Tokenized Private Credit: What You’re Actually Buying

Tokenized private credit sounds like one neat, well put together category, but it isn’t. It’s a mix of completely different systems all being grouped under the same label as of now. Sometimes you’re getting direct exposure to loans, where borrowers pay interest and that becomes your yield. Sometimes it’s a fund or note that holds those loans on your behalf. Sometimes it’s just a token wrapped around something that mostly exists offchain. And more recently, sometimes it’s a defi style product where the token moves freely onchain, but the actual cash flow still starts in the real world.

This is where most people go wrong, because they start with the token. They look at the ticker, the UI, the APY, and try to reverse-engineer what’s going on underneath. The better way to approach it is to ignore the token completely and follow the cash flow. Who is actually paying? Why are they paying? What has to keep working for those payments to continue? And what happens when something breaks? Once you acknowledge that‘s the path to follow, the rest of the structure becomes much easier to reason about.

You can even see how split this market is just by looking at the data. On platforms like RWA.xyz, tokenized credit is divided into “distributed” and “represented” value. Distributed is the part that actually lives onchain - tokens that move, interact, and plug into DeFi. Represented is mostly offchain credit that’s being mirrored or tracked using blockchain rails. Represented is still significantly larger, which tells you that most credit today still relies on traditional legal structures, custody, and compliance layers, with tokenisation acting more as a surface layer than a full transformation. Distributed is smaller, but that’s where you start to see more crypto native behaviour.

Once you stop thinking of it as one category and start thinking in terms of “machines,” it should all start to make a bit more sense. Let’s take Maple Finance as the cleanest example of actual lending. Capital goes into pools, loans are issued, borrowers repay, and that repayment becomes your yield. There’s no magic there, it’s just lending made more visible and programmable. But the important part is that the risk hasn’t changed. You are still exposed to borrower quality, loan terms, and recovery processes. If you don’t understand who is borrowing, what collateral or structure is in place, and what happens in a default, then you don’t understand the yield, you’re just trusting the team & their interface.

Then you have something like Centrifuge, which sits more in the bridge layer. Instead of lending to crypto-native borrowers, it connects onchain capital to real-world credit, things like invoices, receivables, or structured pools of loans. When this works well, it’s one of the most “real” versions of tokenized credit because the yield comes from actual economic activity outside of crypto. You have defined asset pools, identifiable borrowers, and cash flows that don’t rely on token incentives. But when it fails, it fails for very traditional reasons such as poor underwriting, weak servicing, unclear legal enforcement. The blockchain doesn’t remove those risks, it just gives you better visibility into them if the platform is transparent.

On the other side, you’ve got platforms like Securitize and STOKR, which are best understood as wrapper and distribution layers. They aren’t generating yield themselves. Instead, they take traditional private credit products like funds, notes, structured deals and issue them through tokenized rails. What improves here is access, investor onboarding, transferability, and administration. But the underlying return still comes from the asset manager running the strategy. Tokenization in this case is packaging, not the source of yield, and it’s important not to confuse the two.

Then you start to see newer models like Hastra, which are trying to reshape how that yield is delivered. Instead of locking capital in traditional structures, Hastra takes real-world loan yield like HELOC (Home Equity Line Of Credit) based returns and turns it into tokens designed to behave more like DeFi primitives. Products like wYLDS and PRIME aim to make that yield liquid, transferable, and usable across onchain environments. You can then plug that token Into places like Kamino & loop It for higher APY.

Projects like Pareto Finance take it a step further by building the full operating system around credit. Instead of focusing on just lending or just tokenization, they’re trying to make the entire lifecycle programmable - facility creation, capital allocation, servicing, reporting, redemptions, all of it. Then on top of that infrastructure, they offer products like USP and sUSP, which give users exposure to a diversified basket of loans, with sUSP accruing the yield generated across that pool. So instead of picking individual deals, you’re buying into a system that manages and distributes credit exposure at scale. It’s closer to an index or fund experience, but built with onchain transparency and programmability.

And then you’ve got something like OnRe, which shows how misleading the “credit” label can be. OnRe isn’t traditional lending at all, it’s reinsurance. The easiest way to think about it is this: they’re essentially the insurance company for insurance companies. Instead of lending money to a borrower and earning interest, OnRe works with insurers and takes on part of their risk. Insurance companies collect premiums from customers, but they don’t want to hold all that risk themselves, especially for large or unpredictable events. So they pass some of that risk to a reinsurer like OnRe. In return, OnRe earns a portion of those premiums.

That means the returns don’t come from someone paying back a loan. They come from underwriting - premiums coming in, claims going out, and profit being made if that risk is priced correctly.

So the risk profile is completely different. You’re not exposed to borrower default like you would be in lending. You’re exposed to things like natural disasters, major claims, and whether the risk was priced properly in the first place. It still sits in the same “yield” bucket as credit on most dashboards, but the drivers behind that yield are entirely different.

When you put all of this together, the main takeaway becomes clesr. These projects all sit under “tokenused private credit,” but they’re not doing the same thing. Different structures, different sources of yield, different risks, different behaviours under stress. The label makes it look simple, but the reality is much more nuanced.

So the easiest rule to follow is this: ignore the token and follow the cash flow. If you can clearly explain where the yield is coming from, how it gets to you, what legal and operational layers sit in between, and what happens when something goes wrong, then you understand what you’re holding. If you can’t, then the token is just a cleaner interface for something that hasn’t really been simplified at all.