Private Loans and Over-the-Counter Markets: Regulatory Barriers Could Find Solutions in Tokenization

Maple Finance’s CEO Sidney Powell emphasizes that the relationship between the private credit sector and blockchain technology is a development worth paying attention to. The hesitations of the banking system in lending, combined with the entry of private lenders and shadow financial institutions, are rapidly expanding over-the-counter markets. According to Powell, this over-the-counter regulatory environment represents one of the most suitable use cases for tokenization.

Structural Issues of the Over-the-Counter OTC Market

Unlike traditional stock or investment fund markets, private loans are executed through over-the-counter transactions. This market structure brings serious issues such as lack of liquidity, opaque price discovery mechanisms, and lack of verifiability.

The OTC nature of the private credit market means that transactions are not recorded on exchanges and generally not reported publicly. Selling these loans is very difficult because potential buyers do not have clear information about prices in this negotiated market. Investors often face uncertainty regarding leverage levels, collateral quality, and actual risk exposure. This fragmentation of information makes it quite difficult to determine and transfer the true value of an asset.

Powell states that this type of market structure precisely represents the area where blockchain-based tokenization makes the most sense. In environments where information is fragmented and asset transfer is difficult, ensuring transparency becomes critical.

Blockchain Solution: Transparency and Verifiability

Transferring private credits onto the blockchain has the potential to fundamentally change the operation of OTC markets. On-chain transactions are fully open and verifiable; the entire lifecycle—from inception to repayment or default—is recorded transparently.

This verifiable structure provides strong protection against fraud, such as multiple claims on the same asset as collateral. Tokenization, by converting the asset pool into a single set of tokens representing the pool, acts as a deterrent against such double collateralization.

On-chain systems also offer a structure that can be monitored by regulators, while expanding the investor base and reducing transaction costs in secondary markets. This is especially a significant improvement in OTC markets where transaction costs are high.

Tokenization of equities offers marginal benefits; since commission-free platforms have already reduced intermediary costs to nearly zero. However, the situation is entirely different for private loans.

Maple Finance and the Rise of Tokenized Loans

While much of the hype around tokenization has focused on treasury bonds and money market funds, the real growth story lies in the tokenization of private loans. Global asset managers like BlackRock and Franklin Templeton have launched tokenized funds using blockchain infrastructure, reflecting traditional cash management products.

These on-chain funds offer investors exposure to short-term government debt with daily liquidity. While the underlying assets remain largely unchanged, they demonstrate how tokenization can facilitate operations and broaden distribution.

According to Powell, the evolving and maturing private credit market appears almost tailor-made for tokenization. This structure allows for maximizing the advantages that technology can provide.

Defaults Are Not a System Failure, But a Natural Feature

Powell expects high-profile on-chain credit defaults to occur in the coming months. However, viewing this as a flaw of decentralized finance (DeFi) is incorrect; rather, it highlights the strength of blockchain-based systems.

Defaults are a routine and natural feature of credit markets. In traditional private credit markets, problems are often detected late and spread quickly. The Chapter 11 bankruptcy filing of First Brands in fall 2025 proves this. The auto parts manufacturer quickly fell into a debt spiral after failed refinancing and undisclosed off-balance-sheet liabilities, affecting various private lenders.

The difference on-chain is that these defaults are fully transparent and verifiable. All transaction records allow for a complete understanding of the causes and consequences of defaults. This enables regulators and investors to assess actual risks more accurately.

Powell foresees that as more on-chain credit products develop, these instruments will be rated by traditional credit rating agencies. This process is likely to begin around 2026. Once rated, these tokenized loans could undergo securitization under standard frameworks managing corporate and sovereign credit risk, thus becoming “investment-grade” assets accessible to mainstream fixed-income investors with legal authority.

Macroeconomic Environment and Institutionalization

From a macroeconomic perspective, Powell believes that inflation and public debt dynamics create a long-term supportive environment for Bitcoin. Considering the political challenges of passing trillions of dollars in sovereign debt and balanced budgets, governments’ primary tools are tax increases or inflation.

The key point is that this growing public debt will largely be absorbed by institutional investors: pension funds, foundations, insurance companies, asset managers, and sovereign wealth funds. These institutions have the largest balance sheets and, in pursuit of returns, are almost compelled to take on risk everywhere.

In this context, tokenized private credit, with the development of a regulatory environment and maturation of blockchain infrastructure, is becoming an attractive asset class for institutional investors. Addressing the lack of transparency in OTC markets and providing appropriate verifiability mechanisms will accelerate this process.

In conclusion, Powell’s view is that blockchain technology is not just a speculative tool but can offer tangible solutions to real market problems. Private credits, as one of the most promising applications of tokenization, have the potential to improve the regulatory structure and operational efficiency of financial markets.