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.