Key differences between Senior Pool Liquidity Providers and Backers on the GoldFinch Platform
GoldFinch is a decentralized credit platform that empowers financial inclusion.
There are 4 roles in GoldFinch: borrowers, auditors, backers and liquidity providers. Well all their interactions can be seen in the diagram:
A potential borrower presents his project (#tech startup), it is considered from the beginning by auditors and, if it has passed their verification, then backers who have the competence to evaluate this project and provide capital with the first loss enter next. Backers should initially look for good borrowers, make high demands on them and be able to hold borrowers accountable. During the consideration of the borrower's application, backers can ask various questions, request additional documents to better understand and evaluate the project. And then, based on their analysis, they invest their money and transfer the junior tranche. Further, when the protocol sees a sufficient number of backers, it considers the pool trustworthy and automatically executes the senior tranche with the senior pool (which is provided by liquidity providers).
Based on the above, it can be understood that backers have much more responsibilities than liquidity providers. In addition, there is another significant difference, which is shown in the following diagram:
And this difference is the % of profitability. For their additional responsibilities, the backer receives an increased return. The liquidity provider gives part of the profit received from the provision of capital to the sponsor ( 20%), which ultimately leads to an increased profitability of the backer. If we take an example from the scheme, then with a loan at 12%, the backer will receive a final yield of 20.4%, and the liquidity provider only 8.4%, but at the same time will save himself from many responsibilities that the backer will have to fulfill.