Why CLOs Are Suddenly DeFi's Hottest Yield Play

**Niklas Kunkel** (0:00)
Absolutely. I mean, I think we kind of get a frontline seat to seeing like where the market is heading, right? Because we see what clients are working on and how we need to adapt our technology to be able to support those use cases. As you pointed out, right, I think the shift over the last 12 months as monetary policy rates have kind of studied is how can we kind of increase yields, right? It's no surprise that in DeFi, people love their yield, they love their kind of yield looping strategies, right? So the race has been to create products that are attractive to that part of the market, right? And that's really where we've seen CLOs take off, right? So we saw Centrifuge with Janice Henderson launch JAAA, right?
We saw, like, what else did we see?

**Steven Ehrlich** (0:58)
I mean, Hamilton Lane and Acred.

**Niklas Kunkel** (1:01)
Exactly, yeah, right? There was the Apollo, Acredx, right? You know, all of these, which we actually support at Chronicle. And I think even just yesterday, or I think it was like two days ago now, we announced, right, that we were supporting Galaxy's first tokenized CLO, which I think is quite interesting because Galaxy, if they're getting into tokenization, I mean, they're going to be a really huge, huge player. I mean, they have the network and they sit kind of perfectly nestled in between DeFi and on the TradFi side. So I think they're going to do really well. And I mean, the product that we support there, right, is Galaxy is either directly or indirectly, right, letting people borrow against their crypto, right, against Bitcoin, against ETH, Sol, XRP, right, whatever it is.
And so all that we are doing, right, is we are getting, like, the loan book from Galaxy. And then we're going to their custodian, right? We're going to Anchorage and we're checking, like, okay, is there actually, you know, all this BTC, the oldest Sol, oldest XRP, oldest ETH in custody? You know, can we trace every way, you know, every Satoshi, you know, that is claimed to be, you know, as collateral on these books, right? We identify the liabilities. And now we can say, okay, you know, this CLO is 200% collateralized, right? And so, okay, and it's yielding 7%, right? So it's giving pretty good yield, right? And so now, one, like, anyone who wants to potentially buy this Galaxy CLO, right? Like, can see, okay, look into the guts and, like, know that, like, someone independent like Chronicle has, like, validated all of this. But two, now someone like Norfo, you know, you can have a vault and you can create, like, a looping strategy on this, right? So you can juice your 7% yield into 14 or 21%, right? And that's really, like, what, like, you know, it's this two stages of, like, what Chronicle enables. Like, one, it's the transparency that gives, like, the confidence in these assets. And then two, right, it's the ability for DeFi, right, to integrate them. So, I mean, in terms of, like, what's coming up, you know, we're seeing, for example, like, REITs, like, real estate investment trusts are, there's a couple of those coming out, so we're excited about those.
I think you may have seen Centrifuge just announced with New York Life that they're going to be releasing a new, like, a new fund as well.
I think kind of equities right now are really hot, and I think it'll take a while to get there, right? Like you were alluding to before, right, that there's like all these promises, and some of them have panned out, some of them haven't. I don't think it's a matter of it doesn't pan out. I think it's more a matter of just like it needs more time than anyone thinks it does. But like the promise is huge, right?
Like if you have Tesla stock and you want to go borrow against your Tesla stock, like your broker is going to charge you like very high single digits, low double digits versus in DeFi. I mean, if you're going to lend these things with the, I don't know, LTV of like 30 percent or something, DeFi will offer you like mid to high single digits on this stuff all day. Like if you look at what do you get for lending USDC, you're getting 2.7 percent. You're literally getting less than T-bills. Like so there's, I think there's really an opportunity, right? For DeFi to kind of be the mechanism where it can, one of the flywheels for tokenized equities taking off, is just going to be this ability to get leverage against your equities at like much cheaper rates than you can in TradFi with your broker.