$20 Million Tokenized Loan Sours on Goldfinch as Real-Estate Bet Falters

A $20 million tokenized loan sours on Goldfinch due to investments

A tokenized loan valued at $20 million has hit a rough patch on the decentralized lending platform Goldfinch. The borrower, Stratos, made bets on a real-estate tech company and digital asset investments that failed to meet expectations, according to a statement from pool manager Warbler Labs.

The lending pool extended a four-year loan of $20 million in USDC stablecoins at an 11% annual interest rate to fintech credit fund Stratos back in February 2022, with Warbler Labs acting as the underwriter. However, the investment has not gone as planned, with approximately $7 million now at risk of being lost.

Stratos allocated $5 million of the funds to REZI, a real-estate tech firm specializing in apartment rentals in major U.S. cities. Unfortunately, REZI stopped making payments, and the value of this investment is expected to be written down to zero.

An additional $2 million was dedicated to something referred to as "POKT," which were digital asset investments that Warbler Labs claims they were unaware of at the time. Stratos sold this position at a significant loss and added loan collateral to cover the shortfall.

Warbler Labs will cover losses to protect investors in the pool

Warbler Labs has stepped in and committed to covering all losses incurred by investors in the pool. This decision, as stated by Warbler co-founders Michael Sall and Blake West, was "disappointing and unexpected." They have taken on the full responsibility of recovery and decided to backstop losses related to REZI and POKT, excluding their own and Stratos' positions.
The remaining $13 million of the loan was allocated to an e-commerce marketplace management startup called Threecolts, which is performing well.

The loan underlines risks in tokenized real-world assets (RWA)

This incident underscores the risks associated with tokenized real-world assets (RWA) like private credit, a trend in the crypto industry that has garnered attention, especially when capital inflows have slowed down. It also raises questions about the due diligence process in blockchain-based RWA lending protocols, particularly in light of last year's defaulted loans to crypto trading firms.

Transparency and auditing issues have surfaced in the lending space

This development follows a previous credit event in a Goldfinch pool earlier this year when African motorcycle taxi financing company Tugende defaulted on a $5 million loan set to mature this October. The borrower also breached loan covenants by making intercompany loans to assist a struggling sister company. These issues have highlighted concerns about transparency and auditing capabilities in the lending space.