Questions & Alpha: Why We’re Building an Onchain Credit Desk

Questions & Alpha: Why We’re Building an Onchain Credit Desk

Authored by Frank Chaparro, Head of Strategic Communications, GSR

Trillions of dollars in assets are expected to move onchain. But bringing them there is only part of the challenge. As more real-world assets enter DeFi, the market also needs the infrastructure to understand, price and manage the risks underneath them.

In this edition of Questions & Alpha, GSR's interview series spotlighting the people building our business, Head of Strategic Communications Frank Chaparro sits down with Hare CEO Connor Milner to discuss why onchain markets need more sophisticated credit underwriting, what's missing from DeFi risk analysis today, how to think about liquidity when markets come under stress, and why gold is an especially compelling asset to bring onchain.

This week, Hare came out of stealth with a simple thesis: as more assets move onchain, the market needs a more sophisticated way to underwrite the risks behind them. Backed by GSR and Turtle, Hare is launching with two initial products, focused on dollar and gold-denominated yield.

In this conversation:

• The influx of new assets onchain is creating a need for more sophisticated risk curation and underwriting.
• DeFi understands smart-contract and oracle risk well; offchain credit risk is a newer challenge.
• Vaults need to be stress-tested for the moment when everyone wants liquidity at once.
• Gold offers an opportunity to take a familiar store of value and give it new utility onchain.
• Over time, onchain markets could become a genuine alternative venue for global capital formation.

Frank Chaparro: Let's start with the basics. Why launch Hare now? What's changed in the onchain market that makes dedicated vault curation and credit underwriting necessary?

Connor Milner: There's an oversupply of new assets coming onchain, and with that you need actors who can curate risk, underwrite it and present it to the market in a professional, institutional way. That protects LPs and the buy side, but it also provides a service to asset issuers. You're helping them scale their assets onchain and giving them a reason to come onchain in the first place. We also believe trillions of dollars of assets are going to come onchain. A lot of people see the total addressable market as several trillion dollars. But the players doing curation today tend to fall into two buckets. On one side, you have something closer to a hedge fund bringing strategies onchain and trying to generate performance fees. On the other, you have stablecoin scalers deploying stablecoins across chains and pursuing token emissions and incentives. Both are perfectly valid business models. But they don't really service the needs of all these new assets coming onchain, and they aren't necessarily servicing the buy side either.

Frank Chaparro: What's the state of credit-risk analysis in DeFi today? Where are the gaps?

Connor Milner: A lot of the curators in the space have a very good understanding of DeFi risk. They understand smart-contract risk, oracle risk and the other risks that are visible onchain. The issue is that they haven't necessarily built the same expertise around the underlying offchain risk. That's an additional risk vector that's being introduced as more RWAs come into the market. A lot of these assets can be presented as AAA or as a very attractive private-credit product with a strong name behind it. But that can mask what's actually happening underneath. Where is the capital actually being deployed? What is the underlying private credit? That's becoming an important part of analyzing these products because we should expect some level of contagion at some point. A lot of these new assets have an offchain component. So you have to look across every layer: market risk, asset risk, smart-contract risk, counterparty risk and then go another level deeper to understand what's actually happening under the hood. The other piece is how you present that risk to the market. I think one of the things that separates DeFi from TradFi is transparency. For us, how we communicate the risk is extremely important.

Frank Chaparro: Everything looks fine until people want to redeem. You talk about designing a vault backward from its worst day. What happens during a severe market dislocation when everyone wants their money back at once?

Connor Milner: It's all about stress-testing for that. The truth is that a bank run is always a factor. We can't escape that. What we can do is simulate the scenarios in which it happens and then translate the outcome to the market. If there's a bank run, what happens? We can get X amount of liquidity instantly. We can get X amount back at T+7. Another portion might take longer. That's really important because saying these products are riskless would be a lie. You have to be able to explain the risk to the market. For us, it's about simulating those stress environments and then showing LPs and investors what happens in each scenario, so they're aware of it and understand what they're getting into.

Frank Chaparro: Gold is a particularly interesting place to start. Why PAX Gold? What does bringing yield to gold holders unlock that they don't have today?

Connor Milner: For me, gold is the ultimate RWA. It's one of the most valuable commodities in the world, and everybody understands its value as a store of value. But onchain gold is fascinating. It's already scaling through Paxos and other players. And the opportunity to earn yield on gold is almost revolutionary. For us, it's an opportunity to help scale one of the premier RWAs and then build on top of that asset. You can create other products around it. Potentially, you can create leverage opportunities around it. It's an ever-expanding product. There's something really exciting about bringing a hard commodity like gold onchain and supporting that journey.

Frank Chaparro: Zoom out three to five years. If significantly more real-world assets move onchain, how big can Hare become? Does it eventually look less like a vault curator and more like one of the large credit desks in traditional finance?

Connor Milner: If I have my way, Hare is going shoulder-to-shoulder with some of the largest investment banks in the space. I think we can become a viable option for capital formation. Not just onchain versus offchain — just generally. You could have an option for raising capital onchain that may be more attractive than raising it offchain or elsewhere in the world. A dream of mine would be to do an onchain IPO, with the primary issuance happening onchain. Something like that would be pretty huge. And going back to the size of the market, we're expecting multiple trillions of dollars in RWAs and other assets to come onchain over the next five years.
We want to go after a meaningful part of that.

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