Onchain credit is not new. MakerDAO introduced overcollateralized credit in 2017, and by 2021 protocols like Goldfinch, BlockFi, and Genesis were experimenting with undercollateralized and unsecured lending.
The issue was that these loans were structured partially on-chain but enforced entirely off-chain, with limited legal recourse. When major borrowers such as FTX and 3AC collapsed, lenders faced severe losses.
Genesis disclosed more than $3.5B in unsecured loans at the time of its bankruptcy, while BlockFi had over $1B in exposure to FTX. Goldfinch’s loan book contracted by more than 70% from its ~$100M peak following defaults.
In total, lenders lost billions. These failures reflected a hybrid of weak on-chain guarantees and opaque off-chain practices.
Three years later, a new cohort of innovators are working to address these gaps and build serious companies that could redefine credit. They aim to improve capital efficiency and reduce reliance on off-chain enforcement.
A fundamental reason to rethink traditional credit markets is capital efficiency. Borrowers generally seek the lowest possible cost of capital, while lenders aim to minimize risk for the returns they receive. Each additional intermediary involved in verifying, attesting, and enforcing actions can increase costs for borrowers and may reduce overall efficiency.
Traditional credit markets are slow, expensive, and heavily constrained by legal and operational complexity. Onboarding a new borrower can take 2 to 4 weeks, often driven by intensive KYC/AML procedures, legal due diligence, and multiple layers of internal review. Legal structuring alone often costs between $200,000 and $400,000, particularly when the borrower operates across multiple jurisdictions, each requiring separate documentation and agreements.
A key requirement is establishing account control through legal frameworks like Deposit Account Control Agreements (DACAs). These can be “springing,” where lender control activates only upon borrower default, or “control” DACAs, which give lenders ongoing transaction oversight to prevent misuse of funds. The setup process is costly and time-consuming, often complicated further by the fact that many regional banks lack familiarity with these mechanisms.
Traditional collateralization also poses significant hurdles. In traditional finance, a lender must obtain a perfected security interest typically by filing UCC-1 liens for financial assets or formal mortgage documents for real assets. This process requires both legal attachment and demonstrated control, with enforcement dependent on local laws and courts. Requirements for loan syndication, recovery in the event of default, and cross-border enforceability can add further friction. These inefficiencies, high fixed costs, lengthy timelines, and fragmented enforcement limit access to credit, especially for smaller firms and those operating outside traditional financial hubs.
ONCHAIN CREDIT INNOVATION Issuing credit onchain follows the same principles as in traditional finance: onboarding, credit evaluation, loan issuance, interest accrual and repayment, and risk management. But the origination, capital formation, and enforcement vary significantly between protocols. To compare, we looked at Maple and Figure, where more of their process happens off-chain, as well as Fence and Credit Coop, where the process is mostly onchain. Figure is a blockchain-powered lender focused on the US housing market and has quietly grown its active loan book to $14.7B, making it the largest digital-first private credit protocol in DeFi. The company uses the Provenance blockchain as a source of truth for its origination and stores the receipts of repayments, while the origination, execution and payments happen offchain.
Maple Finance is a hybrid credit protocol that combines off-chain underwriting with fully onchain capital formation, funding, and repayment. The real unlock is on the capital formation level for borrowers, who can access a deep pool of capital, with attractive rates, without having to form a syndicate themselves. The only downside is having to lock-up collateral at a higher ratio than the actual loan amount. Both Figure and Maple have scaled, but both still rely heavily on off-chain underwriting and enforcement. Figure and Maple benefit massively from the ease of onchain capital formation. That is the largest enabler for them in crypto. Smart contracts help them streamline a lot of the process and for Maple, reduces the risk for lenders, who then are more comfortable providing capital. But for Maple borrowers, it’s easier than getting capital through traditional routes but it isn’t capital efficient, they still need to overcollateralize their loans. This can’t be the endgame of onchain finance, capital efficiency is fundamental to unlock growth for companies.
What is it that these companies borrowing on Maple need to show to lenders to make them feel comfortable providing undercollateralized credit? How can companies prove, in a verifiable way, that they are fiscally responsible, and able to pay back the capital provided? How can lenders not only receive guarantees, but have those be programmatically enforceable? These are the questions we feel that onchain cashflows through stablecoins begin to answer. They point toward a path to more efficient financing.
THE DEATH OF MIDDLE-MEN The issue is not just the cashflows, but also a myriad of other elements that are involved in the underwriting and structuring of a credit line, including managing it post-close. When you analyse a typical deal, there are middlemen and processes everywhere: calculation agency (waterfall math, interest accruals, trigger tests), cash management, paying agency (collections, reconciliation, distributions), verification, covenant and borrowing-base monitoring, and investor reporting. In asset-backed finance this layer is still fragmented across PDFs, spreadsheets, email-based workflows, and batch settlement. This work either is internalized into large backoffice and legal teams or through servicers who commonly charge 25–50 bps annually. Cashflows can take days or weeks to reconcile through intermediaries, and lenders often only gain loan-level visibility through periodic reporting. We see how this can backfire and taint a portfolio like the bankruptcy of Tricolor where no one knew the real health of the company and the risk they were running. Fence (a Galaxy Ventures portfolio company) is an example of infrastructure successfully bringing real value to leading institutions by tokenizing the mechanics of the credit agreement: translating eligibility criteria, covenants, concentration limits, and waterfall rules into smart contracts that can be monitored continuously and executed programmatically, with fund movement orchestrated in stablecoins. The practical benefit is higher capital velocity (more frequent funding and settlement), lower operational overhead, and tighter lender control through auditable execution improvements that directly translate into stronger capital efficiency and, in many structures, the potential for higher lender IRR.
