What is private credit?

Private credit refers to debt financing provided by non-bank lenders, such as direct loans to mid-sized businesses, real estate loans, trade finance, consumer loans, and structured credit, which are not issued or traded on the public market. Unlike public bonds, these loans are negotiated bilaterally, recorded privately, and are typically held to maturity by the sponsoring fund.

The private credit asset class grew rapidly after 2008 as banks scaled back operations under new regulatory restrictions (Basel III). Investment funds, private equity firms and specialty finance firms have rushed in to fill the loan gap. By 2020, the global private credit market had grown to approximately $2 trillion. The market has reached $3 trillion by early 2025 and is expected to reach $5 trillion by 2029 (Morgan Stanley, McKinsey).

The traditional private credit market suffers from three core structural issues, making it an ideal candidate for tokenization.

• Illiquidity: Once a fund makes a loan, it typically holds it until maturity. There is currently no mature trading platform for trading private loan shares. Secondary market transactions are customized, slow, and require exhaustive due diligence on the part of the buyer.

• Information is not transparent: Data fragmentation means investors often do not have a clear understanding of leverage ratios, collateral quality or real-time performance. Reports are only released on a quarterly basis at best, and there is a serious information asymmetry.

• Barriers to entry: Minimum investments of $5 million to $10 million, multi-year lock-in periods, and accredited investor qualification requirements effectively shut out all but the largest institutional investors.

What is Tokenized Private Credit?

Tokenized private credit is the process of converting a private loan or debt instrument into blockchain-based digital tokens that represent a claim on loan cash flows, ownership of fund shares, or rights to interest and principal payments.

In effect, the underlying loans or credit exposures remain off-chain and are legally structured and regulated in the same way as traditional markets. But ownership claims or income rights are reflected on the chain in the form of tokens. These tokens can be issued, traded and settled more efficiently using blockchain infrastructure.

The working principle is as follows

• Origination: Originators structure private credit products (SME loans, structured credit, trade finance, home equity lines of credit, etc.).

• Legal Wrapping: Creating a legal entity (usually a special purpose entity) to hold the loan exposure.

• Tokenization: Minting digital tokens that represent ownership of that credit or rights to cash flows.

• Subscription: Investors use legal currency or stable currency to subscribe and receive tokens in return.

• Performance: Loans continue to be executed off-chain, but payments, investor reporting, and ownership records are managed on-chain.

Two tokenization models

This is a key distinction that most articles miss.

Representational Tokenization: The blockchain only serves as a transparent record-keeping system for off-chain loans. These tokens are not transferable or tradeable, and the blockchain only provides operational upgrades (immutable ledger, real-time tracking). Figure mainly uses this mode.

Figure data

Distributable tokenization: Loans are issued natively in the form of transferable tokens and held on-chain. Investors can hold, trade, and combine these tokens in the DeFi ecosystem. Platforms such as Maple, Centrifuge and Tradable are closer to this model.

Data for Tradable, Maple and Centrifuge

According to research data from HTX_Global, only about 12% of the approximately $19 billion in active on-chain private credit loans are held in a transferable, distributable tokenized form. The rest is "recorded but cannot be moved". This is an important nuance in assessing the true state of the market.

Evolution process

Phase 0: History (2017-2019)

2017: Centrifuge was established as one of the first DeFi projects to integrate RWA. Initially focused on tokenizing invoices and receivables through its Tinlake protocol, an open asset pool powered by smart contracts.

2018: Figure is founded by Mike Cagney (former CEO of SoFi). The company is focused on integrating blockchain into financial services, first launching a home equity line of credit (HELOC) based on blockchain infrastructure. Figure developed Provenance Blockchain Foundation (based on Layer 1 of the Cosmos SDK) as its infrastructure.

2019: Cadence (later renamed Percent) launched its first tokenized private debt product in an attempt to reduce back-office costs by standardizing and reusing smart contract templates for structured products. Early challenges ensued, such as higher-than-expected costs for on-chain contract mirroring and insufficient demand for tokenized debt due to a lack of a sufficient number of crypto-native investors to effectively invest.

