Legal structures, the actual skill

Junior · enrolled learners

This lesson opens with Goldfinch and Stratos, February 2022 to October 2023.

What happened

In February 2022 a Goldfinch pool made a four-year loan of $20M in USDC at 11 percent annual interest to Stratos, a fintech credit fund. Stratos allocated $5M of it to a real estate technology company called REZI, which subsequently ceased repayments and whose position was expected to be a total loss, and a further $2M to unspecified digital asset investments which Warbler Labs stated it had been unaware of, and which were sold at close to a full loss covered by adding collateral. In October 2023 Warbler said it would write off part of the facility, take on the full risk and responsibility of recovery, and backstop losses for Goldfinch users. Around $7M of the $20M was impaired. Goldfinch subsequently recorded further defaults and later wound down its decentralized credit platform.

The decision point

The loan documentation contemplated a use of funds, and the borrower did something else with about a third of the money. Nothing on-chain could observe that, because the deployment happened in the world rather than on a ledger, and the only mechanism capable of noticing or preventing it was a covenant monitored by a person and enforced through a legal process. What actually protected the lenders was neither the token nor the covenant. It was a party choosing to absorb the loss.

Recorded loss

$7,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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