Authors: @mikesall, @blakewest, and @alvinh
Summary
This GRC (“Goldfinch Request for Comment”) outlines a plan to evolve the role of GFI in the Goldfinch protocol over three distinct phases. The goals of this plan are to increase the utility of the GFI token, scale system security alongside decentralized governance, and increase protocol value in service of the Goldfinch vision.
The purpose of this GRC is for community discussion, and it is not an actual proposal to be voted on. We have separately posted a detailed proposal for Phase 1, Goldfinch Membership, as its own post to be voted on. Pending positive community feedback, we will make additional proposals for the remaining phases.
Abstract
If adopted, this plan evolves the role of GFI through three distinct phases:
-
Phase 1: Introduce Goldfinch Membership, which is a way for members to receive a share of protocol fees (“member rewards”) and greater voting power in governance. To participate, members must lock up both GFI tokens and invested capital (either in the Senior Pool or Borrower Pools) in member vaults.
- When paired with locked up capital supply, GFI locked in a member vault will earn a share of protocol fees, aka “member rewards”.
- Capital supply and GFI can be locked for a maximum of 4 years. Longer lockup periods will earn more governance voting power and a greater share of member rewards.
- The percent of protocol fees allocated to member rewards will be managed by DAO governance voting.
-
Phase 2: Introduce a GFI staking mechanism for Auditors on Goldfinch
- Auditors are a role described in the Goldfinch Whitepaper; their responsibility is to provide a human-level check against fraudulent activity by voting to approve new Borrowers on Goldfinch.
- Today, the Governance Council approves each Borrower on Goldfinch after community discussion on the governance forum. With the introduction of the Auditor role and its staking mechanics, our goal is to scale up the Borrower approval process.
-
Phase 3: Introduce a GFI staking mechanism for Borrowers on Goldfinch
- Today, Borrowers on Goldfinch provide real-world asset (RWA) collateral in order to borrow, but we can more explicitly align their economic incentives to ensure good behavior.
- GFI staking by Borrowers will complement the existing RWA collateral system, by increasing system scalability and security as Goldfinch grows to become more open and permissionless in the future.
A note on Backer Staking
The whitepaper describes the concept of “Backer Staking”, where people stake GFI on particular Backers to give them leverage. This is still possible, and nothing about these phases prevents that from happening, but we believe Backer Staking is lower priority than the phases described here. These phases already represent quite a lot of work, so we leave Backer Staking to the community to flesh out later.
Background
Since launching, the Goldfinch protocol has seen rapid growth in its mission of bringing private credit on-chain. Total active loans on the platform eclipsed $100M in April 2022, up 100x in one year. This capital is serving productive uses in the real world, increasing capital efficiency and creating true economic value for businesses around the globe.
While we celebrate this major milestone, we look ahead towards the next $1 billion. It’s become clear that as Goldfinch grows another 10x, its tokenomics will need to evolve in order to scale system security and capture value generated by the protocol.
Currently, the GFI token is primarily used for participation in protocol governance. As the protocol further incorporates GFI as outlined in the Goldfinch Whitepaper, the design must incentivize economic value and productive utility for the GFI token to ensure protocol stability and proper incentive alignment. This post outlines a plan to achieve this.
Problem
We recognize that governance is the primary reason for people to hold GFI today, and the community has been vocal about their desire for GFI to have stronger utility. It is important for the GFI token to have value, because it is what we will use to reward and penalize participants as the protocol continues to grow and become more open and permissionless. A stronger GFI results in a more robust protocol, a more decentralized and happier community, and rewards all those who contribute to the growth and resilience of Goldfinch.
Goals
Here are the goals for each phase:
-
Phase 1: Introduce a way for investors to lock up both capital supply and GFI tokens for a share of protocol fees (”member rewards”) and greater voting power in governance
- Create a clear and cohesive mechanism by which GFI captures value generated by the protocol
- Design incentives in a way that directly delivers value to the protocol and participants
- Allocate more voting power to the most active and aligned participants in the protocol
-
Phase 2: Introduce a GFI staking and reward system for Auditors on Goldfinch
- Create a fraud resistant system for new Borrowers to create Borrower Pools permissionlessly
- Utilize the GFI token to require skin-in-the-game as well as reward Auditors for their work
-
Phase 3: Introduce a requirement for Borrowers to use GFI in order to access capital on Goldfinch
- Utilize the GFI token to require skin-in-the-game from Borrowers to demonstrate their seriousness and incentivize good behavior
- Create a natural filtering mechanism for higher-quality Borrowers to participate.
