Real-World Asset Loan Worth $20M at Risk of Losing $7M on DeFi Platform Goldfinch

A tokenized loan worth $20 million soured in a lending pool on decentralized lending platform Goldfinch after borrower Stratos’ bets on a real-estate tech company and digital asset investments “has not performed as expected,” protocol contributor Warbler Labs said Saturday in a protocol governance forum post.

Now, some $7 million of the $20m funds are at risk of loss, Warbler disclosed.

The distressed pool made a four-year loan of $20 million worth of [USDC] stablecoins with an 11% annual interest rate to fintech credit fund Stratos in February 2022. Warbler Labs was one of the 43 "backers" and underwriters of the loan, a spokesperson said.

Stratos allocated $5 million of the funds to REZI, a real-estate tech firm focusing on apartment rentals in major U.S. cities, which has now stopped paying and is expected to write down the position to zero, the post said.

Another $2 million of the funds – dedicated to something it called POKT – was allocated to “digital asset investments” Warbler Labs said it “was not aware of at the time of the investment,” according to the post. Stratos sold this position at a “near full loss,” and added loan collateral to cover the shortfall.

Warbler Labs said it will backstop all losses to investors in the pool.

“This is disappointing and unexpected to say the least,” Warbler co-founders Michael Sall and Blake West wrote in the post. “Warbler Labs will take on the full risk and responsibility of recovery, and we have decided to backstop losses related to REZI and POKT, excluding Warbler’s and Stratos’ positions.”

The remaining $13 million was allocated to e-commerce marketplace management startup Threecolts, which is “performing strongly,” the post noted.

The soured loan highlights the risks of tokenized real-world assets (RWA) such as private credit, which has become one of the latest trends in a crypto industry hungry for something to get excited about as capital inflows dried up. It also brings under scrutiny the due diligence process performed on blockchain-based RWA lending protocols, especially after last year’s string of defaulted loans to crypto trading firms.

The development followed another credit event of 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 stem the financial struggles of a sister company, a Goldfinch governance post said.

“This is the second occurrence of a lack of transparency from a borrower or a lack of auditing capability from Goldfinch,” pseudonymous user Wiz said Saturday on the platform’s governance forum. “We can all appreciate that Warbler Labs will backstop the loss, but it is increasingly worrying to discover a complete lack of control from the loan underwriter, especially in the context of Stratos being an equity investor in Goldfinch.”

“There is a case of reputational risk,” another user named mans9841 commented under the forum post. The “RWA narrative has just started to ride and we cannot let ourselves down after building so much.”

CORRECTION (Oct. 11, 20:20 UTC): Warbler Labs said it was one of the "backers" and underwriters of the loan, not the pool manager and the underwriter as the earlier version said. Also updated headline, story to clarify $7 million of the total loan is at a risk.