HOW ENTERPRISE STABLECOIN ADOPTION CAN CHANGE CREDIT MARKETS Another example where bringing cashflow onchain simplifies credit lines is with Rain (Galaxy Ventures portfolio company). They provide crypto-settled card products, allowing users to spend their stablecoins everywhere with Visa cards. Users fund their wallets with stablecoins and pay at a merchant checkout, the payment experience is no different than a standard card payment. This puts Rain in a position where it needs to hold operational capital to cover the settlement float (typically 1 to 3 days of transaction volume in fiat). As Rain scales, this requirement can grow into tens of millions in idle capital, constraining growth and capital efficiency. This challenge is not unique to Rain, it is common across crypto card issuers and emerging market fintechs. Here is where stablecoin cash flows matter most. Rain can show verifiable proof of payments every time a user makes a Visa card transaction.
To unlock growth without tying up tens of millions in working capital, Rain and other issuers work with protocols that use smart contract lockboxes, with Credit Coop and Centrifuge among the pioneers. Because receivables settle in stablecoins, repayment is automatically triggered at the point of settlement and is inherently programmable. This reduces counterparty risk for lenders and allows companies like Rain to scale faster while maintaining efficiency. Rain’s role is important because it translates programmable stablecoin flows into everyday consumer payments at global scale. In parallel, Credit Coop demonstrates how these primitives can be applied directly to lending protocols. The unlock here is foundational. What was once considered too risky or costly for private credit funds and fintechs is now becoming viable. For early-stage startups with stablecoin cashflows, Credit Coop’s lockbox materially reduces lender risk by taking control of receivables and automating repayment, thereby lowering the amount of cash collateral required.
In crypto this is new territory, we can finally move away from overcollateralized lending to financing at peak capital efficiency. Rain has a structural advantage over traditional card issuers, it can grow faster and cheaper because it uses stablecoins. Together, they illustrate how programmable receivables can support both fintech use cases and onchain native credit.
LOOKING AHEAD Over time, yields in DeFi may compress closer to the levels of U.S. Treasuries, not because the market will be perceived as risk-free, but because improvements in transparency, collateralization, and programmable enforcement could reduce counterparty risk relative to today’s baseline. In other words, DeFi does not just offer higher nominal returns, it could offer better risk-adjusted returns, with lower volatility and real-time transparency. If that thesis proves out, DeFi-native credit will outperform many forms of traditional private credit and even structured products like corporate bonds or CLOs, despite potentially offering the same or lower nominal yield. The result, as demonstrated by companies like Rain and protocols such as Credit Coop, is a sharper, cleaner, and more composable credit stack, better suited for a programmable, global financial system. This pushes the cost of capital down, allowing more firms to fuel their growth. The firms that embrace this programmable stack early aim to access global flows of capital, build deeper trust with users, and operate at internet scale speed. Those that wait could risk being disintermediated by protocols that do not require permission, only code execution.
On-Chain Credit Innovation: Reimagining Lending with Programmable Cashflows On-chain credit is not new, but a new wave aims to fix past failures by leveraging stablecoins and programmable cashflows to improve capital efficiency. Earlier DeFi experiments like undercollateralized lending showed the risk of off-chain enforcement and opaque practices, with lenders suffering billions in losses when major borrowers collapsed. Three years later, a new cohort of innovators seeks to address these gaps and build seriously scalable credit platforms.
Issuing credit on-chain follows the same overarching steps as traditional finance—onboarding, credit evaluation, loan issuance, interest accrual and repayment, and risk management—but the origination, capital formation, and enforcement increasingly occur in code. Figure, Maple, Fence, and Credit Coop illustrate the spectrum from off-chain underwriting to on-chain capital formation and enforcement. Figure, focused on the US housing market, has grown its active loan book to $14.7B and uses the Provenance blockchain as a truth source for origination while keeping some processes off-chain; Maple is a hybrid protocol that unlocks deep capital pools for borrowers while requiring higher collateral ratios. These setups still rely on off-chain underwriting, yet the shift to on-chain capital formation is the largest enabler, supported by smart contracts that streamline processes and reduce lender risk.
The death of middle-men is a central theme: calculation, cash management, payment, verification, covenant monitoring, and investor reporting are often fragmented across PDFs and spreadsheets. Innovations like Fence tokenize the mechanics of credit agreements into continuously monitorable, executable smart contracts with stablecoin fund movements, enabling higher capital velocity and tighter lender control. In parallel, Rain uses programmable stablecoin cash flows to support crypto-settled card transactions, reducing idle capital and enabling faster growth for issuers; Credit Coop and Centrifuge pioneer lockbox mechanisms that take control of receivables and automate repayment, lowering required collateral. Together, these primitives point toward a future where credit can be issued and repaid with minimal traditional intermediaries, governed by code.
Looking ahead, DeFi yields may compress toward Treasury-like levels as transparency, collateralization, and programmable enforcement reduce counterparty risk. The vision is a sharper, more composable credit stack where DeFi-native credit can outperform traditional private credit and even some structured products, all while lowering the cost of capital and expanding access to funding for a broader cohort of borrowers. This shift could redefine who can lend, who can borrow, and on what terms, driven by a programmable stack that operates at internet scale.
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