Phase 1: DeFi integration and early development (2020-2021)

2020 (Centrifuge V1): Centrifuge proves that tokenized private credit can be used as collateral in DeFi, especially with its integration with SkyEcosystem.

Early 2021: Goldfinch is launched, focusing on decentralized credit in emerging markets. The protocol enables cryptocurrency investors to provide loan funds to fintech institutions in developing countries (Indonesia, Mexico, Peru, Kenya). It uses a dual-pool model: retail funds go into the senior pool to obtain stable returns (7-10% annualized return), while secondary backers elected by the community provide first-loss funds in exchange for higher returns.

2021: Maple is launched as an institutional lending platform on Ethereum, using "pool representatives" for credit assessment. Initially serving institutional borrowers such as hedge funds, trading firms and cryptocurrency market makers. TrueFi and Clearpool have also entered the market.

2021: Figure begins settling home equity lines of credit (HELOCs) on the Provenance Blockchain Foundation, reducing months-long financing cycles to days and cutting out the middleman.

Mid-2021 to late 2022: Active loan volume in the on-chain private credit market peaks at nearly $1.5 billion. Lending is dominated by cryptocurrency exchanges and market makers.

Phase 2: Crypto Winter and Reset (2022)

2022: Crypto winter hits on-chain private credit hard. Maple defaulted on $69.3 million in debt during a period of institutional turmoil (FTX/Alameda/3AC collapse). Low-collateral lending to crypto companies proved disastrous.

Goldfinch encountered bad credit through its emerging markets products.

The total value of on-chain private credit plummeted from its peak.

Lending to crypto-native companies (trading desks, market makers) creates circular risks. The market is beginning to turn to real-world lending as a source of recovery.

Phase 3: Real-World Transformation and Entry of Institutional Investors (2023-2024)

2023 (Centrifuge V2): Multi-chain scaling and institutional-grade fund structuring tools. Much of the new growth will come from real-world lending operations.

2023: Hamilton Lane tokenizes its Senior Credit Opportunities (SCOPE) private credit fund on Ethereum and Polygon via Securitize, lowering the minimum investment from $5 million to $20,000.

2022 (earlier): KKR launches first-ever launch of its healthcare strategic growth fund on Avalanche blockchain via Securitize.

2024: Hamilton Lane expands SCOPE to the Solana chain via the Libre platform.

Mid-2024: Centrifuge has $289 million in outstanding loans and invests primarily in consumer asset-backed securities (ABS), real estate bridge loans and trade finance. Over 85% of loans issued through Centrifuge are financed by the Sky Protocol (formerly MakerDAO).

2024 (Centrifuge V3): Interoperability, standards and composability. ERC-7540 was developed as an extension to ERC-4626 to standardize asynchronous investments and redemptions.

End 2024: BlackRock launches BUIDL (Tokenized Money Market Fund), reaching $1.2 billion in AUM within six months.

Early 2024: The private credit tokenization space reaches approximately $8 billion, driven primarily by Figure, Centrifuge, Maple, Goldfinch, Clearpool, and Credix.

Phase 4: Organizational Acceleration (2025)

January 2025: Apollo launches Tokenized Diversified Credit Fund (ACRED) on six blockchains via Securitize. By November 2025, its AUM reached $170 million.

February 2025: Figure forms joint venture with Sixth Street (Sixth Street commits $200 million in equity to Figure Connect for ongoing private credit liquidity).

Mid-2025: Figure has tokenized over $13 billion in loans (primarily home equity lines of credit). Becomes the #1 non-bank home equity line of credit lender in the United States. Over $600 million in loans are closed monthly on Provenance.

September 2025: Figure was listed on Nasdaq under the stock symbol FIGR, raising US$787.5 million through the IPO, with a valuation of US$5.3 billion (later reaching US$7.6 billion).

October 2025: Total tokenized real-world assets (RWA) reach approximately $33 billion, with private credit accounting for $16-18 billion.

As of November 2025: Private credit on the active chain exceeded US$18.91 billion, and the cumulative amount issued reached US$33.66 billion (RWA.xyz data). Value increased by 82% from the end of 2024, reaching $17.9 billion as of October 2025 (PwC data).

