Unsecured stablecoin lending

Foreword

Users in the global unsecured consumer credit market are like easy prey in modern finance—slow-moving, lacking judgment, and lacking mathematical ability.

When unsecured consumer credit shifts to the stablecoin track, its operating mechanism will change, and new participants will have the opportunity to get a share of the pie.

Huge Market

In the United States, the primary form of unsecured lending is credit cards: this ubiquitous, highly liquid, and instantly available credit instrument allows consumers to borrow money without providing collateral when making purchases. Outstanding credit card debt continues to grow, currently reaching approximately $1.21 trillion.

Outdated Technology

The last major revolution in the credit card lending industry occurred in the 1990s when Capital One introduced a risk-based pricing model, a groundbreaking move that reshaped the landscape of consumer credit. Since then, despite the emergence of numerous new banks and fintech companies, the structure of the credit card industry has remained largely unchanged.

However, the emergence of stablecoins and on-chain credit protocols has brought new foundations to the industry: programmable money, transparent markets, and real-time funding. They promise to finally break this cycle, redefining how credit is created, financed, and repaid in a digital, borderless economic environment.

In today's bank card payment systems, there is a time lag between authorization (transaction approval) and settlement (the issuing institution transferring funds to the merchant via the card network). By moving the funds processing flow on-chain, these receivables can be tokenized and financed in real time. Imagine a consumer purchases goods worth $5,000. The transaction is immediately authorized. Before settling with Visa or Mastercard, the issuing institution tokenizes the receivables on-chain and receives $5,000 worth of USDC from a decentralized credit pool. After settlement, the issuing institution sends these funds to the merchant. Then, when the borrower repays, the repayment is automatically returned to the on-chain lender via a smart contract. Again, the entire process is real-time. This approach enables real-time liquidity, transparent funding sources, and automatic repayments, thereby reducing counterparty risk and eliminating many of the manual processes still present in today's consumer credit. From Securitization to Funding Pools For decades, the consumer credit market has relied on deposits and securitization to enable large-scale lending. Banks and credit card issuers packaged thousands of receivables into asset-backed securities (ABS) and then sold them to institutional investors. This structure provided ample liquidity but also introduced complexity and opacity. "Buy Now, Pay Later" (BNPL) lenders like Affirm and Afterpay have demonstrated the evolution of credit approval processes. Instead of offering a generic line of credit, they review each transaction at the point of sale, differentiating between a $10,000 sofa and a $200 pair of sneakers. This transaction-level risk control produces standardized, divisible receivables, each with a clearly defined borrower, term, and risk profile, making it ideal for real-time matching via on-chain lending pools. On-chain lending can further expand this concept by creating dedicated credit pools tailored to specific borrower demographics or product categories. For example, one pool could fund small transactions by high-quality borrowers, while another could specifically offer travel installments for less-than-ideal consumers. Over time, these pools of funds may evolve into targeted credit markets, enabling dynamic pricing and providing transparent performance metrics for all participants. This programmability opens the door to more efficient capital allocation, better interest rates for consumers, and the establishment of an open, transparent, and instantly auditable global unsecured consumer credit market. The Emerging On-Chain Credit Stack: Reimagining unsecured lending for the on-chain era is not simply about porting credit products to the blockchain; it requires fundamentally rebuilding the entire credit infrastructure. Beyond card issuers and processors, the traditional lending ecosystem relies on a complex network of intermediaries: We need new credit scoring methods. Traditional credit scoring systems, such as FICO and VantageScore, might be ported to the blockchain, but decentralized identity and reputation systems could play a greater role. Lenders will also need credit assessments, equivalent to ratings from S&P, Moody's, or Fitch, to evaluate approval quality and repayment performance. Finally, the less visible but crucial aspects of loan collection need improvement. Stablecoin-denominated debt still requires enforcement mechanisms and recovery processes that combine on-chain automation with off-chain legal frameworks. Stablecoin cards have already bridged the gap between fiat currency and on-chain spending. Lending protocols and tokenized money market funds are redefining savings and returns. Bringing unsecured credit onto the blockchain completes this triangular relationship, enabling consumers to borrow seamlessly and investors to fund credit in a transparent manner—all driven by open financial infrastructure.