There is a critically overlooked core issue in the blockchain world—the lack of credit abstraction capability. It’s a bit ironic that the most discussed topics on-chain are asset prices, collateral values, and liquidation distances. But thinking about it this way, it becomes clear that current on-chain finance is still quite primitive: credit is firmly tied to assets rather than built upon an architectural framework.

What does the absence of credit abstraction mean? It means that every major market fluctuation could potentially destroy the entire ecosystem. Because credit has no independent source, no foundational roots, and no support from a structural layer.

Looking at traditional finance, how does it operate? The US financial system isn’t maintained by a pile of gold, but by layered constructs like fiscal systems, monetary models, institutional capabilities, and yield structures that form an abstracted form of credit. The EU’s credit isn’t backed by a single country’s guarantee but is built through institutional frameworks and cooperation—structural credit. Even the credit of an ordinary company isn’t just assessed by its balance sheet but also by its brand, cash flow, business model, market position, and governance—an integrated reflection. The real-world credit system has long achieved abstraction.

On the other hand, on-chain finance still remains in the era driven by physical collateral. Using LRT collateral, RWA collateral, LP collateral, ETH collateral—each asset’s credit depends on its own value, lacking true independence of credit. That’s the core issue.