Stablecoin USD private credit track

Author: Vaidik Mandloi; Source: TokenDispatch; Compiled by: Shaw, Jinse Finance

Introduction

In the 1970s, Bruce Bent and Henry Brown launched the world's first money market fund. The underlying logic was simple and clear.

Restricted by regulatory rules enacted during the Great Depression, the interest rate ceiling for U.S. bank savings deposits was capped at 4.5%, while U.S. Treasury bond yields exceeded 9%, and the investment threshold for Treasury bonds was as high as $10k. So Bent and Brown devised a plan: pool small scattered deposits, collectively purchase large amounts of Treasury bonds, and then return the investment returns to ordinary depositors. Today, money market funds are a financial product with a scale of approximately $8 trillion.

Stablecoins are replicating this business model, but this time the target underlying asset has shifted to private credit. The private credit market is worth $2 trillion, with an entry threshold of at least $1 million. Various interest-bearing stablecoins are pooling small amounts of funds and channeling them into the credit market.

This article will delve into the logic behind this transformation, while also analyzing why Goldfinch, the first project to enter the real-world asset (RWA) lending track, has just shut down, leaving $56 million in depositor funds trapped in Kenyan motorcycle credit projects and unable to be withdrawn.

How Stablecoins Are Becoming the Money Market Fund of Private Credit

In the 1990s, U.S. banks provided about half of all debt financing for businesses and consumers, but today that proportion has fallen to just 20%. The reason behind this is that after the 2008 financial crisis, new capital regulatory rules came into effect, making it prohibitively expensive for banks to keep leveraged loans on their balance sheets. As a result, banks completely withdrew from middle-market lending, and private credit funds stepped in to take their place.

Institutions like Apollo, Blackstone, and KKR raise funds from pension funds and insurance companies and lend specifically to companies that banks have abandoned. Since these borrowers have no other financing channels, these institutions charge a high risk premium.

The market has grown from less than $200 billion in 2008 to over $2 trillion today, and nearly all of this capital comes from institutional investors making individual contributions of at least $5 million.

One of the main reasons the private credit investment threshold is as high as $10k is the extremely high operational and management costs of this asset class. Each credit transaction requires due diligence, debt restructuring, and ongoing monitoring over several years. Managing a fund with only ten institutional limited partners, each contributing $50 million, is far simpler than managing thousands of retail investors each putting in only $500; from a commercial perspective, large-scale retail operations are often unprofitable. Over the past decade, only pension funds and insurance companies have been able to participate in these assets with annual returns of 8% to 12%.

Interest-bearing stablecoins have completely changed the industry landscape, with significance comparable to Bent and Brown's launch of the money market fund in the 1970s, which allowed ordinary people to invest in Treasury bonds. Institutional processes such as underlying due diligence and risk underwriting are still handled by asset managers like Apollo, but tokenized feeder funds can accept small deposits of any amount and channel capital into institutional credit strategies without having to separately manage thousands of individual investors.

Apollo recently launched a tokenized fund, ACRED, and its diversified credit fund has already attracted $109 million in capital. Investors can even deposit their fund shares as collateral into the Morpho protocol to borrow and recycle funds, seeking leveraged returns.

Figure has built a complete on-chain lending infrastructure, with cumulative loans issued totaling $21 billion. It has successfully listed on Nasdaq and has launched an interest-bearing stablecoin, YLDS, with a current circulating supply of $376 million. Other protocols like Pyse and Glow are entering more niche tracks, tokenizing solar projects; investors can put in just a few hundred dollars to finance photovoltaic equipment projects in developing countries, with returns coming from an annualized yield derived from monthly electricity bill shareouts.

This does not mean that the fund's entry threshold has been eliminated. Direct subscription to the ACRED fund still requires a minimum investment of $5 million. However, after tokenization, the corresponding tokens can be traded without barriers on the secondary market and can be combined with decentralized finance (DeFi) protocols, which is impossible with traditional fund shares.

In the traditional private credit model, capital is locked up for years, with a quarterly redemption limit of only 5%. In contrast, on-chain assets are composable and tradable 24/7. For institutions like Apollo and Figure, the stablecoin market has $315 billion in capital constantly seeking yield. Tokenizing funds is equivalent to opening a new distribution channel that can directly reach this massive capital pool without having to build a retail service system from scratch.

A year ago, the total on-chain private credit was only $400 million; today it has grown to $5.87 billion, a 15-fold increase in 12 months. However, this volume accounts for only 0.30% of the global $2 trillion private credit market. In the first quarter of 2026, half of the new stablecoin circulation will be interest-bearing stablecoins, meaning that the vast majority of new stablecoin capital is no longer just seeking dollar-pegged value preservation but actively pursuing yield appreciation.