Securitize has issued nearly $4 billion in tokenized assets and is a tokenization partner for BlackRock, Apollo, Hamilton Lane, KKR and VanEck.

Phase 5: Current Status (Early 2026)

February 2026: Figure Technologies currently leads the market with approximately $15 billion in active loans, accounting for 75% of the approximately $20 billion in total active loans (RWA.xyz data). Total tokenized assets on the Provenance platform reach $1.2 billion TVL.

Hamilton Lane and Securitize have launched an RWA-backed stablecoin on OKX’s

The tokenized private credit market is continuing to expand into the realm of DeFi composability: Apollo’s ACRED fund is being used in leveraged loops on platforms like Morpho and Kamino, demonstrating that on-chain assets can be combined in ways not possible with traditional finance.

Industry expectations for 2026 include: major institutions will "transition from the pilot phase to large-scale, production-ready products" and the possibility of on-chain credit receiving ratings from traditional rating agencies.

How tokenized private credit actually works

Token standards and structure

Loan-specific tokens: Each loan is tokenized into one or more ERC-20 tokens, representing a claim on the asset’s cash flows. For example, a real estate lender issues tokens that entitle holders to mortgage repayments. These tokens generally constitute securities and must be issued under exemptions (Reg D for accredited investors and Reg A+ for the broader but restricted retail investors).

Lending pool model: Lenders contribute capital to a public pool, which allocates loans to borrowers on behalf of the pool. Loans are represented on-chain as debt certificates (non-tradable tokens) linked to the NFT, and lenders receive ERC-20 tokens representing their share of the pool. Smart contracts enforce the terms, meaning that if the borrower fails to repay the loan, the loan will enter a default state and trigger pre-set remedies.

Fund Tokenization: The fund structure itself is tokenized (e.g., Hamilton Lane’s SCOPE). Investors hold tokens that represent shares of the fund, rather than direct claims on individual loans. This is the current mainstream institutional model.

Key criteria

ERC-20: Standard fungible token for loan pool shares and fund tokens

ERC-721 (NFT): used to represent loans in some protocols

ERC-4626: Tokenized Vault Standard for Income-Based Positions

ERC-7540: An extension of ERC-4626 for asynchronous investment and redemption, the leading DeFi RWA standard, developed by Centrifuge

Hierarchy: Advanced/junior hierarchical structure (Centrifuge's DROP/TIN model) allows risk-return differentiation

Life cycle management

Smart contract processing:

• Loan disbursement and interest accumulation

• Token holders receive and distribute payments

• Maturity redemption and principal return

• Compliance checks (whitelist, KYC/AML, jurisdiction restrictions)

• Default trigger mechanism and waterfall repayment mechanism

Transparency issue

This part of the article applies the RWA transparency framework, which distinguishes between what is actually distributed and what is merely presented on-chain.

What does Figure’s dominance mean?

Figure accounts for approximately 75% of tokenized private credit. But Provenance is a purpose-built chain whose smart contracts require governance approval. As Glider co-founder Brian Huang points out:

"On-chain assets are not more useful than off-chain unless they are composable. Provenance is not composable."

This means that, by dollar value, the vast majority of tokenized private credit is essentially just an operational upgrade rather than a distributable, DeFi composable asset. These loans are not tradable tokens that investors can freely transfer, combine, or use across the ecosystem. This is crucial for transparency analysis.

12% problem

According to HTX research data, only about 12% of on-chain private credit is held in transferable tokenized form. The remainder is documented but cannot be distributed. When someone says tokenized private credit is worth $20 billion, a more accurate figure for truly distributable, composable tokenized credit would be between $2 billion and $3 billion.

Actually verifiable content on the chain

Fully verifiable: token ownership, transfer history, fund share balances, smart contract terms, compliance status (whitelisting) and payment and distribution status.

Partially verifiable: total outstanding loan value (depending on oracle/reporting accuracy), collateralization ratio (for overcollateralization model).

Not verifiable on the chain: borrower's credit status, actual loan performance (still relies on off-chain reporting), collateral quality of off-chain assets, true default rate, recovery rate.

Underlying credit risk assessment, underwriting and counterparty assessment remain entirely off-chain. Blockchain provides transparency at the token level, but not necessarily at the asset level.