On-chain consumption credit: Stablecoin reconstructs the credit flywheel

Written by: will A-Wang

In the global personal consumption credit chain, borrowers often resemble gently herded sheep - accustomed to convenience but lacking a keen sense of interest rates and terms. Undoubtedly, this is a lucrative market. As unsecured consumer credit gradually shifts to stablecoin rails, its operational mechanism will undergo fundamental changes, and new “shepherds” will also have the opportunity to share in a substantial portion of the pie during this transition.

The uniqueness of stablecoins lies in their position at the intersection of three major markets: payments, lending, and capital markets. As we compete in the “red sea” of stablecoin payments while waiting for the continuous popularization of stablecoin market education, can we shift our focus to the financial lending sector? Because whether it is for capturing the value of market interest rate spreads or for the reconstruction of the entire value chain, this may be the simplest and most straightforward market.

1. The market is large enough.

According to data from the New York Federal Reserve in 2023, the outstanding balance of unsecured personal loans has reached $232 billion, an increase of $40 billion from 2022 and a surge of $86 billion from 2021, indicating strong market demand for this type of credit. From 2021 to 2023, loan issuance to subprime and below borrowers has continued to grow, with fintech platforms becoming the driving force behind this expansion.

The increasing awareness of unsecured personal loans among the younger generation is significantly driving the expansion of the global market. Many young people find themselves in financial instability due to factors such as student loans and rising living costs, leading high-interest personal loans and short-term cash advances to become their “shortcut” for quickly alleviating financial pressure. The ease of application, minimal requirements, fast disbursement, and unrestricted use make payday loans a highly attractive convenient tool. Meanwhile, the rising penetration rate among young customers and the continuous influx of new lending institutions further accelerate market expansion.

Despite the challenging macroeconomic environment, the unsecured personal loan market continues to hit record highs, with no signs of slowing down. According to an industry report released by TransUnion in May 2025, as of the first quarter of 2025, the size of the unsecured personal loan market reached $253 billion, with a total of 29.8 million loans. Currently, there are 24.6 million people in the U.S. holding unsecured personal loans, with an average debt of $11,600 per borrower.

In the United States, the mainstream form of unsecured lending is credit cards: a ubiquitous, highly liquid, and instantly accessible credit tool that allows consumers to borrow without providing collateral at the time of purchase. Outstanding credit card debt continues to grow, currently amounting to approximately $1.21 trillion.

2. The essence of finance remains unchanged, but the technology is upgrading.

What is the essence of finance? It is the mismatch of value across time and space. This essence remains unchanged for thousands of years. However, the methods of service are changing: the “origin” of personal consumer credit is ancient debt, but what truly turned it into “special money for ordinary people to buy things” was the installment payment of the early 20th century; then credit cards combined “buying” and “borrowing” into a single plastic card, and finally, the mobile internet broke down credit limits into microloans available in seconds. Each technological upgrade has lowered the loan threshold, fragmented scenarios, and accelerated risk control, while also pushing interest rates to find a new balance between competition and regulation.

The new finance based on blockchain can greatly improve the efficiency of finance, realizing an on-chain financial world that transcends time, space, and asset classes.

Stablecoins and on-chain credit protocols have brought a new foundation: programmable money, transparent markets, and real-time capital flow. The combination of these three may finally break the old cycle and reimagine how credit is initiated, financed, and repaid in a digital, borderless economy.

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

Here is a real-time case of obtaining financing for credit card receivables through tokenization:

In today's bank card payment system, there is a time lag between transaction authorization (i.e., transaction approval) and settlement (i.e., the issuing bank transferring funds to the merchant through the card organization). By migrating the financing process on-chain, these receivables can be tokenized and achieve real-time financing.

Imagine a consumer making a purchase of $5,000. The transaction is authorized in an instant. Before settling with Visa or Mastercard, the issuing bank tokenizes the receivable on the blockchain and obtains financing of 5,000 USDC from a decentralized credit pool. Once the settlement is completed, the issuing bank transfers these funds to the merchant.

Subsequently, when the borrower repays the loan, the repayment funds are automatically returned to the lender on the blockchain through a smart contract - also completed in real-time.

This method achieves real-time liquidity, transparent financing, and automatic repayment, reducing counterparty risk and eliminating the manual processes that are still heavily relied upon in today's consumer credit.

This is also the basic logic behind Visa's recent official announcement of its Visa Direct service, which will use stablecoins for accounts receivable financing.

3. From Asset Securitization to On-Chain Lending Pools

For decades, the consumer credit market has relied on deposits and securitization to achieve large-scale lending. Banks and card issuers bundle thousands of receivables into asset-backed securities (ABS) and sell them to institutional investors. This structure provides deep liquidity but also introduces complexity and opacity.

“Buy Now, Pay Later” (BNPL) platforms like Affirm and Afterpay have demonstrated the evolution of credit assessment methods. They no longer grant a universal credit limit, but instead conduct individual assessments for each transaction—treating a $10,000 sofa differently from a $200 pair of sneakers.

This transaction-level credit assessment generates discrete, standardized accounts receivable, each with a clear borrower, term, and risk characteristics, making it very suitable for real-time financing through on-chain lending pools.

On-chain credit can further expand this concept by allowing specialized credit pools designed around specific borrower profiles or spending categories. For example, one pool may focus on providing small transaction financing for high-quality borrowers, while another may focus on providing travel installment services for subprime consumers.

Over time, these pools may evolve into highly segmented credit markets, featuring dynamic pricing and transparent performance indicators that all participants can view in real time.

This programmability paves the way for more efficient capital allocation, better borrowing rates, and an open, transparent, and instant-auditable global unsecured consumer credit market.

4. Emerging On-chain Credit Stack

Reimagining unsecured lending for the on-chain era is not simply a matter of “transplanting” credit products onto the blockchain, but rather requires rebuilding the entire credit infrastructure from scratch. The traditional lending ecosystem relies on a series of complex intermediary institutions in addition to the issuing banks and payment processors:

A new credit scoring method is needed. Traditional FICO and VantageScore may be able to be moved onto the blockchain, but decentralized identity and reputation systems could play a larger role.

Lenders also need credibility assessments - similar on-chain rating mechanisms like those of Standard & Poor's, Moody's, or Fitch, to evaluate credit quality and loan performance.

A less glamorous but crucial part of lending – collection – must also evolve. Debt denominated in stablecoins still requires enforcement mechanisms and recovery processes, integrating on-chain automation with off-chain legal frameworks.

Overall, blockchain and stablecoins cannot change the business nature and risk factors of personal consumer credit. A credit rating mechanism, risk control model, and legal framework are all indispensable. However, envisioning the future, we can utilize this new on-chain credit stack to achieve global distribution of personal consumer credit, gain liquidity of global funds, realize more efficient capital allocation, and achieve better borrowing rates, among other things.

V. Written at the End

Stablecoin credit cards have built a bridge between fiat and on-chain consumption; lending protocols and tokenized money market funds have redefined savings and yields; introducing unsecured credit on-chain completes the closed loop – allowing consumers to borrow seamlessly and investors to transparently fund credit, all driven by open blockchain financial infrastructure.