Why Apollo Created Their Onchain Credit Fund | Christine Moy, Carlos Domingo & Tarun Chitra

This episode unpacks how Apollo, Securitize, and Gauntlet are pioneering on-chain private credit with Acred, offering a blueprint for tokenizing traditional assets and creating novel, high-yield opportunities for crypto-native investors.

1️⃣ Introduction to Private Credit and Apollo's Role

• Christine Moy, Partner at Apollo, initiated the discussion by defining private credit: any lending occurring outside public bond markets, encompassing mortgages, business loans, and asset-backed financing. This market allows companies and developers to access capital without traditional bank involvement or public debt issuance.
• Historically dominated by banks, firms like Apollo have increasingly filled this space, especially post-financial crisis, often with greater efficiency and flexibility.
• Apollo, a ~$750 billion asset manager, is not just a buyer but a major originator of private credit, with 16 distinct origination platforms across diverse sectors like corporate and consumer lending, aircraft leasing, and real estate.
• Christine emphasized Apollo's investment philosophy: "Purchase price matters. Structure matters and alignment matters." This involves direct sourcing through proprietary channels to generate excess spread (alpha) and investing Apollo's own balance sheet capital alongside investors, ensuring significant alignment. They focus on downside protection rather than blindly chasing yield.
• Strategic Implication for Investors: Apollo's move into on-chain credit signals a significant institutional adoption trend. Understanding their rigorous approach to credit origination and risk management provides a benchmark for evaluating other RWA offerings.

2️⃣ Unveiling Acred: Apollo's On-Chain Credit Initiative

• The core announcement involved the launch of Acred, a collaborative effort bringing Apollo's credit expertise on-chain. Carlos Domingo, CEO of Securitize, broke down the product:
• An Apollo-managed high-quality credit product serves as the underlying asset.
• Securitize tokenizes this fund, putting it on-chain.
• A mechanism is needed to borrow on-chain using DeFi protocols like Morpho against this permissioned tokenized fund. Securitize's "S token vault technology" facilitates this by minting a permissionless token (representing the locked, permissioned Acred fund share) that can interact with DeFi.
• Gauntlet, led by Tarun Chitra, manages the liquidity and risk parameters for leveraging these tokenized assets within DeFi.
• The product leverages the Polygon blockchain. Carlos explained the recursive leverage potential: "I have 100 units of private credit that yields 10%. Then I borrow USDC against 80% of it at 6% interest rate... Then you go and purchase more of the other one... creating like a leverage position that gives you a much higher yield."
• Actionable Insight for Researchers: The S token mechanism is a key innovation for bridging permissioned RWAs with permissionless DeFi. Researching its security and efficiency can offer insights into future RWA integrations.

3️⃣ The "Why": Tokenization's Impact on Asset Management

• Christine Moy, with a decade of experience in tokenizing assets including at JP Morgan (where she tokenized over $2 trillion in intraday repo), stated that tokenization fundamentally modernizes asset creation, distribution, and management.
• Initial benefits like automation, reduced reconciliation, and cost savings are now "table stakes." The real unlock, according to Christine, is multi-asset interoperability and programmability.
• Multi-asset interoperability: Different assets, whether born on-chain or tokenized from legacy systems, can interact on the same operating system. This contrasts sharply with TradFi's siloed systems.
• Programmability: Allows for the creation of unique financial experiences and products using assets as "Lego blocks."
• For Apollo, tokenization aims to expand access to their alpha-generating private market strategies, previously limited to large institutions, to a broader, increasingly crypto-native audience. Christine highlighted, "I'm focused on reaching the next generation of investors that very clearly is crypto-native and wants to have a total diversified portfolio on chain."
• Carlos Domingo added that tokenization enables higher returns through leverage, attracting more AUM. He contrasted the weeks-long, paper-heavy traditional process of leveraging fund investments with the potential for on-chain efficiency.
• Tarun Chitra, CEO of Gauntlet, pointed out that on-chain vehicles can simplify processes like obtaining LP/GP loans, which are cumbersome in TradFi due to legal hurdles and batch processing. On-chain vaults can act like SPVs (Special Purpose Vehicles – legal entities created for a specific purpose), streamlining ownership and borrowing.
• Strategic Implication for Crypto AI Investors: The programmability of tokenized assets opens avenues for AI-driven portfolio management, automated yield strategies, and dynamic risk assessment, moving beyond simple buy-and-hold.

