prices, that’s about $3.6 million total across all pools. This should provide comfort to Lend East lenders and the Senior Pool that some of their losses will be covered by the Goldfinch community.
The USDC allocation should be made claimable to lenders (senior pool and backers) pro rata.
Any USDC should be made claimable to all lenders in the pool, proportional to total loss. So, if Backers had 50% of all losses in a pool, they should receive 50% of that USDC allocation.
The Goldfinch Foundation could require lenders to assign their positions in exchange for claiming the USDC. An assignment would allow the Goldfinch Foundation to pursue legal claims against the borrowers who have defaulted.
The USDC for a given pool should not be made claimable until at least 120 days after that pool’s maturity date. This aligns with the timeframe for the on-chain writedown. It also gives borrowers enough time to cure any defaults. This should also be enough time for the Goldfinch Foundation to begin any legal proceedings. There should be limits on how much a pool receives:
No more than 50% of losses from a single borrower will be covered. This is for several reasons. First, there is limited GFI so this helps cover potentially multiple borrowers. Second, making the maximum meaningful but not 100% would reduce the risk of moral hazard.
No more than 45% can be used for any given pool (so max 540k GFI worth). This means that if any other pools default, there will be some aid for those lenders too, and we don’t use all the GFI for one pool.
The USDC should only be used to cover Lend East and other current pools where the Senior Pool is involved. It should not apply to Tugende, which has already received support from the Goldfinch community.
10% of the USDC should be set aside for things like legal costs and exchange costs.
If, at the end of all current pools maturing, there is still “left over” GFI from this allocation, the Goldfinch community can vote on what to do with it.
Benefits
This provides an efficient path for meaningful support to both Backers and the Senior Pool while balancing many of the concerns already raised.
Downside
It allocates a sizable portion of the overall treasury, 5.2%, which is about 4% of the circulating supply.
Voting
“Yes” - Allocate 1.2M GFI toward loss recovery efforts according to the specifics outlined above.
Thanks @ixens for providing some fresh perspective and middle ground/synthesis between the different opinions
I wonder whether the payment should be made in USD or GFI. To some extent I would recommend not converting into USDC on behalf of the users as:
It will avoid creating a sell pressure from the conversion
Some users might prefer to hold GFI rather than USDC
This aligns the community (users and holders would both fight for GFI token price going up)
I also think doing distribution in GFI, by eliminating the main criticism (i.e. potential sell pressure, liquidity challenges), can allow to raise the total amount let’s say from 1.2m GFI to 2m GFI
Maybe the team @blakewest might chip in about whether It makes the calculation of the waterfall between junior and senior tranches more complex (but we can imagine that for this purpose, GFI price at the date of the vote is considered the reference point).
Last but not least, the split of losses between Senior Pool and backers for LendEast is a moving target and the reality today might be different in 4/6 months when tokens are claimed. I think the logic might be to split according to “the most likely conservative scenario” today, and given that LendEast proposed a settlement at USD4.25m, the most likely scenario is that the pool Senior will incur losses of USD3.75m (i.e. 45% of the initial USD8.0m invested) and backers USD2.0m (i.e. full wipeout). So, practically 3.75/(3.75+2) i.e. 65% will be claimed by Senior Pool while 35% will be claimed by backers. But that means Senior pool will get 65% of rewards while incurring a loss of 45% only, while backers will get 35% while incurring a full loss of 100%.
Last time I asked - how are you going to sell GFI to get USDC? and again no answer.
It is absolutely clear that you either do not have GFI tokens or have not tried to sell them. If you start selling 1.2 million tokens quickly now, the price will be below $0.5 tomorrow morning. To not move the price, it will take weeks or months. Who will do it? or do you have a buyer on OTC? The orderbook is completely empty. There is no demand to buy the token. MM is trying to maintain the price of the token for the media, but even with a quickly sale of $100k you will get more than -10%.
Despite this, you still put the return to USDC in the proposal, without offering a solution to convert GFI to USDC. You will get 200k of my votes against again
Hello @abra_man, I think you could/should look at a couple of mitigants:
The proposal reduced the number of GFI included in the program vs GFI-63
The proposal doesn’t say all GFIs is going to be sold straight. In the short term, only 45% of this is subject to a potential sale, the rest depends on whether a new default, if any, happens.
@Herve is proposing a distribution in GFI rather than in USDC. Even assuming eventually 50% of end users dump, you are talking about 50% less sell pressure. Also this sell pressure is going to be overtime given that users will probably not claim at the exact same time.
So altogether, we are talking about a sell pressure which is 45%*50%=22.5% lower than what you have in mind, or around 270k GFI.
Keep in mind daily GFI trading volume (as per CoinGecko) is around c.1m GFI per day volume so if this sell pressure is spread over a month, this represents only (270k) / (1m * 30) = 0.9% incremental sell pressure i.e. almost nothing
Also beyond this, I think the FUD is so hard on this token because users are super pissed that I struggle to see how a 0.9% sell pressure can be a negative trade-off vs. getting the token price going down because any new “investor” learning about the project only reads and hear negative feedbacks
That’s why I wrote in the message above that you have no experience trading GFI. Your figures have nothing to do with this particular market. To sell 270k without price movement it will literally take several weeks.
Unfortunately, you won’t convince me otherwise. Although I am also among the victims, because I am a LP, but at the same time I am the owner of GFI and an active trader in this market.
