Source: The Loop Lion on Dune Road

Written by: Charline Little Sun

Last week, Wall Street's traditionally "quiet corner" — the Private Credit market, suddenly exploded with several major shocks, leaving many top financial institutions in disarray — JPMorgan lost hundreds of millions, and Jefferies' stock price dropped by 10%.

What’s strange about this situation? The crisis was triggered not by some arcane financial derivatives, but by things we are most familiar with in our daily lives: auto parts, used cars, and ordinary office buildings.

However, it is these ordinary assets that caused extraordinarily large losses, with the shockwaves even reaching bankers and brokers who have never touched a wrench.

This is precisely the most dangerous signal: when ordinary assets trigger systemic panic, the problem almost always lies in the underlying structure of the financial system.

Chain Reactions, Who is the Culprit?

Let’s take a look at a few crime scenes:

The "Invisible Debt" of an Auto Parts Giant: A company named First Brands, a giant in the auto parts industry, has quietly transformed into a financial company.

For years, it cleverly hid massive debts through complex "off-balance-sheet receivables factoring," making its leverage ratio appear very healthy on financial statements.

Until one day, creditors accidentally gathered to reconcile accounts and were horrified to discover that this company had sold its future cash flows countless times through various customized transactions.

In the moment of shattered illusions, the market's pricing of risk collapsed.

The "One Car, Multiple Sales" of a Subprime Auto Loan Company: A subprime auto loan company named Tricolor staged the same act with different props.

Subsequent investigations revealed that about 40% of the vehicle identification numbers (VINs) in the loans issued were reused for multiple loans.

The same car, under layers of financial instruments and asset-backed securities (ABS) packaging, was sold as collateral to different people.

When the scam was exposed, over 100,000 loans and more than 10,000 cars were frozen, leading JPMorgan to write down $170 million and Fifth Third Bank to incur losses of about $200 million.

The "Carrot Stamp" in Commercial Real Estate: The story even spread to regional banks, with Zions and Western Alliance banks reporting losses of hundreds of millions.

The reason was that one of their borrowers was accused of forging property ownership documents and mortgaging the same property to multiple banks through shell funds.

Investors couldn't even wait for detailed notes in the financial reports; panic had already spread: if even the most traditional commercial real estate can play such "one bride, multiple grooms" tricks, what else is safe?

These three seemingly unrelated cases point to the same ghost: no one truly knows who really owns an asset, and how many times future cash flows have been sold.

The culprit is not human greed, but the inherent, structural "fragmentation" affliction of this system.

Traps in the Dark Forest

The greatest allure of the private credit market lies in its "flexibility" and "customization," but this is also its most vulnerable aspect. When everything is hidden in the dark, flexibility becomes fragility.

All key facts — such as asset ownership, the priority of collateral rights, whether collateral has been reused, and the true path of cash flows — are scattered across countless PDF files, Excel spreadsheets, and bilateral agreements.

The entire market resembles a "dark forest," where each participant can only see a small area in front of them, completely unaware of the forest's overall picture.

Usually, everything is calm, and everyone is doing well. But once pressure hits, the question of "who owes whom how much" transforms from a simple reporting task into a grueling "detective game."

This lack of transparency and governance is not accidental; it is a "feature" of this "shadow banking" system, not a bug.

Transactions are private, information is not public, and prices are lagging.

When confidence is high, everything runs smoothly; when confidence collapses, an isolated bad debt can quickly evolve into systemic risk for the entire industry.

A Light to Illuminate Every Corner

What would happen if all these assets were placed on a public, real-time, tamper-proof ledger?

This is precisely what "Real World Asset (RWA) Tokenization" — based on public ledger technology — aims to solve.

Let’s re-evaluate the above cases using this solution:

For First Brands: Each invoice, upon generation, becomes a unique "token." When goods are shipped, accounts are financed, and cash is collected, the status of the token is updated in real-time.

Since each token is unique, want to sell the same invoice twice? Sorry, the rules on the chain will directly prevent you.

Regulators, investors, and partners can see the data they need in real-time according to their permissions, rather than waiting for a quarterly report.

Billions in hidden debts would be detected by the entire network in their early accumulation, rather than waiting for auditors to discover them too late.

For Tricolor: Each vehicle's VIN is bound to a unique "first-priority mortgage token" upon registration.

Want to register a second first-priority mortgage for this car? The system will directly reject it or clearly mark it as second-priority or subordinate.