4️⃣ Acred's User Flow and Technical Mechanics

• Tarun Chitra detailed the user journey:
• An investor subscribes to Acred on-chain, minting shares (referred to as Sacred, the Securitize-wrapped token representing Acred).
• These RWA tokens are deposited into a Gauntlet-curated vault on Morpho.
• Users can borrow USDC against this collateral. The loan-to-value (LTV) ratio is managed by the vault curator (Gauntlet).
• The borrowed USDC can be used to mint more Acred shares, creating a leveraged position.
• Tarun emphasized the ease of this process compared to TradFi: "In traditional finance that process is extremely slow and annoying... the idea that you can kind of do that repeatedly to do this type of leverage without... each time you want to get leverage you probably have to have this like back and forth get another legal agreement."
• A key challenge discussed was duration matching: TradFi assets often have discrete payout schedules (e.g., monthly/quarterly), while DeFi operates in continuous time. Tarun noted that early DeFi protocols struggled with this, but newer isolated vault structures allow for better matching.
• Carlos Domingo highlighted the operational complexity of bridging TradFi assets (not 24/7, infrequent NAV updates) with crypto protocols that expect real-time data and instant minting. This involves sophisticated fund administration and technical solutions to make tokenized assets "crypto-friendly."
• Christine Moy underscored the power of open architecture: "The velocity of innovation in the crypto space is significant because what you have is open source code, open architecture that's well understood... you can put together things that have already been battle tested and usable in new ways."
• Actionable Insight for Researchers: The interface between discrete-time RWAs and continuous-time DeFi protocols is a critical area. Solutions for NAV oracles, liquidity provision for varying settlement times, and dynamic LTV adjustments based on RWA characteristics are ripe for research.

5️⃣ Risk Management and Liquidation in On-Chain Credit

• Tarun Chitra explained that RWA risk management involves translating discrete-time payouts (e.g., quarterly coupons) into a continuous-time DeFi environment. He likened lending against fixed-rate RWAs with variable-rate DeFi borrowing to "selling an interest rate swap." Key considerations include the reliability of the RWA's dividend stream and managing liquidity to ensure depositors can withdraw.
• Liquidation of these tokenized RWAs differs significantly from typical DeFi liquidations:
• It requires whitelisted liquidators who are KYC'd and capable of redeeming the S token for the underlying Acred share.
• Liquidators hold duration risk, as they must hold the asset until the next redemption period (e.g., monthly or quarterly with Apollo). "There's no flash loan for liquidating an RWA effectively," Tarun stated.
• NAV (Net Asset Value – the value of a fund's assets minus its liabilities) oracles for RWAs are infrequent, so liquidators might use trailing averages rather than spot prices.
• The cascade risk is potentially lower than pure crypto-collateralized loans because the feedback loop between liquidation, sale, and price impact is less immediate.
• Carlos Domingo added that the S token construct helps bridge the gap. Liquidation can involve minting USDC against the collateral or, ultimately, redeeming with Apollo on a monthly/quarterly basis (within fund limits). He stressed the importance of reputable issuers: "This is not going to work unless you have reputable issuers because to some extent you're taking some risk against the issuer."
• Strategic Implication for Investors: The unique liquidation mechanics for RWAs mean that risk models must account for issuer creditworthiness, redemption gates, and the specific terms of the underlying asset, not just on-chain price volatility.

6️⃣ Acred's Market Reception and Target Audience

• The primary users of Acred are currently accredited investors who are crypto-native. Carlos Domingo mentioned this includes individuals, crypto funds, and foundations looking to diversify treasuries.
• The product offers yields uncorrelated to the broader crypto ecosystem. Christine Moy noted, "It's about... diversifying against crypto exposure and then building like a total portfolio on chain."
• Early traction shows Acred's AUM at around $100 million, making it the largest on-chain private credit fund from a traditional asset manager. Holdings range from the $50,000 minimum to $25 million, demonstrating scalability.
• The onboarding process is online: KYC once, wallet whitelisting, then direct interaction. The looping (leveraging) process is currently facilitated by reaching out to Securitize, with more automation planned.
• Yields: The underlying Apollo fund offers ~9.5%, while the leveraged strategy via Gauntlet's vault was yielding ~16% at the time of recording. Tarun Chitra explained this leveraged yield is variable as it depends on DeFi borrowing rates.
• Tarun sees RWAs like Acred as potentially providing a "natural baseline yield" for crypto, helping retain capital on-chain even after bull cycles.
• Actionable Insight for Crypto AI Investors: The data generated from these on-chain RWA interactions (investor behavior, yield fluctuations, LTV tolerance) can be valuable for training AI models to predict RWA market dynamics and optimize investment strategies.

7️⃣ The Evolving Landscape of On-Chain Assets

• Looking ahead, Tarun Chitra suggested private equity could be the next major asset class to move on-chain, given current liquidity crunches and LP needs for financing.
• Carlos Domingo discussed public stocks, noting potential for new functionalities (e.g., efficient global access, novel derivatives) but acknowledged significant regulatory hurdles. He reiterated that the initial tokenization narrative for illiquid assets (like art or real estate) didn't materialize because "tokenization doesn't make anything liquid by itself." Success has come from tokenizing highly liquid assets first (dollars, treasuries), with credit being the next step.
• Christine Moy shared a compelling vision for the future: personalized, automated financial experiences. "I could have a portfolio designed just for me... that says every penny of my earnings is yielding up until the moment that I use it. And that is absolutely a 10x experience." This involves seamless conversion of income into diversified, yielding portfolios and auto-conversion for payments.
• Strategic Implication for Researchers: The progression from liquid to less liquid assets on-chain, and the development of sophisticated financial products, will require advancements in areas like decentralized identity, cross-chain interoperability, and AI-powered risk and compliance tools.

Reflective and Strategic Conclusion

This discussion reveals a maturing on-chain ecosystem where tokenized traditional assets like private credit are creating tangible, high-yield opportunities. For Crypto AI investors and researchers, the key is to monitor the development of infrastructure for RWAs, particularly in risk modeling, automated strategy execution, and the integration of AI for personalized financial services.