The $41T migration to on-chain private credit is here

OnFi cracks private credit's black box

The landscape of global debt is undergoing a structural transformation. Private credit, once a quiet corner of the financial world where mid-sized companies secured loans away from public markets, has grown into a titan. 

 

According to J.P. Morgan Asset Management's Alternative Investments Outlook 2026, private market assets under management exceeded $20 trillion globally by early 2026, with private credit acting as a primary engine for this expansion. However, the legacy infrastructure supporting these loans remained opaque and inefficient for decades.

 

The shift to on-chain finance (OnFi) infrastructures, zero-knowledge (ZK) cryptographic proofs, and programmable smart contracts had dissolved the black box that previously defined private lending. By migrating these assets onto blockchain infrastructure, the industry is addressing the long-standing trade-off between privacy and transparency.

 

 

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What is private credit?

Private credit is a market where non-bank lenders extend direct loans to mid-sized companies with revenue between $100 million and $5 billion. 

 

These loans often involve direct negotiations, customized terms, and floating interest rates tied to benchmarks like the Secured Overnight Financing Rate (SOFR), with additional 500 to 800 basis points. Unless one is able to write big checks of $5 million or more, the door to private credit stays shut.

 

 

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The transparency crisis in legacy lending

Traditionally, private credit often relied on quarterly PDF reports to assess the health of a loan portfolio, where institutions had every incentive to obscure facts with selective performance metrics. 

 

The problem was not a lack of data. It was the lack of real-time visibility. 

 

According to a report from the Bank for International Settlements (BIS), the lack of granular, real-time data in private markets has historically led to mispriced risk and hindered market liquidity. The migration to on-chain systems changes this dynamic by providing a verifiable, immutable audit trail for every transaction.

 

 

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Balancing privacy and transparency with ZK proofs

A significant hurdle for institutional adoption of blockchain was the public nature of distributed ledgers. Corporations are understandably reluctant to broadcast sensitive debt terms or borrower identities to the entire world. The solution arrived through ZK proofs.

 

How ZK proofs enable institutional trust

To put simply, ZK proof is a cryptographic method that allows one party to prove a statement is true without revealing the underlying data. 

 

In the context of private credit:

• Solvency verification: A borrower can prove they maintain a specific debt-to-equity ratio without revealing their exact balance sheet.

• Compliance: Institutions can prove they have conducted necessary checks on all participants without exposing personal identity data on a public ledger.

• Risk management: Logic can be programmed into a smart contract to trigger an alert if a borrower’s collateral drops below a certain threshold, verified through a ZK proof.

 

The result is a 24/7 dashboard showing a firm's financial health in real-time, verified by math. As Deutsche Bank noted in a recent analysis of blockchain finance, ZK proofs reduces informational asymmetry between borrowers and capital providers, while giving regulators and risk assessors the ability to monitor anonymized portfolios. 

 

 

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Transacting in seconds with atomic settlements

OnFi also means that transaction times can be reduced to seconds. 

 

In traditional finance (TradFi), buying or selling syndicated loans involve paperwork, custodians, transfer agents, and a settlement window measured in business days, with the standard being T+2. During that window, counterparty risklingers, cash sits idle, and ownership records remain in flux for 2 whole days.

 

Atomic settlement eliminates this gap entirely. The transfer of tokenized loan interests and the movement of cash cannot be separated or partially completed, which means that both processes must be executed simultaneously in order for this settlement to process. 

 

This improvement in capital efficiency ripples throughout the entire system.

• Less idle cash means better returns

• Fewer “stuck” positions during settlement means continuous eligibility for tokenized private credit as collateral in broader financial transactions

 

 

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Programmable trust automatically enforces private credit terms

Programmable trust is the combination of smart contracts, oracles, and cryptography that enforces loan terms automatically instead of depending solely on legal threats and manual enforcement. 

 

This is not a replacement for law or courts; it reduces human error, delayed reaction, or discretionary manipulation, which can compromise capital.

