Based on my reading of the cover wording, defaults wouldn’t be covered. That has nothing to do with the protocol. That’s credit risk and the Goldfinch team has even highlighted in their docs that credit risk is not covered. I included a screenshot of this statement in their docs above.
Protocol Cover does not protect against credit risk for uncollateralized loans. It protects against:
- A smart contract hack
- Oracle failure/manipulation
- Severe liquidation failure, which wouldn’t apply as there is no collateral to liquidate; and
- Governance takeovers
There is no additional capacity available for Goldfinch in any event, as the only pool manager staking against it has unstaked.
You are correct, though. Users can still withdraw up to the amount of available liquidity. Utilized capital for loans cannot be withdrawn. The particular loan in question is in default, as the borrower hasn’t paid it back, but the overall senior pool is fine from a smart contract perspective and there is still liquidity available for withdrawals as loans are paid back.