Despite all the excitement buzzing across the so-called Web3 space in the past year, it seems like most of the large sums of investor money is finding its way into products that touch users in the US. But a growing number of startups are looking to take advantage of opportunities in developing nations, as current central financial systems struggle to meet the needs of their users.
Goldfinch is a cryptocurrency startup that is building a decentralized lending protocol that allows institutions to receive crypto loans without actually owning huge amounts of cryptocurrency. Today, most lending platforms rely on existing end-user crypto collateral to determine if it is a safe bet for a loan. Being required to purchase valuable crypto assets in excess of the loan value makes lending safer, but it also alienates many potential loan recipients who do not have large crypto holdings.
The Bay Area startup wants to take a more integrating crypto lending solution with its protocol, build pools of capital and allow fintechs outside the US to make their case to lenders working on the protocol and get funds while demonstrating non-crypto collateral.
The startup told TechCrunch that it has closed $25 million in funding from crypto arm Andreessen Horowitz. Among the other supporters Coinbase Ventures, SV Angel, Blocktower, Bill Ackman, Heli-cap. Founders Mike Sall and Blake West previously worked together at Coinbase before starting Goldfinch in July of 2020. The company raised an $11 million funding round last June.
“We just see huge potential to expand access to capital and build this bridge for real-world borrowers,” Sall told TechCrunch.
Collective investing like this outside of securities guidelines isn’t kosher on the US side, so Goldfinch is ignoring the US market for now and tapping into networks of investors elsewhere – who are largely focused on investing in developing nations, where getting a loan has historically been a difficult prospect. Kenya, Nigeria, Uganda and the Philippines are the countries with the largest volume of loans through the protocol.
One company funded by proponents of the protocol is Tugende, an East African-based start-up that lends motorcycle taxis to borrowers who have set up payment plans to purchase bikes over time. Backers have also funded India-based Greenway, which builds clean cookstoves and lends them to low-income families.
The team has put a lot of effort into their platform to strike the right incentive balance, allowing backers to take different levels of risk and directly participate in the platform. An aggregate pool of capital divided into “junior” and “senior” sections allows lenders to balance their risks. While small investors can place bets directly on the institutions they choose to support, the large pool automatically diversifies across portfolio bets for small investors. The large pool is a less active and more conservative bet because it is paid first, but the lenders in this pool are ceding a large percentage of the interest to more serious novice pool backers who risk more with a potential raise.
The company says it has $39 million in active loans, amounting to more than 230.00 from final borrowers, that has been distributed to a handful of fintech companies.