This proposal seeks to launch a new institutional-grade private credit offering on the Goldfinch protocol. The pool will allow users to deposit USDC and earn interest derived from dividends payments from private credit investments managed by top institutional fund managers. The Goldfinch site will be updated to focus on this offering. The proposal includes designating Heron Lending, or an affiliate, as the pool counterparty, and establishing a fee structure to generate protocol revenue. The pool will be limited to non-US persons.
Motivation
The Goldfinch protocol aims to democratize access to high-quality credit investments. This proposal introduces a pool that provides community members the opportunity for exposure to institutional-grade private credit opportunities, which are traditionally limited to high-net-worth investors. The initiative strengthens the protocolâs value proposition, expands revenue streams, and attracts sophisticated users to the platform.
Specification & Requirements
Pool Design:
The pool will offer users exposure to institutional grade private credit, targeting returns of 9% to 12%, net of fees.
The pool will be structured as a continuous offering, such that users can make investments at any time.
Users will deposit USDC and receive tokens representing their proportional stake in the pool.
Interest payments are auto-compounded each month, and the token value is updated accordingly.
Users can redeem their positions via a withdrawal system, with a >90-day processing period to match the redemption timelines of the underlying fund positions. Investors continue to earn interest while their redemptions are being processed.
Users must hold a UID in order to invest in the pool. This pool will not be available to US investors.
Tokenized positions in the pool will be non-transferable.
The pool will not be eligible for membership rewards or GFI liquidity mining rewards.
Fund Criteria:
All underlying investments in the pool will meet the following stringent criteria:
Managed by institutional firms with $1B+ AUM and 10+ years of private credit experience.
Portfolios with expected >90% senior secured loans and <5% payment-in-kind interest income.
Target average non-accrual loan rate <1%.
Funds must be registered with the SEC with robust quarterly reporting.
Operations:
The Goldfinch community will appoint an administrator for the pool. The administratorâs responsibilities will include supporting the USD <> USDC flows for deposits and redemptions between Goldfinch investors and the counterparty.
The current goldfinch.finance website will be updated to reflect and focus on this new offering.
Counterparty Role:
Heron Lending, or an affiliate, will act as the pool counterparty, responsible for:
Executing real world transactions on behalf of the pool (fund share purchases and redemptions)
Interfacing with external credit funds
Overseeing compliance
Delivery of quarterly reporting to pool investors
Ensuring that the poolâs investments adhere to the stated criteria
Conducting marketing and PR to grow awareness and assets under management (AUM).
Fee Structure:
Heron Lending: 0.5% of AUM annually for acting as the pool counterparty.
Goldfinch Protocol: 0.5% of AUM annually for providing access and maintaining the protocol.
Benefits
Enhanced Investment Opportunities: Provides access to institutional-grade private credit, offering strong, risk-adjusted returns for Goldfinch community members.
Revenue Growth: Introduces a recurring revenue stream for the protocol via the 0.5% AUM fee.
Market Expansion: Attracts sophisticated investors and increases awareness of the protocol through PR and marketing efforts.
Downsides
Liquidity: Withdrawals may take >90 days due to the redemption process for the underlying credit fund managers.
Speed of Capital Deployment: The need to purchase fund shares to grow AUM means the effective yield could drop below the target range for all users when new capital is awaiting deployment, but this should be temporary because the funds typically enable monthly purchases.
Counterparty Dependence: Entrusting Heron Lending as the counterparty creates a reliance on Heronâs operational capabilities.
Voting
Yes Vote
Approve the creation of the institutional private credit pool, designate Heron Lending as the pool counterparty, and implement the proposed fee structure.
No Vote
Reject the creation of the new pool, resulting in no changes to the protocol.
Interesting! I will vote âYesâ to the proposal as this gives Goldfinch a second chance to prove that normal retail people can participate in private credit space without losing their principal. Hope Goldfinch has learnt lessons from the past mistakes and will correct them with this offering!
Having said that, a couple of questions:
You said the interest gets auto compounded. Does that mean, the monthly interest getâs added to the principal and to withdraw the interest I need to wait for 90 days? Or can I just withdraw interest every month without any waiting period (just the way I do with the current Goldfinch protocol)?
When you say counterparty is Heron Lending, does that mean all the funds that the investors invest will go to Heron Lending and Heron becomes the lender to the institution (that deploys the credit)? If yes, then what rights will the investors have in case there is a default?
What are some of the precautions Goldfinch/Heron is taking to avoid the defaults/late payments similar to that (which are currently happening) of Almavest and Cauris?
What steps can Heron take as a counterparty if the institution defaults? How can Heron make sure the investors are made whole?
I also like the proposal and will vote âYes.â However, Iâm curious to know why tokenized positions in the pool are non-transferable. If someone wants to sell their position at a discount and doesnât want to wait 90 days, why not allow them to do so?
Re: Autoinvested dividends: Yes, interest is added to principal automatically, and to get liquidity investors will need to request a redemption and wait for it to be fulfilled.
Re: Counterparty: No, Heron Lending is not directly lending to credit funds. Instead, Heron is investing in well-established private credit funds. Like many typical private credit funds, these fund positions do not provide direct exposure to the underlying borrowers, so they do not provide direct creditor rights with respect to the borrowers.
Re: Avoiding Defaults: Generally, when investing in private credit via the more typical path of investing in private credit funds, the key to avoiding losses is to choose high quality credit managers. Compared with the prior Goldfinch pools, this new pool focuses on much stronger criteria with the highest standards of credit underwriting. These will be managers with long track records through multiple market cycles, and $1B+ AUM â a massive difference compared with the prior borrowers on Goldfinch who were emerging credit managers. When defaults or similar scenarios arise with the fundsâ underlying borrowers, investors rely on the proven track records and expertise of these managers. In addition, because these funds must be registered with the SEC, they provide substantial transparency and reporting that is fully public, which further builds confidence they are acting according to their mandate.
Re: In the event of default: No one can guarantee future performance or ensure that investors are made whole in every scenario. However, the pool will apply these risk mitigants:
Rigorous underwriting standards: thoroughly screening fund managers, eliminating those lacking credit-underwriting discipline or experience in managing downside scenarios.
Diversification: distributing risk across many (for this pool, hundreds) of underlying loans to minimize the impact of defaults from any single source.
Proactive risk monitoring and stress testing: detect early signs of portfolio distress or quality deterioration for a given fund and make timely adjustments or entirely remove the allocation to underperforming managers.
Risk-sharing mechanisms: select fund managers that invest alongside investors, ensuring they bear a disproportionate share of risk in the event of defaults.
These mitigants are the most effective ways to reduce risk, and this new pool will focus on all of them.
This pool will be constrained by the liquidity profile of the underlying funds, which generally provide quarterly redemptions. These funds donât provide ways to get faster liquidity for a fee.
I fully support this proposal.
The protocol needs regular impulses for further development, especially given the recent negative events. One such impulse could be the introduction of an institutional-grade credit offering available to private investors.
Involving well-established firms (both in terms of AUM and performance history) in the lending process provides hope that private investments will be protected as best as possible.