RWAs Assemble: Private Credit Chapter with Goldfinch, Maple, Clearpool

1. Polytrade’s Introduction

2. Goldfinch Introduction by Aaron (Principal and Credit team): Goldfinch directs private lending to fintech and credit funds on-chain to create accessibility for businesses not favored by traditional lending.

3. Atlendis Introduction by Alexis Masseron (CEO/Co-founder): Atlendis provides on-chain private asset-backed lending to real-world borrowers.

4. Maple Finance by Sid Powell (CEO/Co-founder): Maple Finance does institutional lending on-chain.

5. Clearpool introduction by Jacob K (CEO/Co-founder): Clearpool does Institutional lending.

Q1. Why did you choose Private credit when approaching blockchain, and why should any user or buyer be interested in private credit as an asset class?

A. Sid: Private credit has a large AUM. And because of banks’ regulated capital they can’t participate in the space, this is a driver that the private credit space will keep growing. Yields that users will gain from private credit will be higher than most other fixed-income. Moreover, Private credit is less volatile than public credit, also covenant protection is reliable because deals are mostly bilateral.

Jacob: As Sid mentioned, this is a great place to be. Fintech already made this area great, but with blockchain we have the ability to make certain assets and loan more liquid, transparency, cost-effeciency, tokenization for secondary trading which is one of the benefits of the Polytrade RWA Marketplace.

Aaron: Sid and Jacob have made really good points. Adding to Sid’s point, you tend to make 3-6% more yield. And the extra money made is put to good use. And more companies will be served well cos they cab get access to credit through blockchain more easikt and earlier than through banks or TradFi.

Alexis: Everyone has already made good points. Private credit is very liquid and with blockchain, it makes it decentralized, trustless, interoperable, and provides room for innovation.

Q2. In DeFi, private credit came first, then Tbills took over, Maple finance took advantage of that. As an Industry that’s looking at Private Credit, how can we get it back up?

A. Sid: Private credit offers more yield, up to 14% interest rates and high net worth individuals are attracted to that. The adoption rate shows that individuals come before funds and institutions which is a good sign cos it shows early adoption. However, It’s hard to compete with treasury rates at 5% and that reduced the activity in the space, and we’ve seen it reflect in the market serving the customer preference through the growth of on-chain tokenized treasuries, but we’re going to see a lot of Public Funds put assets to work and that will mandate them to have higher yields in a lot of cases, and we might see public funds get into Private credit on-chain next.

Suffice to say, two of the major gaps are stablecoin on and off-ramps. It’s difficult to serve borrowers and create private credit deals when it’s hard for companies who want to borrow to offramp the stablecoins.

The second is, that institutions still have a bit of aversion to crypto in the wake of FTX and everything that happened last year, but I think that will fizzle out eventually.

Aaron: I would say it’s about risk appetite as Sid pointed out. A lot of people are putting their money into treasuries as it’s a simple investment. There’s a study by BlockStone, that shows that during times of great hikes, Private credit does incredibly well because of the bilateral nature of negotiation, one is able to get better covenants and higher rates, and the yields are there and I think people’s risk appetites will rotate to that in the right macro-environments. I think the role we have to play is educating people about private credit and especially private credit on-chain. A big part of our approach to doing our work is interviewing lots of different investors, and customers. We found that even relatively savvy financial customers have only vaguely heard of private credit. It’s a relatively new trend. The fact that TradFi natives don’t know much about it shows that crypto natives don’t know too.

Q3. Is there a magic yield? Have you guys seen heads turn at a particular interest rate?

A. Alexis: I think we’ve seen this space gravitating towards high-interest rates, it also depends on the structuring of those loans.

Jacob: I don’t think there’s a magic number. But higher numbers do attract. The market is still new and opportunities are yet to come. In the eyes of lenders, there isn’t much difference between lending on or off-chain. A lot of concepts like more liquidity and interoperability are relatively theoretical at this point. I think this coupled with the fact that not a  lot of financially savvy people know about receivables financing and private credit is the reason why there isn’t much adoption currently. But gradually the adoption will take place. And I think the Polytrade RWA Marketplace will be very instrumental to this.

Q4. Aaron, do you want to give us a sense of what retail is thinking and what are the hurdles they are facing to understand private credit as an asset class and then actually put their money in? 

A. Aaron: That’s a great question and Jacob made a good point you know, a lot of these benefits are theoretical for now

Yeah, that’s a great question and Jacob made a good point to say that a lot of these benefits are theoretical for now. I would say one of the real benefits, especially targeting the retail space is that these people had no way of getting exposure to Private credit previously. Blockchain has made it possible for people to be able to go on to a protocol and invest whatever amount of money they want, whether it’s $500 or $500,000, and it’s really something that is quite unique. 

