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Decrypting DeFi is Decrypt's DeFi email newsletter. (art: Grant Kempster)

Despite the fancy financial rails, a loan in DeFi is still a loan. This has been seen time and again, with last week’s debacle from the Curve Finance founder offering up yet more coursework on the subject.

Goldfinch, a crypto startup aimed at issuing loans to companies in emerging economies, has now taken center stage, with this latest example impacting the ever-trendy real-world asset sector.

The protocol issued a $5 million loan to a fintech firm called Tugende Kenya back in 2021, set to expire this October.


Tugende provides local financing to small businesses in Kenya and Uganda via its eponymously named subsidiaries. Its primary customer base is rental motorists or people basically renting cars and scooters to finance their taxi or delivery services.

The purpose of the loan was to help Tugende–specifically Tugende Kenya–expand this offering.

At the end of last month, though, the Goldfinch community was notified that the firm had lent out $1.9 million of that loan to Tugende Uganda. Per the conditions of the loan, this was a breach and comes on the back of two previous breaches made all the way back in February.

Even worse, Tugende Kenya announced that it needed to be restructured and that “this will result in a net 3.95% write-down to the NAV of the senior pool over the next four months,” per Goldfinch’s governance post.

As a result, Goldfinch has wiped off roughly 4% of its total value locked in this event.


It also sheds an interesting light on how unstoppable, or not, DeFi really is. Instead of cold-calculating smart contracts humming along, this episode has revealed that code can only go so far before messier human elements complicate things.

Microfinancing is nothing new, and neither is underwriting. It’s the latter point, however, that DeFi is still wrangling with.

Underwriting, by the way, is the task of measuring how much risk is involved in a financial activity, be it a loan or otherwise, and providing equal compensation for that risk.

Well, normally, that’s how it works.

With the worst-case scenario now occurring, were lenders proportionally compensated?

Tugende lenders were raking in 11% interest for supporting motorbike financing in East Africa.

Currently, the 1-month U.S. Treasury Bill is yielding 5.5%.

Does that mean the American government was only twice as likely to default as Tugende?


Editor's note: This article was updated on March 18, 2023, at 6 pm ET to show that the vulnerable code in question was audited but not discovered. A previous edition reported the newly-added code had not been audited.

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