Author: Vaidik Mandloi
Compiled by: Luffy, Foresight News
In the 1970s, Bruce Bent and Henry Brown founded the world's first money market fund. Its business model was extremely simple: regulations enacted during the Great Depression capped interest rates on U.S. bank savings deposits at just 4.5%, while the yield on U.S. Treasury bonds exceeded 9% at the same time. However, the minimum entry barrier for individuals to invest in Treasury bonds was as high as $10,000. The duo conceived the idea of pooling small amounts of retail capital, buying Treasury bonds in bulk, and then distributing the returns proportionally to investors. Today, the scale of money market funds has reached approximately $8 trillion.
Stablecoins are now replicating the same business logic, but this time targeting private credit as the underlying asset—a $2 trillion market with a minimum investment threshold of at least one million dollars. Interest-bearing stablecoins channel massive amounts of small-scale funds into the private credit market.
In this article, I will delve into how this is happening and how Goldfinch failed, leaving $56 million of depositor funds trapped in motorcycle loans in Kenya.
How Stablecoins Became Money Market Funds in the Private Credit Sector
In the 1990s, the U.S. banking system provided nearly half of debt financing for corporations and households; today, that proportion is only 20%. After the 2008 financial crisis, new capital regulatory rules were implemented, significantly raising the cost for banks to hold leveraged loans on their balance sheets. Institutions largely withdrew from middle-market credit business, and private credit funds filled the gap.
Asset management firms like Apollo, Blackstone, and KKR raised capital from pension funds and insurance institutions, lending to companies abandoned by banks. These companies had limited financing channels, allowing institutions to charge high-risk premiums.
The industry grew from less than $200 billion in 2008 to over $2 trillion today, with capital almost entirely from institutional investors with minimum investments of $5 million each.
The core reason for the million-dollar minimum investment threshold in private credit is the extremely high cost of post-loan management: each debt requires due diligence, debt restructuring, and continuous monitoring over many years. Managing ten institutional LPs each contributing $50 million is far easier than managing thousands of retail investors investing $500 each; operating at a retail scale might not even be profitable. Over the past decade, only pension funds and insurance institutions could enjoy stable credit returns in the 8%-12% range.
Interest-bearing stablecoins have completely rewritten the industry landscape, much like how money market funds opened up Treasury bond investment to ordinary people in the 1970s. Underlying risk control and due diligence are still performed by professional institutions like Apollo using institutional standards, but tokenized bridge funds can accept deposits of any amount with no threshold, channeling them into institutional credit strategies without needing to individually manage a massive number of retail investors.
Apollo recently launched the tokenized credit fund ACRED, which has already attracted $109 million into its diversified credit products. Investors can even deposit ACRED tokens into Morpho as collateral to borrow, leveraging their positions to amplify returns.
Figure has built a comprehensive on-chain lending infrastructure, with a cumulative loan origination scale of $21 billion. It is now listed on NASDAQ and issues the interest-bearing stablecoin YLDS, with a circulation of $376 million. Protocols like Pyse and Glow target even more niche sectors, tokenizing solar energy projects. Investors can invest in photovoltaic power stations in developing countries with just a few hundred dollars, earning annual returns from monthly electricity fee repayments.
This does not mean the institutional funds themselves have removed their thresholds; directly subscribing to the ACRED master fund still requires $5 million. However, once assets are tokenized, the tokens can be traded barrier-free on secondary markets and combined with DeFi in a Lego-like manner—features that traditional fund shares cannot achieve.
Traditional private credit funds have lock-up periods lasting several years, with quarterly redemption limits capped at just 5%; on-chain assets, however, can be traded 24/7 and freely combined. For institutions like Apollo and Figure, this allows them to access the $315 billion pool of stablecoin capital, which is actively seeking yield. By tokenizing their funds, they can directly tap into this capital pool, opening up new distribution channels without needing to build retail infrastructure from scratch.
A year ago, the total on-chain private credit volume was only $400 million; today, it stands at $5.87 billion, a 15-fold increase in 12 months. Even so, this scale represents only 0.3% of the global $2 trillion private credit market. In Q1 2026, half of all newly issued stablecoins were yield-bearing, meaning most new stablecoin capital is actively chasing real credit returns, no longer merely pursuing a USD-pegged price anchor.