Furthermore, every $1 of on-chain credit assets can be used as collateral and recycled across various decentralized finance protocols, resulting in actual financial transaction volumes several times the principal amount.

Take ACRED as an example: an investor deposits $10k into the Morpho protocol as collateral, borrows 7,000 USDC, uses that USDC to purchase more ACRED shares, and then re-collateralizes them. With just an initial $10k principal, they can ultimately gain over $17k in credit exposure. In contrast, with traditional private credit, the same $10k invested in a fund would remain static for five years, unable to be reused. On-chain assets can compound and appreciate in value simultaneously across multiple layers of transactions, which is the core reason why this market is expanding much faster than its on-paper capital volume. But associated with this is the risk that if the underlying loans go bad, losses will cascade through the entire leveraged cycle.

Asset tokenization does not mean that the underlying risks are reduced. During periods of continuous capital inflow, various risks are often masked, as new deposits are sufficient to cover investor redemption demands. But once capital inflow slows down, the gap between token yield promises and the actual returns of underlying loans becomes exposed. Investors rush to redeem, only to face a liquidity crunch, or the token price severely diverges from the net asset value of the underlying assets.

The Goldfinch project suffered a similar crisis. It was one of the earliest protocols to enter the on-chain private credit track in 2021. It was recently forced to shut down, leaving a total of $56 million in depositor funds trapped in credit projects in Kenya and Nigeria and unable to be withdrawn.

The Core Problem with Goldfinch

In 2021, Goldfinch raised $25 million from a16z, planning to channel crypto market capital to small and micro enterprises in Africa and Southeast Asia. At that time, yields on decentralized lending pools were only 2%-3%, while local companies, rejected by local banks, could only accept loans with annual interest rates of 15%-25%.

The project's design logic was simple: anyone holding USDC could deposit into the Goldfinch pool, and smart contracts would allocate the capital to borrower tranches within seconds. But lending to a motorcycle finance company in Nairobi meant that the operator had to thoroughly understand the Kenyan transportation industry's economics and conduct on-site audits of the borrower's financial accounts; if defaults occurred, staff would have to go to the company in person to collect.

However, the blockchain itself cannot solve the above off-chain risk control problems. Once USDC is converted into Kenyan shillings and placed into the credit ledger, depositors have no way to know the actual use of the funds, whether the borrower's financial health is sound, or whether the other party is strictly complying with loan terms. All key information determining credit asset quality is stored off-chain, in the hands of overseas borrowers that most depositors have never visited.

This also explains why it took months for the market to discover that in 2022, Kenya's Tugende company had unauthorizedly transferred $1.9 million out of its $5 million credit line to the Uganda Tugende entity. Nearly 40% of the loan capital was diverted to a separate legal entity in another country. Meanwhile, depositors continued to receive what they believed was a 10% to 12% annual return, completely unaware that the principal supporting those returns had flowed into areas not agreed upon in the loan agreement.

If a traditional private credit institution discovered such a serious contractual breach, it would declare the loan accelerated and force a debt restructuring within days; but Goldfinch depositors could only learn about this through a governance forum post, and the only actionable step was to vote on a governance proposal that had no legal authority to seize assets or audit the remaining funds.

In 2023, Tugende defaulted entirely and completely lost contact. During Goldfinch's existence, it issued a total of $113.3 million in loans across 24 pools, of which only 13 were fully repaid. The remaining 8 pools still have $53.82 million in unpaid loans, and none have made interest and principal payments according to the original contracts. The vast majority of projects are in debt restructuring, with individual pools receiving less than $51k in monthly repayments; at that repayment rate, it would take 8 to 15 years to fully recover the $53.82 million in outstanding debt.

Goldfinch alone bore all the risks of emerging market currency fluctuations and incomplete borrower credit records, yet lacked the supporting systems that traditional credit institutions have spent decades building to mitigate risk. For example, banks operating lending businesses in Kenya have local offices and stable relationships with local regulators, giving them negotiating leverage when business risks arise.

But Goldfinch just channeled funds from anonymous wallets around the world to similar borrowers without supporting off-chain risk control infrastructure, further widening the information gap between lenders and borrowers, even more so than in traditional credit. Once a project blew up, depositors had almost no way to intervene.

On-chain capital flow accounts for only 10% of the total workload in credit business; the remaining 90% is core work like credit due diligence and non-performing loan collection, which is heavily reliant on local resources and has high setup costs. The credit underwriters in this track need to build a solid credit foundation for an entirely new asset class whose feasibility is still being proven. Any bad debt caused by due diligence negligence will raise the bar for subsequent institutional capital to enter on-chain credit, damaging the credibility of the entire track. The real difficulty of credit business has nothing to do with on-chain operations; any practitioner who delves into this field without recognizing this will only repeat Goldfinch's failure.