The issue of repeated mortgages would be physically eliminated at the moment of loan issuance, without the need for post-factum legal restructuring.

For commercial real estate: The ownership and mortgage status of properties are recorded on a token, and the status of this token serves as the legally recognized "single source of truth."

You cannot bypass a priority claim recorded on the chain and tamper with a forged PDF document.

Transaction settlements become a simple "status update," rather than a time-consuming "document chase."

Putting these scenarios together, we gain not just a "better accounting method." This is a dividend of a "transparency revolution":

• Preventing repeated mortgages shifts from "policy constraints" to "physical constraints."

• Real-time risk monitoring replaces lagging quarterly inferences.

• "Who holds how much" becomes a publicly verifiable query, rather than a crisis.

Don't Be Deterred by the "Crypto" Label

I know that many people, upon hearing "tokenization," immediately think of the thousand ways the crypto world exploits retail investors — "meme coins," "rug pulls," hacking attacks, and governance fiascos.

This "reputation tax" is real, and indeed, in some corners of the crypto world, it is self-inflicted.

But in 2025, this perspective can be somewhat myopic, as it overlooks the underlying real value due to the bad reputation's surface.

The key question is not "should we engage in crypto and put everything on the chain," but rather whether the real assets and debts we are trading should be recorded on a unique, queryable, and enforceable ledger.

Poorly executed tokenization merely moves shadow banking onto a cooler track, changing the soup but not the medicine.

Well-executed tokenization, however, does the tedious but crucial work: making debts machine-verifiable and making "one bride, multiple grooms" as difficult as "double spending."

We should not completely dismiss a technology that can fix systemic flaws just because a certain term has been misused in some corner of the market.

What constitutes a good RWA mechanism?

Of course, the skeptics' concerns are not without merit: if the new track merely accelerates old mistakes, it will be a greater disaster.

The answer is pragmatic, resting on the integration of design, governance, and law.

A sense of boundaries between privacy and strategy: complete transparency would leak trade secrets, which institutional participants cannot accept, but this should not be an excuse for evasion; rather, it should be a hard constraint in design.

Through permissioned data access, role-based visibility, and zero-knowledge proofs, we can accurately answer specific questions like "do you have priority mortgage rights?" without exposing the entire trading strategy.

Zero tolerance for technical risks: vulnerabilities in smart contracts and failures in custody are unacceptable in institutional credit.

Therefore, strict code audits, phased prudent deployments, and layered defense systems are the basic "table stakes," not options.

Avoiding new "data silos": if each bank builds its own "blockchain island," we will ultimately revert to the old path of cross-ledger PDF reconciliation.

Interoperability standards and legal transferability must be built as core infrastructure from day one.

The cornerstone of law and regulation: technology cannot be divorced from law; the same financial activities should be subject to the same regulation.

Tokens on the chain must clearly correspond to legally enforceable rights off the chain; otherwise, no matter how beautiful the interface, it is merely a legally weak "vase."

Thus, the correct construction path should be:

Prioritize legal validity, making the on-chain status a court-recognized factual basis.

Adhere to the principle of "selective transparency," allowing the characteristics of the assets themselves to determine "who can see what."

Embed compliance logic (such as KYC, trading restrictions) into the code, rather than leaving it on paper.

Finally, connect all of this with reliable interfaces in the real world (such as vehicle registration offices, property registration centers) to make the system reliable and trustworthy, even to the point of being — "boringly good."

Conclusion

Public ledger technology cannot replace precise risk structure design, nor can it eliminate human greed.

But it can significantly compress "discovery delays" — it is this delay that allows small issues that could be fixed to evolve into systemic events that trigger market panic.

In the initial stories, all the harm was magnified in the dark: receivables were repeatedly sold, cars were repeatedly mortgaged, warrants were forged and transferred, while everyone was buried in reconciling their own PDF.

Putting these assets into a shared, real-time, executable public state will not make risks disappear, but will make them "clearly readable," rather than a source of fright.

As Jamie Dimon commented last week, the problems in the market now are like cockroaches in the kitchen, with many undisclosed bombs hidden in the dark that we cannot see.

But what public ledgers can do is keep the kitchen lights on forever and illuminate every corner.

Cockroaches may still exist, but they can no longer revel in the darkness.

This is the greatest value that public ledgers can bring to private credit and the entire financial world.

If there are copyright disputes regarding the reprinted article, please contact us for removal.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。