Article by: Vaidik Mandloi
Compiled by: Luffy, Foresight News
In the 1970s, Bruce Bent and Henry Brown founded the world’s first money market fund. The business model was remarkably simple: regulations enacted during the Great Depression capped U.S. bank savings deposit interest rates at just 4.5%, while U.S. Treasury yields exceeded 9% at the time. However, the minimum investment to purchase Treasuries directly was $10,000—too high for most individuals. Bent and Brown realized they could pool small amounts of capital from individual investors, buy Treasuries in bulk, and distribute the returns proportionally to participants. Today, money market funds have grown to approximately $8 trillion in assets.
Stablecoins are replicating the same business model, but this time targeting private credit—an $8 trillion market with a minimum entry threshold of $1 million. Interest-bearing stablecoins aggregate vast amounts of small-scale funds and channel them into the private credit market.
In this article, I will delve into how this happened and how Goldfinch collapsed, leaving $56 million in depositor funds trapped in motorcycle loans in Kenya.
How stablecoins become money market funds in the private credit space
In the 1990s, the U.S. banking system provided nearly half of all debt financing for corporations and households; today, that share has fallen to just 20%. Following the 2008 financial crisis, new capital regulations were implemented, significantly increasing the cost for banks to hold leveraged loans on their balance sheets. As a result, institutions fully exited the middle-market lending business, creating a market gap that private credit funds were well-positioned to fill.
Asset managers such as Apollo, Blackstone, and KKR raise funds from pension and insurance institutions to extend loans to companies that banks have withdrawn services from. With limited financing options available, these companies enable institutions to charge high risk premiums.
The industry size has grown from less than $200 billion in 2008 to over $2 trillion today, with nearly all funding coming from institutional investors making individual investments of $5 million or more.
Private credit setups have a $1 million minimum investment threshold primarily because post-investment management costs are extremely high: each loan requires due diligence, debt restructuring, and years of ongoing monitoring. Managing ten institutional LPs each investing $50 million is far easier than managing thousands of retail investors each putting in $500—scaling retail operations is even unprofitable. Over the past decade, only pension funds and insurance institutions have been able to access stable credit returns in the 8%-12% range.
Interest-bearing stablecoins are completely reshaping the industry, much like money market funds opened up U.S. Treasury investments to the general public in the 1970s. Underlying risk controls and due diligence are still conducted by professional institutions like Apollo according to institutional standards, but tokenized bridge funds can accept deposits of any amount without barriers, uniformly channeling them into institutional credit strategies without the need to individually onboard vast numbers of retail investors.
Apollo recently launched its tokenized credit fund, ACRED, which has attracted $109 million in capital across its diversified credit products. Investors can even deposit ACRED tokens as collateral on Morpho to borrow and cyclically leverage their positions for amplified returns.
Figure has built a comprehensive on-chain lending infrastructure, with a total loan volume of $21 billion, and is now listed on Nasdaq. It has also issued the interest-bearing stablecoin YLDS, with a circulating supply of $376 million. Protocols such as Pyse and Glow have targeted more niche markets, tokenizing solar energy projects, enabling investors to participate in photovoltaic power stations in developing countries with just a few hundred dollars and earn annualized returns through monthly electricity revenue payments.
This does not mean that the institutional fund itself has eliminated its minimum investment threshold—direct subscriptions to the ACRED master fund still require $5 million. However, once the assets are tokenized, the tokens can be traded on secondary markets without any minimum requirements and can be composably integrated with DeFi protocols, features unattainable with traditional fund shares.
Traditional private credit funds have lock-up periods lasting several years, with quarterly redemption limits of only 5%; on-chain assets, by contrast, can be traded 24/7 and freely combined. For institutions like Apollo and Figure, this enables access to $315 billion in stablecoin capital actively seeking yield. By tokenizing their assets, they can directly tap into this capital pool, opening new distribution channels without having to build retail infrastructure from scratch.
One year ago, the total size of on-chain private credit was only $400 million; today, it has reached $5.87 billion, a 15-fold increase over 12 months. Even so, this amount represents just 0.3% of the global $2 trillion private credit market. In the first quarter of 2026, half of all newly issued stablecoins were yield-bearing stablecoins, indicating that most new stablecoin capital is now actively seeking real credit yields rather than merely pursuing a USD-denominated price peg.
