Key differences between the Senior Pool LP and Backer roles
Hi there! Now I want to tell you about the details of the famous early-stage project Goldfinch. And most importantly, we will find out what are the real differences between Senior Pool LP and Backer roles.
Let’s start with Backers!
Backers are protocol participants who provide junior tranche capital to individual Pools of borrowers for investment purposes. A pool of borrowers is a smart contract, which encodes a set of financing conditions for the Borrower, including the interest rate and loan repayment schedule, and on the terms of which the Borrower can carry out loans and capital repayment.
The primary role of Backers is to assess borrower pools and provide first-loss capital.
What’s Senior Pool?
The Senior pool is a smart contract that accepts capital from Liquidity Providers, a participant in the goldfinch protocol, and automatically distributes capital to the senior tranche of Borrower Pools following the leverage model, depending on the number of Backers participating in them. Liquidity Providers supply the capital to the Senior Pool to generate passive income. When the Senior Pool distributes capital, part of its share is redistributed among the Backers.
Finishing with an example
Let’s imagine a borrower borrows $ 5 million and $ 1 million comes from a pool of sponsors. hen, based on the Backers’ trust, the flow allocates another $4M from the Senior Pool.
The risk of the first loss is borne by the Backers, so 20% is deducted from the Senior Pool profit to stimulate the Backers. Backers need to evaluate borrowers, and they also provide the risk of the first capital for that they get more reward. Senior Pools, on the other hand, are not exposed to such risks and don’t need to keep track of borrowers’ repayments or dig through documentation.
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