 

Smart contracts encode the key elements of private credit agreements:

• Interest schedules: Payment amounts and dates calculated and distributed automatically

• Amortization profiles: Principal paydowns executed according to predefined formulas

• Step-up clauses: Interest rate adjustments triggered by specific dates or events

• Call protections: Restrictions on early repayment enforced by contract logic

• Financial covenants: Leverage, coverage, and liquidity thresholds monitored via oracle feeds

 

When a borrower's health score falls below a predefined level, the smart contract will be triggered to perform protective actions like freezing drawdowns, collateral liquidations through on-chain auctions, and rerouting cash flows to reserve accounts. 

 

No more waiting for a fund administrator to run month-end calculations. The funds flow as the contract dictates, and every party can verify the math.

 

 

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What are the key differences between legacy private credit and on-chain private credit?

 

Comparison table showing the differences between traditional private credit and on-chain private credit

 

 

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Why should you care about the $41T migration

The broader migration of all private assets (including real estate and private equity) is projected to reach much higher valuations: Boston Consulting Group (BCG) and ADDX previously estimated that the tokenization of global illiquid assets could represent a $16.1 trillion opportunity by 2030, or roughly 10% of global gross domestic product (GDP).

 

For the individual capital allocator, this migration answers the critical question: Why should I care?

1. The end of the liquidity premium

In the past, private credit required high minimum entry points and long lock-up periods. Tokenization allows for fractional ownership. 

 

This means an individual can hold a small portion of a high-yield corporate loan, which can be traded or used as collateral instantly.

2. Atomic settlement and capital efficiency

As mentioned earlier, OnFi enables atomic settlement, where the transfer of the asset and the payment happen simultaneously. J.P. Morgan’s Kinexys platform has already demonstrated how this reduces counterparty risk and frees up capital that would otherwise be trapped in settlement delays.

3. Diversification beyond public markets

With fewer companies opting for Initial Public Offerings (IPOs), much of the world's economic growth is happening in private markets. According to BlackRock’s 2026 Private Markets Outlook, accessing these growth cycles is no longer an option but a necessity for building resilient portfolios.

 

 

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Real-world case examples of OnFi migration

The migration is no longer a theoretical exercise. 

 

Project Guardian, an initiative led by the Monetary Authority of Singapore (MAS), has successfully integrated major financial institutions like Apollo and UBS to test the commercial viability of tokenized funds and private debt. These trials proved that asset-backed securities can be managed end-to-end on a blockchain while remaining compliant with global regulations.

 

Furthermore, Goldman Sachs has highlighted that private markets are at the epicenter of dealmaking in 2026. The ability for traditional lenders to partner with on-chain platforms allows them to offer tailored financing solutions with more flexible terms than traditional bank loans.

 

 

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Navigating the risks

Despite the benefits, the transition is not without risks.

 

• Smart contract vulnerabilities: While the math of a ZK proof is sound, the code governing the loan must be rigorously audited to prevent exploits.
  
  

• Oracle reliability: The system is only as good as the data it receives. If the oracle provides incorrect valuations, the automated triggers will fail.
  
  

• Regulatory fragmentation: While frameworks like the EU’s Markets in Crypto-Assets (MiCA) have provided clarity, global standards for cross-border debt settlement are still maturing.

 

 

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Looking at the new face of financial infrastructure

By the end of 2026, the term "on-chain" and "real-world assets (RWAs)" may become redundant as blockchain and tokenization becomes the standard for private finance. 

 

The migration of $41 trillion in global assets is not just about moving numbers from one ledger to another; it is about creating a financial system that is fundamentally more transparent, accessible, and efficient. 

 

The future of finance looks less like branch offices and quarterly statements, and more like wallets holding slices of global credit pools that outperform treasuries.

 

The beginning of this shift has already arrived. The only question is how long legacy institutions can hold on before the world moves past them entirely.

 

This article is for informational purposes only and does not constitute financial advice. Always do your own research (DYOR) before making any decisions.

 

 

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