Now with that said, I think private credit is a very complicated space and there are also different sectors within it where people are specialized and underwriting specific types of risk I think a lot of us are focused on Fintechs. But I think there is still too much crypto Degen visions around what yield is. People look at yield and they compare them between

Compound and Goldfinch, but those are entirely different product offerings. So I think retail users or even accredited users that are just not institutions need to understand the liquidity of the positions. They are taking a longer-term view on a position in order to get that extra yield. And then I think one of the other challenges actually doesn’t come from educating the retail people but actually comes from adapting borrowers to the new way of borrowing on chain.

One of the traditional benefits of private credit is that as a borrower, you don’t have to show everybody your information. You go to a specific fund, you show them, they pull money from their LPs, you don’t have to put everything out there on the Internet. However, if you have people investing between $1 and $1,000,000 into your pool, you get a little bit scared about how do I disclose this information? and what’s the right level? And so sometimes the retail investors end up not getting enough of the picture and you have to meet in the middle of the amount of information disclosure that’s possible. 

So I think part of it is that retail needs to become more sophisticated and think of private credit as a separate real-world asset class on-chain that is entirely different from you know crypto yield.  And I think the borrowers also have to adapt like we are offering the solution that can tap into a much larger market but they and us also have to be targeting that market, realizing that they need a lot of information, and giving them as much information on the risk they are taking so that their eyes are wide open.

Q5. Any any other takes guys on what is needed for us to get retail in here?

A. Sid: I think it’s just stuff on the regulatory side like most people will be prevented from offering a product to retail in in a lot of markets anyway. So partly you need kind of a softening in those jurisdictions otherwise you kind of limited to just serving effectively outside US outside EU jurisdictions.

PG disrupts the party 

Sid, I totally agree with what you just said but if there is a possibility that what we are trying at our marketplace level, if we can wrap it up into a more layered structure or a kind of structured product which is given an option to participate by retail. I think still there is a room for it. However, as a protocol you would only deal with people who are following certain KYC norms and compliances but the position which is being held in Maple somebody can take part into it that even if it is at the secondary level, I’m not sure exactly that every protocol would be agree with that, but that’s what again our marketplace would try to solve at this level.

Milind: Actually I have seen that move as well. Some of the protocols that we’ve been talking to used to have transfer gating like KYC gating on transfer as well, actually one of them even switched from. transferring the KYC gating to gating the redemption and the minting, but they let go of the KYC on transfer that’s something you guys are hearing. 

Sid: We all want retail to participate and if we have the right tools, it’s up to retail to determine if they will participate. I’ve seen different techniques, such a secondary wrapping which introduces considerations around UX, it’s pointing in the direction that we would like to see the space go. It would be nice if there a regulatory catch up for these types of products even if it’s in limited circumstances so that retail can participate. It’s the early stages but progress is being made. 

PG: Yeah, I mean you know if if we all think of it, tokenization was one of the reasons for bringing these assets on-chain was one of the reasons where you know. We can increase retail participation or at least offer these products to people who never had an access to them, right. But unfortunately direct protocols are still not able to offer that very easily, obviously because of regulatory reasons but that’s that’s one thing which we think you know the wrapping should be able to solve that problem. But yeah I mean let’s let’s see how time you know permits that so good. 

Q6. We’ve had a journey both as being a borrower as trying to raise credit and raising credit. What were the hurdles that we came across and which led to eventually the the design of the marketplace on the demand side, What did we see there?

PG:  We have been into the space for 3 years. Maple has been there for long but Maple built up the books primarily because of institutional participation. Sid, I dont know exactly what was the retail percentage in the portfolio, but I’m, I’m assuming it’s a very large institutional partnership that made Maple what Maple is today. And similarly all other protocols even we spoke to Jack in Hong Kong, It was exactly the same response.

So one of the one of the things which we have been always encountering in the market is that people wanted to participate but they didnt have access to these assets on smaller levels, smaller tickets, or sometimes they are sitting in a jurisdiction where they they cannot comply to the requirements of a protocol; Sometimes availability of dollars, crypto availability or not. 

All these issues keep coming back and back to us. And I think that is one of the thought processes which which we kind of inculcated for last 6 months—trying to find a way in which these hurdles can be overcome, especially in markets like Africa, markets like Latin where dollar-denominated products are in high demand but liquidity is not available, or at least they can’t get into these assets.

So we are getting a lot of response from those markets. A lot of my token investors in 2021 who are all primarily from and dominant in Latin markets still come back and say that the real world asset narrative plays so well, but they say that they don’t have availability of these protocols or these assets to you know bring retail participation. So I think these were few points which were always there.

