Private Credit On-Chain
Traditional private credit — loans to businesses too small for public bond markets — is a $1.5 trillion market controlled by banks, hedge funds, and PE firms. DeFi protocols like Maple, Centrifuge, and Goldfinch are cracking it open: letting anyone with stablecoins lend to real-world borrowers, earn yields that beat T-bills, and take on actual credit risk. This page maps the mechanics, the protocols, and the risks.
📊 Protocol Comparison
Three approaches to the same problem: get real-world borrowers funded with DeFi capital.
🍁 Maple Finance
- Model: Pool delegates underwrite loans
- Borrowers: Crypto-native firms, market makers
- Yields: 8-15% APY
- Lock-up: 90-day withdrawal windows
- Default history: ~$54M (Orthogonal Trading, 2022)
- Chain: Ethereum, Solana
🌊 Centrifuge
- Model: Tranched pools (senior/junior)
- Borrowers: SMEs, trade finance, real estate
- Yields: 5-12% APY (senior tranche lower)
- Structure: SPV-backed, legally structured
- Integration: MakerDAO RWA vaults
- Chain: Centrifuge Chain (Polkadot), Ethereum
🐦 Goldfinch
- Model: "Trust through consensus" — auditors verify borrowers
- Borrowers: Emerging market fintechs
- Yields: 10-20% APY
- Unique: No crypto collateral required
- Senior pool: Automated, diversified across all loans
- Chain: Ethereum
🔄 Loan Lifecycle
Follow a real-world loan from origination to repayment (or default). Click steps to walk through.
A fintech in Kenya needs $500K to expand its micro-lending operation. They apply to a Goldfinch borrower pool with financial statements and business plan.
💰 Yield Calculator with Default Risk
Private credit yields look great — until defaults eat into returns. Model the real expected yield after accounting for default probability.
📐 Tranche Structure (Centrifuge Model)
Centrifuge pools split risk into tranches. Senior lenders get paid first (lower yield, lower risk). Junior lenders absorb losses first (higher yield, first-loss position).
Senior Tranche (DROP tokens)
Fixed-rate, first claim on repayments. Protected by junior tranche equity cushion. Typical: 4-7% APY. Similar risk profile to investment-grade corporate bonds.
Junior Tranche (TIN tokens)
Variable-rate, absorbs losses first. Gets excess returns after senior is paid. Typical: 10-20% APY. First-loss position means you can lose principal if defaults exceed the equity cushion.
🔍 On-Chain Credit Assessment
How do protocols evaluate borrowers who don't have crypto collateral? Each protocol takes a different approach to the fundamental problem of trust.
Professional "pool delegates" (like M11 Credit) perform due diligence, set loan terms, and stake their own tokens as first-loss capital. They earn management fees. Essentially DeFi's version of a loan officer.
Each pool is backed by a legal Special Purpose Vehicle. Real-world assets (invoices, mortgages) are pledged as collateral. Legal recourse exists — if a borrower defaults, the SPV can seize assets through traditional courts.
Independent "Auditors" (staked GFI holders) verify borrower identity and creditworthiness. "Backers" who know the borrower provide first-loss capital to junior tranche. Senior pool auto-allocates based on backer confidence signals.
⚠️ Real Risks of On-Chain Private Credit
This isn't yield farming. These are real loans to real businesses. The risks are different from DeFi-native protocols.
Borrowers can and do default. Orthogonal Trading defaulted on $36M in Maple loans (Dec 2022). Goldfinch had delayed repayments from African fintechs. Recovery rates vary wildly — 0% to 70%.
Unlike Aave deposits, you can't withdraw instantly. Loan terms are 90-365 days. Some pools have withdrawal queues. Your capital is locked while the borrower uses it.
If a Kenyan fintech defaults on a Goldfinch loan, enforcement depends on Kenyan courts. Cross-border debt recovery is slow, expensive, and uncertain.
Borrowers know more about their business than you do. On-chain transparency helps for crypto-native borrowers, but real-world businesses can hide problems longer. Due diligence quality varies by protocol and delegate.
Standard DeFi risk still applies. A bug in the pool contract could lock or drain funds regardless of borrower creditworthiness.
Related Reading
More RWA, lending, and yield topics to deepen your understanding of on-chain credit markets.