The On-Chain Evolution of Private Lending: From Ledgers to Investable Products

Introduction

Private lending is at the forefront of tokenized real-world assets (RWA) platforms. Over the past year, tokenized private lending has been the fastest-growing category, jumping from less than $50,000 to approximately $2.4 billion.

Excluding stablecoins (whose payment channels cover all on-chain activity), tokenized private lending ranks second only to on-chain commodities. Top tokenized commodities include gold-standard currencies from Tether and Paxos, and cotton, soybean oil, and corn-standard tokens from Justoken. This seems like a serious category, with real borrowers, cash flows, underwriting mechanisms, and yields, and it's less dependent on market cycles compared to commodities.

But the story only becomes complicated when you dig deeper.

This $2.4 billion in outstanding tokenized private credit represents only a small fraction of the total outstanding loans. This indicates that only a portion of assets can actually be held and transferred on-chain via tokens. In today's article, I will examine the reality behind the tokenized private credit figures and what these figures mean for the future of this category. Let's get straight to the point. The Dual Nature of Tokenized Private Credit The total active loan amount on the RWA.xyz platform is slightly over $19.3 billion. However, only about 12% of these assets can be held and transferred in tokenized form. This illustrates the dual nature of tokenized private credit. On one hand, there's "representative" tokenized private lending, where the blockchain merely provides operational upgrades, recording loans originating from the traditional private lending market by establishing an on-chain register of outstanding loans. On the other hand, there's distributed upgrades, where the blockchain-driven market coexists with the traditional (or off-chain) private lending market. The former is only used for recording and reconciliation, and is recorded in a public ledger. Distributed assets, however, can be transferred to wallets for transactions. Once we understand this classification system, you'll no longer ask whether private lending is on-chain. Instead, you'll ask a more pointed question: How much private lending asset originates from the blockchain? The answer to this question might offer some insights. The trajectory of tokenized private lending is encouraging. Until last year, almost all tokenized private lending was simply an operational upgrade. Loans already existed, borrowers repaid on time, and the platform functioned correctly; the blockchain merely recorded these activities. All tokenized private lending was simply recorded on the chain and could not be transferred as tokens. Within a year, this transferable on-chain share has climbed to 12% of the total traceable private credit. This demonstrates the growth of tokenized private credit as a distributable on-chain product. This allows investors to hold fund units, pool tokens, notes, or structured investment exposure in token form. If this distributed model continues to expand, private credit will no longer resemble a loan ledger but rather an investable on-chain asset class. This shift will change the returns lenders derive from transactions. Beyond returns, lenders will gain access to a tool with greater operational transparency, faster settlement, and more flexible custody options. Borrowers will gain access to funds that are not reliant on a single distribution channel, which could be highly beneficial in a risk-averse environment. But who will drive the growth of the distributable private credit market? The Figure Effect: Currently, the majority of outstanding loans originate from a single platform, while the rest of the ecosystem constitutes the long tail effect. Since October 2022, Figure has dominated the tokenized private lending market, but its market share has declined from over 90% in February to its current 73%.

But what's even more interesting is Figure's private lending model.

Although the scale of tokenized private lending has now exceeded $14 billion, all the value of this industry leader is reflected in the value of "representative" assets, while the distributed value is zero.

This indicates that Figure's model is an operational pipeline that records loan disbursement and ownership traceability on the Provenance blockchain. Meanwhile, smaller players are driving the distribution of tokenized private lending. Figure and Tradable hold all their tokenized private loans as representative value, while Maple's value is distributed entirely through the blockchain. From a macro perspective, the vast majority of the $19 billion in active on-chain lending is recorded on the blockchain. But the trend of the past few months is undeniable: more and more private credit is being distributed via blockchain. Given the enormous growth potential of tokenized private credit, this trend will only intensify. Even at $19 billion, RWA currently represents less than 2% of the total $1.6 trillion private credit market. But why is “mobile, not just recorded” private credit important? Mobile private credit offers more than just liquidity. Gaining exposure to private credit outside of platforms through tokens provides portability, standardization, and faster distribution. Assets acquired through traditional private credit channels trap holders within the ecosystem of a specific platform. Such ecosystems have limited transfer windows and cumbersome secondary market trading processes. Furthermore, secondary market negotiations are slow and largely dominated by professionals. This makes the power of the existing market infrastructure far greater than that of the asset holders. Distributable tokens can reduce these frictions by enabling faster settlement, clearer ownership transfers, and simpler custody. More importantly, "mobility" is a prerequisite for the large-scale standardized distribution of private credit, something historically lacking in the field. In traditional models, private credit takes the form of funds, business development corporations (BDCs), and secured loan obligations (CLOs), each adding multiple layers of intermediaries and opaque fees. On-chain distribution offers a different path: programmable wrappers enforce compliance (whitelisting), cash flow rules, and disclosure at the tool level, rather than through manual processes.