Specifications
Here are the high-level specifications for each phase. Note that the sections for Phase 2 and Phase 3 are a bit lighter on details. We will flesh these out in later proposals after we see how Phase 1 goes.
Phase 1: Membership
In this phase, members can receive a share of protocol fees (“member rewards”) and greater voting power in governance. To participate, members must lock up both GFI tokens and invested capital (either in the Senior Pool or Borrower Pools) in member vaults. Member rewards will be distributed as FIDU, the Senior Pool USDC yield bearing token.
- When paired with locked up capital supply, GFI locked in a member vault will earn a share of protocol fees, aka “member rewards”.
- Capital supply and GFI can be locked for a maximum of 4 years. Longer lockup periods will earn more governance voting power and a greater share of member rewards.
- The percent of protocol fees allocated to member rewards will be managed by DAO governance voting
Full details of this phase can be found in the formal GIP-13 proposal.
Phase 2: Auditor staking
This section is light on details for now, as we will want to observe how Phase 1 goes first. There will be a separate, more fleshed out voting proposal specific to this phase in the future.
In this phase, we will introduce the role of Auditors, which has previously been described in the Goldfinch Whitepaper. Auditor responsibilities are to provide a human-level check against fraudulent activity by voting to approve new Borrowers on Goldfinch. New Borrowers on Goldfinch will need to pass a verification process through a trust-by-consensus mechanism conducted by a group of Auditors. Additionally, Auditors may be called upon to periodically re-verify existing Borrowers on Goldfinch.
Today, the Governance Council approves each and every Borrower on Goldfinch after community discussion on the governance forum. With the introduction of the Auditor role, the trust-by-consensus mechanism, and Auditor staking mechanics, our goal is to scale up the Borrower verification process.
At a high level, Auditors will need to stake GFI in order to perform their Borrower verification duties, and will be paid in GFI by the protocol for doing a good job. If they do a bad job at verification, their GFI stake will be slashed. This system enhances community participation in the process for deciding who can borrow on Goldfinch.
Phase 3: Borrower deposits and staking
This section is light on details for now, as we will want to observe how Phase 1 goes first. There will be a separate, more fleshed out voting proposal specific to this phase in the future.
In this phase, we introduce a GFI deposit and staking mechanism for Borrowers on Goldfinch, where Borrowers need GFI in order to access the protocol. Today, Borrowers on Goldfinch provide real-world asset (RWA) collateral in order to take out loans, but we can more explicitly align their economic incentives to ensure good behavior.
At a high level, Borrowers will need to put up some GFI as a non-refundable deposit and/or a refundable stake in order to borrow on Goldfinch. If Auditors deem the Borrower to be untrustworthy, or if the Borrowers don’t repay their loan, they lose their GFI.
GFI deposits and staking for Borrowers will complement the existing RWA collateral system, increasing system scalability and security, and reinforcing decentralization as Goldfinch continues to grow.
Conclusion
Goldfinch’s vision is to move the entire multi-trillion dollar market of private credit on-chain.
It won’t be easy, but it’s worth it. Expanding access to capital with a single global credit market will be paradigm-shifting. It will mean that everyone from startups in Lagos to institutions in New York will be able to borrow from the same capital markets, and that all investors will be able to participate in these deals. People who could never access capital before will have an option with crypto. New businesses will flourish in communities around the globe because crypto will be able to reach them where banks couldn’t or wouldn’t.
In order to achieve this vision, we need to start creating the building blocks today. We believe the GFI token will play a critical role in increasing the system’s scale and security, as well as capturing protocol-generated value for the community. This post outlines a plan to create such a system that encourages long-term participation in an incentive-aligned way.
Voting
As mentioned before, this post is not an actual proposal to vote on. We will use this post for general community discussion. We have separately posted a detailed proposal for Phase 1, Goldfinch Membership, as its own post to be voted on. Pending positive community feedback, we will make additional proposals for the remaining phases.