More importantly, each on-chain credit asset can be used as collateral and reused across various DeFi protocols, ultimately generating transaction volumes far exceeding the principal amount.
Taking ACRED as an example, an investor deposits $10,000 worth of ACRED, borrows 7,000 USDC via Morpho as collateral, and then uses those USDC to purchase more ACRED for secondary collateralization. With an initial $10,000 principal, this strategy can generate over $17,000 in credit exposure. In contrast, traditional private credit locks up $10,000 for five years with no leverage potential. On-chain assets enable multi-layered circular leverage, accelerating market expansion—but risks propagate simultaneously: if any single underlying loan defaults, losses cascade up the leverage chain.
Asset tokenization does not eliminate the inherent risks of underlying credit. During phases of continuous capital inflow, new deposits can cover redemption demands, masking the risks; once capital inflows slow, the discrepancy between the token's promised returns and the actual repayment capacity of the underlying loans becomes fully exposed. A concentrated wave of investor redemption requests can lead to a liquidity crunch, causing the token price to diverge significantly from the net asset value of the underlying assets.
Goldfinch’s collapse is a classic case in point. The protocol, which launched in 2021, was among the first to bring private credit on-chain, and was recently forced to shut down, leaving $56 million in user funds trapped in offline lending operations in Kenya and Nigeria.
The fatal mistake made by Goldfinch
In 2021, Goldfinch completed a $25 million funding round led by a16z. At the time, DeFi lending pools offered annual yields of only 2%-3%, and the project aimed to channel crypto funds to small and micro businesses in Africa and Southeast Asia. Traditional banks in these regions refused to serve such customers, and borrowers were willing to pay interest rates of 15%-25%.
The project’s design logic appears simple: users deposit USDC into a liquidity pool, and the smart contract automatically allocates funds to borrowers within seconds. However, lending to a motorcycle finance company in Nairobi requires the team to deeply understand Kenya’s local transportation industry, conduct on-site verification of the company’s financials, and perform in-person collections in the event of default.
These risk management processes cannot be fully accomplished on the blockchain. After USDC is exchanged for Kenyan shillings to disburse loans, depositors cannot track where the funds go, monitor the borrower’s business operations, or verify whether loan terms are being properly fulfilled. All critical information determining the quality of the debt is stored off-chain and held by borrowers in countries most investors have never visited.
This also led to a major violation going undetected for months: In 2022, local partner Tugende Kenya improperly transferred $1.9 million out of a $5 million credit line to a related entity in Uganda, diverting nearly 40% of loan funds to an overseas entity not stipulated in the contract. Meanwhile, depositors continued to receive apparent returns of 10%-12%, completely unaware that the underlying funds had been misappropriated.
Traditional private credit institutions would initiate collections and debt restructuring within days of detecting such severe contract defaults; however, Goldfinch users can only learn of the situation through governance forum posts and are limited to initiating non-binding governance votes, with no authority to seize assets or audit remaining claims.
In 2023, Tugende completely defaulted and went offline. During Goldfinch’s operational period, a total of 24 funding pools were issued, amounting to $113.3 million, with only 13 pools fully repaid. Eight pools hold $53.82 million in outstanding loans, all of which have deviated from their original repayment terms and most have entered debt restructuring. Each pool now receives less than $51,000 per month in repayments. At this repayment rate, fully recovering the $53.82 million would take 8 to 15 years.
Goldfinch assumes all credit risks—including currency volatility and lack of credit history in emerging markets—without building the decades-long-developed risk management and collections infrastructure that traditional institutions rely on. For example, local banks in Kenya have physical branches and established regulatory connections, giving them ample leverage when dealing with non-performing loans.
Goldfinch simply channels funds from global anonymous wallets to similar high-risk borrowers, lacking a comprehensive offline risk control system, significantly widening the information gap between lenders and borrowers, and leaving depositors with almost no means of intervention or recourse in the event of default.
Asset tokenization accounts for only 10% of the workload in credit operations; the remaining 90%—due diligence and collections—relies heavily on localized resources, resulting in extremely high setup costs. Credit underwriters must build a trustworthy foundation for the entire asset segment, as every bad loan caused by inadequate risk control raises the barrier for institutional collaboration on-chain and undermines the sector’s overall credibility.
The real challenge in credit business has nothing to do with on-chain technology. If industry participants fail to recognize this, they will ultimately replicate a second Goldfinch-style collapse.