Second issue that we kept discussing was secondary or exit liquidity. When we ran Invoice Financing, it was impossible to give people back their money without waiting for liquidation to happen. There’s no way to force-liquidate any invoice. The debtor is a buyer in US who has agreed to pay that invoice on due date directly to Polytrade. He won’t pay early and the supplier will never bother. So when you have a 30, 90 or 120-day redemption period with invoices purchased on separate dates, it was almost impossible for us to give redemptions, but it would be nice if there’s a secondary market to downsell these assets to liquidate existing investors.

Q7. What inspired Atlendis to create a secondary market and what was the thought process?

A. Alexis: We decided to, just by the standard that we use. We embedded the secondary market and order books and the rate discovery was made directly into the pool and by the pool. We embedded different pools into the app and have separate markets because of regulatory issues because it is still being debated whether on-chain assets are securities across different jurisdictions. That’s why I think it’s very interesting what Polytrade is building cos this is where the interoperability of DeFi on-chain will take place and elevate all of us.

Q8. When are the big institutions coming, when are we going to see liquidity flow into this sector?

A. Aaron: I think it’s anyone’s guess really, but there’s good signs, the head of blackrock said tokenization is the future. I got to meet with their team a few weeks ago and they’re thinking very seriously about the benefits of tokenization. I think these guys, JPMorgan, Goldman Sachs, they’re playing with their own private blockchain internally, but they’re getting interested. They’re not going to get up to speed in the same way that a start up ecosystem will in terms of risk and challenging the norm. It’s a matter of getting these people to integrate with our protocols and accept the public blockchain element of these lending protocols. It’s the only way they can do something beneficial for the community at large, rather than tinkering behind closed doors.

A. Aaron: I don’t know. One of the reasons I say I don’t know is because we at Goldfinch, are going in the opposite direction. As our next growth strategy, we want to take way the Blockchain element and allow people to onboard their fiat seamlessly and we create wealth for them on the back end. And then we can target US accredited investors as our source of funding. We think being able to appeal to people individually and educate them about Private Credit is a real benefit and it’s worked for web2 players in the space. So I don’t want to be behold into waiting for big institutions without growing our TVL, we have to grow our TVL by any means necessary. That’s said, we have hired a head of capital markets who’s working on larger ticket deals putting those in front of institutions.

And I think one way that institutions will become comfortable with this space is they’ll actually start investing in this space. A lot of the people I talked to who are institutional investors in this space right now are like opportunistic credit or even distressed credit funds who kind of like take into account all the crypto risk and are the only ones who are able to look at it. Whereas this should be like institutional grade allocations from your normal kind of people who allocate to private credit, which is like pension funds and insurance funds and things like that. So I think once people dip their toes and they start to see their competitors dip their toes and the loans perform without kind of hack risk and those kind of things, I think that’s when institutions start coming on. In my opinion, I think it could be any time between one to three years. And a lot of that also depends on just how much Bitcoin and Ethereum go up. If we’re in a bull market, people pay attention to trends. If we’re in a bear market, they don’t. So I think we’re setting the building block for institutional adoption. But I think another year or two for people to really experiment in this space and for a wide variety of institutions to be looking at it is the patience we’re going to need in order to get those large inflows of capital.

Q9. What is Clearpool Prime about? Will smaller investment firms come first or will the big one come first?

A. Jacob: The institutions we’re working with are crypto native and they’re the large ones. The smaller ones will come soon eventually. It’s hard to find the small ones who are actually into defi e.g family offices, but as Aaron said, as crypto gets hotter, we’ll have them coming in eventually.

Q10. What do you guys have to say about the problem of discovery, consideration, and secondary exit, has it been something that you felt was an issue on the demand side?

A. Alexis: Yes. LPs are always considering the maturity of their investments, they want their assets to be liquid. They want to be able to retrieve their liquidity ASAP.

Aaron: An aspect of any efficient market is price discovery and the creation of secondary markets by the Polytrade RWA Marketplace is a great idea.

Q11. What is your projection for TVL for private credit at the end of 2024?

Sid: It’s tough to say where it’ll be, Private credit on-chain will be about $2bn, by mid-2025, we should see a 4-5x growth.

Jacob: I don’t know exactly what number it’ll be, but as rates decrease, TVL will increase. But I estimate more than $2bn, $3bn to $4bn approx.

Alexis: I think that there’s a potential to grow and there’s potential to meet and beat those numbers.

Aaron: 2bn is about right in my estimation. My prediction is that a really big chunk of that is traditional finance products that are tokenized cos they already have their customer base.

Audience’s Questions


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