More critically, each on-chain credit asset can be used as collateral and recycled within various DeFi protocols, ultimately generating trading volumes far exceeding the principal amount.
Taking ACRED as an example: an investor deposits $10,000 worth of ACRED, borrows 7,000 USDC using it as collateral on Morpho, and then buys more ACRED to pledge again. A $10,000 principal can ultimately leverage over $17,000 in credit exposure. In contrast, with traditional private credit, $10,000 invested is held statically for up to five years with no amplification potential. The multi-layered recycling and amplification on-chain accelerate market expansion, but risks are also transmitted simultaneously: any default in an underlying loan can cause losses to propagate up the leverage chain.
Tokenizing assets does not eliminate the inherent risks of the underlying credit. During periods of sustained capital inflow, new deposits can cover redemption demands, masking risks; once capital inflows slow, the contradiction between the promised token returns and the actual repayment capacity of the underlying loans becomes fully exposed. If investors rush to redeem en masse, market liquidity dries up, causing the token price to decouple significantly from the net asset value of the underlying assets.
The collapse of Goldfinch is a classic case. The protocol, launched in 2021, was one of the earliest projects to bring private credit on-chain. It recently had to shut down, leaving $56 million of user funds trapped in offline loan businesses in Kenya and Nigeria.
Goldfinch's Fatal Mistakes
In 2021, Goldfinch completed a $25 million funding round led by a16z. At that time, DeFi lending pools offered annual yields of only 2%-3%. The project planned to channel crypto capital to small and micro-enterprises in Africa and Southeast Asia. Traditional local banks refused to serve this customer segment, and borrowers were willing to bear high loan interest rates of 15%-25%.
The project's design logic seemed simple: users deposit USDC into a pool, and the smart contract automatically allocates the funds to borrowers within seconds. But lending to a motorcycle financing company in Nairobi requires the team to deeply understand Kenya's local transportation industry, physically verify company finances on the ground, and conduct door-to-door collections in case of defaults.
These risk control steps cannot be accomplished via blockchain at all. Once USDC is converted into Kenyan shillings and disbursed as credit, depositors cannot track where the funds go, the operational status of the businesses, or confirm whether loan terms are being properly fulfilled. All the core information determining loan quality is stored off-chain, controlled by borrowers located in countries most investors have never set foot in.
This also led to a major case of misappropriation going undetected for months: in 2022, the local partner Tugende Kenya improperly transferred $1.9 million out of a $5 million credit line to a related entity in Uganda, moving nearly 40% of the loan funds to an overseas entity not stipulated in the contract. Meanwhile, depositors continued to receive 10%-12% nominal returns, completely unaware that the underlying funds corresponding to their returns had been improperly transferred.
A traditional private credit institution would initiate collections or debt restructuring within days of discovering such a severe contract breach. But Goldfinch users could only learn the truth through governance forum posts, able to initiate governance votes with no legal enforceability, and lacking the authority to seize assets or audit remaining debt.
In 2023, Tugende defaulted completely and became uncontactable. During its operational period, Goldfinch launched a total of 24 pools with a total size of $113.3 million. Only 13 pools were fully repaid. Eight pools hold $53.82 million in outstanding loans, all deviating from the original repayment agreements, with most entering debt restructuring stages. Single pools are receiving less than $51,000 in monthly repayments. At this pace, recovering the full $53.82 million would take 8 to 15 years.
Goldfinch took on all the credit risks of emerging markets—currency fluctuations, lack of credit history—without building the risk control and collection infrastructure that traditional institutions have honed over decades. For example, local banks in Kenya have physical branches and local regulatory connections, possessing sufficient leverage when bad debts arise.
Goldfinch merely funneled anonymous global wallet capital to similar high-risk borrowers but lacked the full suite of offline risk management systems. This dramatically widened the information gap between lenders and borrowers. Once defaults occurred, depositors had almost no channels to intervene or resolve the situation.
Putting assets on-chain accounts for only 10% of the workload in credit business; the remaining 90%—due diligence and collections—heavily relies on localized resources, which are extremely costly to establish. Credit underwriters need to build a trustworthy foundation for the entire asset class. Every bad debt arising from risk control lapses raises the threshold for institutional on-chain cooperation and undermines the credibility of the entire sector.
The real difficulty of the credit business has nothing to do with on-chain technology. If practitioners in this field fail to see this clearly, they will only replicate a second Goldfinch-style collapse.
