Privately issued credit tokenization market gaining attention as a blockchain use case

As the private credit market is rapidly growing, tokenization as a blockchain use case is emerging as a practical solution. Maple Finance CEO Sydney Powell emphasized that, amid traditional banks withdrawing from the financial sector, non-bank shadow lenders and credit managers are accelerating market entry, and this asset class could be completely reconstructed through blockchain technology.

The structural changes underway in traditional finance are clear. With credit managers like Apollo intervening, private credit is already showing a strong growth trend. At the CoinDesk Consensus Hong Kong conference, Powell projected that the high-risk asset market will continue to expand, citing blockchain use cases as a key driver of this growth.

Why Private Credit Is Optimized for Tokenization

The reason private credit is the most ideal candidate for blockchain-based tokenization lies in the fundamental issues of market structure. Unlike stocks or funds, the private credit market mainly operates through over-the-counter (OTC) and bilateral transactions, resulting in extremely low transparency.

While intermediary fees in traditional finance have become nearly zero, the private credit market faces three serious structural problems:

• Limited Liquidity: Not traded on exchanges, making it difficult to find borrowers
• Opaque Price Discovery: Private transactions prevent fair price formation
• Incomplete Reporting: Dispersed information makes it hard for investors to assess actual risks

Powell stated, “This is precisely the kind of market where tokenization makes sense.” As a blockchain use case, tokenization can bring fundamental change to markets with dispersed information.

How Blockchain Solves Transparency and Liquidity Issues

Blockchain-based tokenization offers three core improvements by bringing private credit on-chain:

Maximized Transparency: The entire lifecycle of loans is recorded on the blockchain, making all processes from origination to repayment or default public. This is the biggest difference from existing private credit markets.

Expanded Liquidity: Tokenization significantly broadens the investor base and reduces friction in secondary trading. Programmable on-chain tools enable faster settlements and fractional ownership.

Fraud Prevention: It can block fraud cases such as double pledging of receivables. Tokenization guarantees a “single token set” representing an asset pool, making double collateral practically impossible.

Large asset managers like BlackRock and Franklin Templeton have already launched tokenized money market funds, demonstrating blockchain’s operational efficiency. These funds utilize blockchain for payments and record-keeping, providing daily liquidity to investors.

On-Chain Defaults Are Not Bugs but System Enhancements

Powell expects the first high-risk on-chain credit default to occur within the next few years. However, he does not see this as a failure of blockchain but rather as a feature that demonstrates the system’s transparency.

Delinquencies are normal in credit markets. The true value of blockchain use cases is revealed when such defaults occur. Since the entire loan lifecycle is transparently disclosed, investors and regulators can precisely trace what went wrong.

The reason problems in private credit markets take time to surface is due to the bilateral nature of transactions. A good example is the bankruptcy of auto parts manufacturer First Brands in September 2025. The company suddenly defaulted due to failed refinancing attempts and undisclosed financial statements, causing significant losses to various private credit investors.

On-chain, such transparency issues are fundamentally addressed. Powell emphasized, “Even if a default occurs, conducting it on-chain greatly helps mitigate fraud risks.”

Why Institutional Investors Are Seeking Blockchain-Based Assets

Macroeconomic conditions are driving institutional investors toward blockchain use cases. Amid trillions of dollars in national debt and the political difficulty of passing balanced budgets, governments rely on taxation or inflation. Inflation acts as a de facto tax on real purchasing power, supporting the value of assets like Bitcoin (BTC $88.13K).

Major traditional institutions—pension funds, endowments, insurers, asset managers, and sovereign wealth funds—are inevitably pursuing private credit market returns. Managing the largest balance sheets, they need to find sources of profit wherever possible.

Tokenization of private credit on blockchain offers new opportunities for these institutions. Powell believes that as on-chain lending develops, crypto-collateralized loans will eventually receive credit ratings from existing credit rating agencies, likely by the end of 2026. Once rated, these financial products can be transitioned from “superior to investment grade assets” within the same framework that regulates corporate and sovereign credit, aligning with mainstream fixed income investors’ mandates.

This indicates that blockchain use cases will drive not just technological innovation but also a structural transformation of the global financial system.