After GIP 62, 63, this one is just more of the same. Fundamentally, asking all stakeholders to bear the loss for a decision they did not make breaks the contract that backers are “first loss” capital and set the terrible precedent that one can rewrite the rules if the minority is disgruntled and loud enough.
As a backer in the senior pool, I also lost money here. Eat your loss and save the protocol.
What will happen if the value of GFI implodes during the sale to cover these losses? What then? Are we going to make up another proposal to cover that as well and make all Goldfinch holders, including those speculating on it, whole? And where is that money going to come from?
Or what if we continue having defaults and the money runs out to cover those losses? Are we going to make up some other proposal? When does it end?
Why are we talking about the “death” of GFI or GFI “implosion”?
We are talking about a 270k sale for a token that has 76,020,845 tokens circulating and a total supply of 114,015,000!
If you were right, the team / Warbler vesting, which is more than 270k monthly, should have created multiple “implosions”.
The key objective should be how you get a community rooting for the token price to go up, not having a protocol where pretty much all users give negative feedbacks to new buyers.
Because the team vesting schedule was disclosed upfront and so all GFI holders bought into the protocol knowing the dilution rate. This is not the case here and it may result in a shock to the GFI value.
Let me remind you that the majority of token holders have voted against two similar proposals. So the perception that all, the large majority, or even the majority of stakeholders are negative about the protocol as it currently stands is demonstrably false.
When you look at facts, stakeholders <> voters because only a fraction of the holders vote and users are very important stakeholders but do not necessarily vote.
Ideally you would want users, holders, voters to all push in the same direction, i.e. the token to go up and the protocol to be useful. Right now different stakeholders have different objectives and it would be a win-win to realign the community.
By the way, in the documentation of the protocol (tokenomics), using GFI as coverage was one of the usecase listed for protocol treasury (see below), so not sure your point holds.
“14.8% is allocated to the community’s treasury, which the community can decide to use for purposes such as grants to developers and contributors, adjustments to protocol distribution mechanics, and coverage for potential loan defaults.”
ALL users were GFI holders. If you don’t have a vote now, it means that you sold tokens. It is logical that their opinion is not interesting - let them fight in chats.
I am ready to reconsider my decision if you find an OTC buyer for tokens. This is the only correct decision, if you look at the practices of other DAOs. A buyer comes, agrees to TWAP with a discount and locks for several months. The protocol receives stablecoins, the buyer receives tokens at a reduced price, but votes with his lock for the future of the protocol
I support this. I believe that it not only supports lenders but also GFI token holders as GoldFinch’s ability to resolve this will also impact the success of its other platform, Heron Finance, which is built on top of GoldFinch.
And to clarify, what will happen with the funds if they are recovered? Is there a mechanism where excess funds recovered (after lenders are made whole) will replenish the treasury? That way, using GFI to cover losses doesn’t become a precedent and the GFI instead acts as a sort of liquidity for lenders during the restructuring/recovery process. Also, it’ll incentivize the most recovery possible to replenish the Treasury.
Hey, a lot of good discussion here. Some thoughts and responses:
I think it’s fair that we could use a “conservative, but likely” scenario. So in the case of LendEast, the $4.25M settlement would seem like a reasonable way to do that. And in that case, yes you’d split the amount by losses still. So Senior Pool would have lost ~3.75M, and Backers would have lost $2M, and you’d split the aid proportionally.
In terms of using FI, I see your points, however, to increase the amount from 1.2M → 2M would work against the benefits you propose, so I don’t think that makes sense. I also think using USDC has the very nice property of fairness. Everyone gets a consistent amount.
Rather than some people getting way more or way less just based on when they happen to come to claim. Further, it allows the Foundation to handle conversion over time, which means that everyone sort of averages out the volatility, rather than having to snapshot the price and hope for the best.
To @abra_man, and also @herve, regarding the concerns you mentioned about converting to USDC, my thoughts are that 1.) The Foundation would be the one’s to do it. They would work with professionals to only convert the minimum amount necessary (so 540k GFI), and yes they would slowly and consistently over many weeks. That’s the standard way to achieve this kind of thing. Which actually could be better than an air drop of tokens, because in those scenarios, often a good chunk of users will come and sell it all very fast in one day. As in, it could be better to convert 100% of the amount slowly over 1 month, vs. 25% within a few days). As @Antoine pointed out, a slow drip over one month would be a minimal amount of the volume percentage, and so should have little impact.
For @kte, a key point of this proposal is to balance all these viewpoints, and put some limits on this to address the very concerns you’re bringing up. So no, if FI implodes, nothing more would happen. And also, if more pools default, this is the most anyone will get. The proposal purposefully caps the amount of aid, so that everyone is still very much taking on risk. And per the points above, it should have limited impacts on GFI holders.
Note for the moderators: I can’t directly update the proposal, but I would like to reflect a “conservative, but likely” scenario to asses losses from each group, as reflected in the first bullet point above.
Hey @Antoine, yes I can confirm that the foundation can do this. Recall back in Oct. 2022, the community voted on allowing Storm King to enter into a market making arrangement with the Goldfinch Foundation. That relationship still exists, and can enable larger trades to be handled over long lengths of time.
This proposition is not fundamentally different from the previous ones. Accordingly, my decision remains the same: between “YES” and “NO”.
I’m not against using GFI one-time to fill a “reserve fund” that will be used to cover current losses, but I want to make sure that other sources of funding are used in similar situations in the future. As I wrote earlier, you can use a small percentage of profits from successfully repaid loans to gradually fill such a “reserve fund.”