How does an off-chain loan reach on-chain investors?

How does an off-chain loan reach on-chain investors?

You can't put a loan to a manufacturer onto a blockchain the way you'd send a token. The loan is a legal agreement in the real world. What reaches on-chain investors is a defined instrument linked to that loan, and getting there takes a few steps.

1. Origination

A lender in the real economy, called an originator, makes the loans. It finds borrowers, assesses them and handles the paperwork. This is the same work lenders have always done.

2. Verification

Before anything goes near investors, the loans need to be checked: do the borrowers exist, are the invoices or contracts real, are payments arriving as reported? This is the step most often skipped or done once and never again. Done properly, it's continuous: the data is checked as it changes, not in a one-off review.

3. Structuring

The loans are placed into a legal structure, often a separate entity, so that investors' claim on them is clearly defined. The terms set out what investors are owed, in what order people are paid, and what happens if loans aren't repaid.

4. Access

Investors can then put capital into a defined fixed-income instrument linked to those loans. Because the terms are documented and the underlying data is verified, an investor can see what they hold rather than relying on a quarterly summary.

5. Repayment

As borrowers repay, the cash flows back through the structure to investors, following the agreed order of payment.

The step that makes it work

Each step matters, but verification is the one that makes the rest trustworthy. That's why Rekord's approach is to verify first and tokenize second: the record has to be right before anything is built on top of it.

Related: Verify first, tokenize second and What is an originator?.