Advancing Private Credit with On-Chain Rails

Private credit, namely asset-backed finance (ABF), is among the fastest-growing corners of global finance. Already a $6.1 trillion market, Apollo Global Management sizes the addressable opportunity at over $20 trillion.

Yet despite its scale and growing role in financing businesses and consumers worldwide, the industry still runs on excel sheets. The result? Middle- and back-office bloat, cash drag and financing costs up to 30% higher than they should be.

It’s like tracking your working hours on a yellow sticky note, mailing it in and waiting 15 days to get paid in 2025. No one would tolerate this way of working.

These inefficiencies stem from how ABF is managed today.

Unlike corporate credit, where the borrower’s full faith and balance sheet provide the anchor, ABF relies on the contractual cash flows of underlying assets: think BNPL loans, supply chain receivables or small business financing. To manage this complexity, funds like Apollo and Blackstone structure bespoke facilities for originators.

These originators can generate thousands of loan requests per month, but drawdowns typically happen weekly at best. In between, capital sits idle, investors absorb cash drag (i.e., the erosion of returns caused by capital sitting idle rather than being deployed into yield-generating loans) and originators resort to using costly equity dollars to bridge gaps.

Incumbent managers deploy large operations teams to monitor covenants, verify collateral and manage waterfall payments. This is labor-intensive, error-prone and expensive.

A transformative shift is now underway, set to accelerate ABF growth, and also where the web3 tech stack comes into play.

At the heart of this is not only better infrastructure enabled by blockchain, but also better money — better because it’s programmable.

New entrants can use programmable credit facilities and stablecoin rails to originate faster, fund cheaper and scale. By tokenizing credit facilities and embedding smart contracts into every step of the lifecycle, managers are able to automate verification, enforce compliance in real time and execute drawdowns and repayments instantly. Pairing that with programmable stablecoins for funding and settlement allows originators to eliminate cash drag. Platforms like Fence and Intain are already proving this works in practice — handling origination, reporting and payment waterfalls with code.

Source: Fence.Finance

The implications are profound. Large managers like Apollo and Blackstone can shed operational bloat, while smaller funds, emerging managers and family offices can participate without needing armies of staff. On-chain infrastructure can ultimately help to democratize access to a market that has historically been closed off to all but the largest institutions. Over time, incumbents who remain tied to manual processes leveraging traditional rails risk losing ground to specialist credit funds adopting on-chain infrastructure.

Amid renewed enthusiasm for crypto and the spotlight on stablecoin issuance, ABF is already applying the tech to solve real frictions and capture the rapidly expanding market opportunity. Watch this space.