Decentralized lending protocol Goldfinch is dealing with the aftermath from a troubled $20 million cryptocurrency loan as the borrower’s high-risk investments in real estate and digital assets go sour.
Through a Goldfinch lending pool run by Warbler Labs in February 2022, the fintech investment company Stratos took out the USD Coin stablecoin loan for 4 years at 11% interest.
However, on a post, Warbler Labs, a pool management disclosed that $7 million of the loan is now in danger of default. The update claims that Stratos gave REZI, a startup in the real estate industry, $5 million, but that REZI no longer receives payments. A complete loss is anticipated for the REZI position.
Another $2 million was invested in unidentified “digital asset investments,” of which Warbler claims it was not aware. In the end, Stratos had to sell at almost a full loss, which it made up for by putting up collateral. e-commerce company ThreeColts is claimed to be doing well with the remaining $13 million in credit. The losses nevertheless sparked a crisis.
Due to the problematic loan’s REZI and crypto components, Warbler has made the decision to fully recoup investor losses. The troubled deal emphasizes the risks associated with tokenizing real-world assets. Due to the failure of CeFi platforms, lending cryptocurrency against tangible assets like bills and real estate has become more and more popular. On the other hand, there is a great risk when there is no regulation or transparency.
Warbler, the pool’s underwriter, said that it was caught off guard by parts of Stratos’ financial usage, highlighting potential control holes in the crypto lending ecosystems. The decentralized handling of pooled cash is a concern for Goldfinch, and this $7 million credit failure just makes matters worse. Beforehand, loans to cryptocurrency hedge funds like Three Arrows Capital that were deemed dubious ended in disaster.
Decentralized protocols eventually rely on self-governance by frequently fictitious individuals, even though Warbler is this time focusing on investors. Compared to traditional finance, the uncertainties in crypto RWAs are greater when controls are not fully developed.
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