Off-Chain, On-Chain, Upside Down Pricing
On-chain private credit is a powerful new financial tool with the potential to democratize access to previously exclusive investment opportunities.
At its core, private credit loan tokenization involves issuing digital tokens that represent fractional ownership in private debt obligations, which enable investors to participate in lending opportunities with greater efficiency.
Blockchain means fewer intermediaries, higher yields, and greater transparency… in theory.
These benefits are potential, not a given. In practice, it’s a nascent industry and best practices are still emerging. Growing pains are evident in defaults and mismatched yields relative to loan risk profiles, and unsophisticated investors remain particularly vulnerable to these risks.
Maturing On-Chain Lending
While platforms like Maple and Centrifuge have paved the way, the industry still faces significant challenges in ensuring adequate investor transparency.
Kasu is setting new standards for on-chain loan transparency and fidelity by bringing genuine RWAs in the form of on-chain private credit to the masses via its lending partner Apxium. By tackling industry challenges head-on and prioritizing end-to-end counterparty and lending transparency, Kasu sets new standards for the industry and unlocks the full potential of tokenized private credit.
Established Lending vs. YOLO Sending
One of the critical transparency challenges for tokenized private credit is the blurred line between real-world asset (RWA) and DeFi-centric lending. To truly deliver on the promise of RWA tokenization, platforms must ensure that their lending activities are genuinely rooted in real-world assets rather than repackaging DeFi loans with a TradFi framing.
Orthogonal Finance’s 2022 default, caused by outsized exposure to the FTX collapse, highlights the importance of transparency in counterparty lending activities. While FTX was a centralized business, its dubious lending activities and operational opacity, ultimately leading to its catastrophic failure, were firmly rooted in the highly volatile digital asset space.
It goes without saying that one should conduct due diligence into their chosen lending platform to understand where their funds are being deployed.
Are they actually engaging in RWA lending where funds are moved off-chain (removing much of the smart contract risk) and deployed in a non-crypto industry (removing much of the sector and asset volatility risk)?
Chances are this is not the case.
If you look hard enough, you’ll see that some strategies on leading RWA lending platforms are not really RWA at all and funds are merely being rerouted back into DeFi — into simple yield farming and staking opportunities. Strategies that the user could simply employ themselves if they spent a few minutes researching. Caveat emptor.
Kasu addresses this challenge through its partnership with Apxium, which extends payment solutions to high creditworthy accounting firms, from mid-tier to top-100 global accounting firms in the US, UK, Canada and Australia — real-world firms with real-world reputations backed by real-world loans. Kasu offers investors true clarity and firm confidence in the underlying assets by focusing on genuine RWA lending and providing full value chain transparency.
High Risk, Low Return?
Another area where transparency is crucial is underlying loan collateral. Whatever backs up the loan should be accurately reflected in the yield, which can also be considered the opportunity cost of the capital associated with the lending activity. This concept is a no-brainer and firmly established in traditional finance.
For example, it would be highly unusual to see residential solar and auto asset-backed securities (ABS) yielding less than risk-free returns. After all, who has a lower chance of default: solar companies and car dealerships or the U.S. Treasury? Yet this is exactly what is being offered by one of the most respected and established RWA lending platforms. The devil is in the detail… seek and ye shall find.
Kasu’s partnership with Apxium ensures that all collateral backing its loans is of the highest quality. For example, Apxium’s Professional Fee Funding loans to accounting firms are collateralized by accounts receivable assets (invoices), which have less than 1% annual default rate, and in the event of non-payment, Apxium has the right to garnish any incoming payments to the borrower. This is a simple automated process owing to Apxium being the payment rails provider in all of these lending scenarios.
This robust collateral configuration and subordination structure has enabled Apxium to maintain a 0% loss rate over its seven-year history, providing Kasu’s investors with exceptional security and transparency.
Where in the World…?
Jurisdictional transparency is another important consideration. The place where a loan originates is a core consideration for investors, who need to assess and price risk accurately. High-yield loans from emerging and frontier markets should command an appropriate risk premium to reflect the potential for credit default risk and political risk associated with these jurisdictions. For better or worse, it’s easier to take the money and ride off on your motorcycle in Uganda than in New York or Sydney.
Kasu’s loans originate exclusively from mature, advanced economies that are highly regulated, with strong legal frameworks and established practices. This configuration provides investors with the jurisdictional transparency they need to make informed decisions with reliable data and effective means for recourse if required. By working with top 100 audit and accounting firms, Kasu offers investors complete clarity regarding the legal and regulatory environment underpinning its lending activities.
What’s on-chain?
While some RWA platforms tell you they bringing private credit on chain, the reality is that very little data is actually coming on-chain at all.
If you want to know how your loan assets are performing, you’ll generally need to wait until the end of the reporting cycle to get an update on the status of your loan.
Not so with Kasu.
Through Kasu’s partnership with Apxium, Kasu is able to bring a world of information on-chain in real time. How?
Apxium is a fully integrated SaaS+Fintech business whose software manages the accounts receivable and associated reporting workflows for leading accounting firms. In addition, Apxium is the payments rails provider. This means that Apxium has realtime visibility into every single invoice and cash payment — whether an invoice is outstanding, part paid, fully paid, paid early or late… Apxium has this data as it happens.
Kasu will be bringing this data on-chain via our partner, Entangle. This realtime granular data will be presented in a comprehensive lender dashboard so that you know exactly the status of your loan at every moment. This affords a level of transparency never before seen in RWA.
sample of the Kasu real-time risk reporting dashboard
Conclusion
On-chain markets are rapidly evolving. Tokenized private credit shows immense promise, and transparency will be key to unlocking its full potential and achieving mass adoption. By prioritizing transparency in lending, counterparty risk, and jurisdictional allocation, Kasu sets new standards and paves the way for greater investor confidence and market participation.
RWA is the way. Kasu is poised to lead the charge in bringing greater transparency to the world of on-chain private credit.
Visit Kasu Finance and learn how you can participate in the future of lending.
