Private credit — direct lending to companies outside the public bond markets — has grown from a niche institutional strategy into a $1.7 trillion global asset class over the past fifteen years. That growth was built almost entirely on intermediation. Fund managers sit between capital and borrower, charging management fees of 1 to 1.5 percent and carried interest of 15 to 20 percent. Administrators handle loan servicing. Transfer agents manage investor records. Law firms draft the fund documents that govern every transaction. Custodians hold the assets. The entire apparatus exists because the parties involved — institutional lenders, borrowers, and investors — do not have a shared infrastructure for establishing and tracking the trust relationships that private lending requires.
Tokenization offers that shared infrastructure. The question is not whether private credit will eventually be touched by on-chain mechanisms — it will — but how far the restructuring goes, how quickly, and who captures the value that the current intermediation chain extracts.
Why Private Credit Is So Expensive to Run
To understand why tokenization is relevant here, it helps to be precise about where the costs actually sit in a private credit fund.
A typical private credit vehicle raises capital from institutional investors — pension funds, endowments, family offices, insurance companies — through a limited partnership structure. That structure requires legal documentation running to hundreds of pages, a registered fund administrator to maintain investor records and calculate net asset value, a custodian to hold the loan assets, a servicer to track borrower payments and manage defaults, and an auditor to verify all of the above annually. Each of these service providers charges fees. None of them are coordinating on a shared ledger — they are each maintaining their own records, reconciling against each other periodically, and charging for the overhead of doing so.
The result is an asset class where total expense ratios routinely exceed 3 percent annually before performance fees. For comparison, a public bond fund tracking a similar credit universe can be run for under 0.15 percent. The gap is almost entirely intermediation cost — the price of manufacturing trust among parties who otherwise have no shared ground truth.
A tokenized private credit facility does not eliminate credit risk or the judgment required to originate good loans. What it eliminates is the administrative apparatus required to track who owns what, when payments are due, and whether the records at each intermediary match. That apparatus currently consumes a substantial fraction of the returns that would otherwise reach investors.
What's Already Happening
The activity in this space is early but not trivial. Figure Technologies, founded by former SoFi CEO Mike Cagney, has originated over $10 billion in home equity loans using a blockchain-based system called PROVENANCE that puts loan data on-chain at origination, eliminating the reconciliation overhead between originator, servicer, and capital markets counterparties. The system has demonstrably reduced the time between loan origination and capital market sale from weeks to days, and cut per-loan processing costs measurably. That is not a pilot — it is a functioning system at scale.
Hamilton Lane, one of the largest private markets asset managers globally with over $900 billion in assets under supervision, has tokenized feeder funds for several of its strategies on both Polygon and Solana. The tokenized vehicles allow accredited investors to access Hamilton Lane funds with minimum investments as low as $20,000, compared to the $5 million or higher minimums typical of the underlying funds. The tokenization does not change the underlying assets — it changes the administrative infrastructure for tracking ownership, enabling fractional interests that would be prohibitively expensive to administer through traditional fund structures.
Apollo Global Management, which manages approximately $650 billion in assets including a substantial private credit portfolio, announced in 2023 that it was exploring tokenized fund structures in partnership with JPMorgan's Onyx blockchain platform. The specific structures have not been publicly detailed, but the direction is clear: large managers are treating on-chain administration as an operational question, not a theoretical one.
The Resistance — and Why It's Real
The incumbents in the private credit intermediation chain are not passive observers. Fund administrators, transfer agents, and law firms that generate substantial revenue from the current structure have legitimate competitive reasons to slow the adoption of systems that reduce their relevance.
More importantly, the resistance is not purely self-interested. Private credit involves complex legal arrangements — security interests, covenant packages, intercreditor agreements — that are not easily encoded in smart contracts with current tooling. When a borrower defaults, the resolution process involves courts, receivers, and legal proceedings that exist entirely outside any blockchain. The trust that on-chain infrastructure can establish is the administrative trust of record-keeping. The trust required for credit enforcement is still manufactured by legal systems that have nothing to do with Ethereum.
This is the honest case for why tokenization of private credit is a longer-duration story than its proponents sometimes suggest. The administrative layer is tokenizable today, with demonstrated examples. The legal enforcement layer is not, and restructuring that layer would require changes to commercial law that are measured in decades, not years.
The practical implication is that the near-term value capture from tokenized private credit will concentrate at the administrative efficiency layer — reducing reconciliation costs, enabling faster settlement, lowering minimum investment thresholds — rather than at the legal or credit risk layer. That is still meaningful. The administrative fees in a $1.7 trillion asset class represent tens of billions of dollars annually. Moving even a portion of that on-chain represents a significant reallocation of economics.
The Secondary Market Problem
Private credit loans are, in the current structure, highly illiquid. Limited partners who commit capital to a private credit fund typically do so for a fixed term of five to ten years, with little ability to exit early. Secondary market transactions in private fund interests occur but are costly, slow, and available only to institutional participants with the legal and administrative capacity to handle the transfer process.
Tokenization offers a direct solution to this problem in principle: if ownership of a loan or fund interest is represented by a token on a public blockchain, transfer is a matter of sending the token to a new address, with the associated economic rights following automatically through the smart contract. The secondary market for tokenized private credit interests could, in theory, function with the same friction as a public bond market.
In practice, the regulatory constraints on secondary trading of securities interests — which is what tokenized private credit represents in most jurisdictions — significantly limit who can participate and how. The SEC's treatment of tokenized securities under existing frameworks means that the free transferability that makes tokenization compelling for secondary markets is constrained by the same accredited investor and transfer restriction rules that govern conventional private placements. Until regulatory frameworks evolve to accommodate regulated secondary markets for tokenized securities — something the EU's MiCA framework and the UK's Digital Securities Sandbox are both beginning to address, though neither has fully solved — the secondary liquidity benefit remains partially theoretical.
That regulatory evolution is happening. The pace is slow by blockchain standards and fast by securities law standards. The realistic window for tokenized private credit secondary markets to function at scale in major jurisdictions is probably three to seven years from now, not three to seven months.
Who Benefits, and Who Doesn't
The straightforward beneficiaries of a tokenized private credit infrastructure are investors — particularly smaller institutional investors and the upper tier of the retail market currently excluded by high minimums — and borrowers, who should eventually see lower all-in costs as the administrative premium embedded in private credit pricing compresses.
The straightforward losers are the intermediaries whose revenue derives from administrative complexity rather than judgment or risk-taking. Fund administrators processing paper-based investor records are more exposed than credit analysts evaluating borrower quality. Transfer agents are more exposed than origination teams that develop proprietary deal flow. The value in private credit that derives from relationships, credit judgment, and structural expertise is not threatened by tokenization. The value derived from being the only party with a complete and reconciled view of the ledger is.
The large asset managers — Apollo, Ares, Blue Owl, HPS — are sophisticated enough to understand this distinction and are positioning accordingly. They are not waiting to be disintermediated. They are building or partnering to capture the infrastructure layer themselves, which is precisely the correct strategic response. Whether they succeed in controlling the new infrastructure the way they controlled the old one is the more interesting long-run question.
Private credit intermediaries built a $1.7 trillion market by being the only available solution to a trust problem. On-chain infrastructure is not yet a complete solution to that problem. It is, however, a credible partial solution to the expensive administrative subset of it — and in finance, partial solutions to expensive problems tend to capture market share faster than their proponents expect and slower than they promise.