Backing Fence: Rearchitecting Credit Infrastructure
Introduction: A $15T Global Market Operated on Analog Processes
Asset-backed finance is a $15 trillion market where billion-dollar credit facilities are still run on spreadsheets, PDF attachments, and monthly wire transfers. The economics of how these facilities are serviced, and the mechanics of how capital moves through them, are due for a structural rebuild from the ground up. Fence has developed a solution to automate these financing workflows.
Galaxy Ventures is proud to lead the $20M Series A investment in Fence, a brand new infrastructure for the global lending market. Fence replaces a fragmented, manually intensive servicing stack with a single platform enforcing facility rules in real-time. Fence is well positioned as a standalone, automated service provider to traditional asset-backed financing workflows, as evidenced by their relationships with BBVA, Blackrock, and Fortress. We believe Fence is well-positioned long-term as the infrastructure through which stablecoins are allocated to credit markets.
Fence's results speak for themselves thus far. Borrowers using Fence have seen their cost of capital drop by as much as 40%, while operational overhead has fallen by up to 80%. At the same time, capital providers gain full, real-time visibility into every underlying asset, continuous cash reconciliation, and live covenant monitoring. Fence currently has $1.4B under administration.¹
Automating Loan Facilities
A typical asset-backed finance (ABF) facility runs through a sequence of agency roles: the servicer collects borrower payments and manages delinquencies, the calculation agent computes waterfalls and accrual, the paying agent (or cash management agent) moves cash through the capital structure, the facility agent administers drawdowns, the collateral agent holds security, the verification agent validates collateral against reports, and the escrow agent manages conditional funds. Each of these roles exists for a reason, but the cumulative cost of the stack is high, and the time-to-information is long.
A few specific structural issues:
The economics of servicing are capped by labor costs. Traditional ABF servicers typically charge 25 to 50 basis points annually on asset balances. Internal operating costs (reconciliation, reporting, administration) consume a meaningful fraction of that fee. The problem is that scaling a servicer is linear in labor: doubling the book doubles the reconciliation work.
Settlement is slow and low frequency. Cash flows in a typical ABF structure pass through originators, sub-servicers, master servicers, trustees, and paying agents before reaching investors. Paying agents often distribute monthly, which caps the effective velocity of capital. For a lender, this means information about portfolio performance arrives weeks after the fact.
Transparency is periodic, not continuous. Investors in a securitization typically learn about delinquencies, eligibility breaches, or waterfall triggers on a monthly or quarterly reporting cycle. On a multi-hundred-million-dollar facility, that opacity has a measurable cost-of-capital implication.
It is now possible, as of recently, to automate these processes via blockchains and stablecoin rails. Running the core functionality of loan facilities with stablecoins and smart contracts reduces settlement friction and increases transparency into underlying loan portfolios.
Asset-Backed Finance Market
The private global ABF market is over $6.1 trillion today, roughly twice the size of its pre-GFC peak of $3.1 trillion in 2006. KKR estimates the global private ABF market could reach $9.2 trillion by 2029, which, as KKR notes, is larger than the syndicated loan, high yield bond, and direct lending markets combined. Apollo frames the total addressable market even more aggressively, citing a $20 trillion global opportunity.
Transformation of the ABF market through enhanced transparency and faster settlements is a massive standalone opportunity, if one can win it. Fence has an opportunity beyond that: to participate in the transition of offchain credit markets to onchain credit markets built on top of stablecoins.
The Onchain Credit Opportunity
Over time, our bet is that the $300B+ of stablecoins flowing out of regional, emerging market, and legacy banks will require new credit creation capabilities onchain. Banks serve many interconnected purposes (i) the custody of funds on behalf of consumers and corporates, (ii) connection to payment rails like SWIFT, domestic rails, and card networks, and, crucially, (iii) the creation of credit in the real economy through the fractional reserve system. In the onchain economy, those functions are unbundled:
Custody of funds is handled in a non-custodial fashion, with digital asset-native qualified custodians, or directly in escrow with smart contracts.
Connection to payment rails is granted out-of-the-box by stablecoins through transfer functionality embedded in all tokens.
Creation of credit is still nascent in the onchain economy and has historically been limited to secured lending against crypto assets. The bet is that as stablecoin holders seek yield/interest on their assets, leading to the creation of new pathways to allocate back into the real economy.
Fence’s stablecoin-based asset-backed finance suite is poised to be a critical layer in the re-platforming of bank deposits into stablecoin holdings. We are pleased to support Juan Montero and the team in this journey.
Legal Disclosure
¹ Certain information contained herein (including financial information and statistics) has been obtained from third-party sources. Such information has not been independently verified by Galaxy and, Galaxy, does not assume responsibility for the accuracy of such information.
Fence is a portfolio company of Galaxy Ventures. Galaxy Ventures led Fence’s Series A financing round.
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