Private Credit Example
Making the Unmarginable Marginable
This example walks through how RAVA handles a private credit fund with gated liquidity:the kind of asset that traditional systems either refuse to accept or dangerously misprice.
The Asset
Tokenized Private Credit Fund
| Property | Value |
|---|---|
| Reported NAV | $100M |
| Redemption Frequency | Monthly |
| Notice Period | 30 days |
| Gating Provisions | Fund can defer up to 90% of redemptions |
| Secondary Market | Limited |
| NAV Updates | Monthly |
This is a high-quality private credit fund with excellent credit metrics. But it has gated liquidity.
The Problem Without RAVA
Why is this asset "unmarginable"?
Traditional lending systems face a fundamental problem:
- Time-to-cash is uncertain:You request redemption, but 90% might be gated
- No transparent execution price:What's it worth if you need to exit today?
- NAV lag:Monthly updates mean the price could be stale
- No one knows how to price the risk:Static LTV models can't handle this complexity
Result: Lenders either refuse to accept it as collateral, or they apply arbitrary discounts that don't reflect actual risk.
How RAVA Prices This Asset
RAVA's VaR Oracle processes all the messy inputs and outputs two clean values.
Inputs
| Factor | Value | Impact |
|---|---|---|
| Redemption Schedule | Monthly with 30-day notice | Extends margin period of risk |
| Gating Provisions | Up to 90% deferral | Adds uncertainty to exit timing |
| NAV Lag | Monthly updates | Price staleness risk |
| Credit Spreads | Current market level | Dynamic adjustment |
| Manager Quality | High | Reduces static component |
Outputs
Haircut: 35%
- Static Component (S): 12% (legal complexity, gating, NAV lag)
- Dynamic Component (D): 23% (credit spreads, volatility, liquidity)
Discount: 42%
- Haircut: 35%
- Execution Costs (E): 7% (market impact, adverse selection)
What This Means in Practice
Scenario 1: Using as Collateral (Haircut Applied)
A protocol wants to accept this fund as loan collateral.
Calculation:
- Market Value: $100M
- Haircut: 35%
- Collateral Value: $65M
The protocol can lend up to $65M against this $100M position. The 35% haircut covers the risk of NAV drops, redemption delays, and market stress during the loan period.
Scenario 2: Trade Settles Normally (No Discount)
A trader sells $10M of this token with T+2 settlement.
At trade time:
- Notional: $10M
- Haircut: 35%
- Margin Posted: $3.5M USDC
At settlement (T+2):
- Settlement succeeds
- $3.5M margin returned (minus fees)
- Discount never realized
Scenario 3: Settlement Fails (Discount Applied)
The same trade, but the seller fails to deliver.
At trade time:
- Notional: $10M
- Haircut: 35%
- Margin Posted: $3.5M USDC
At settlement failure:
- Clearing system must exit the position
- Discount: 42%
- Execution Price: $10M × (1 - 0.42) = $5.8M
- Loss: $4.2M, absorbed by the $3.5M margin + default fund
Before vs After RAVA
| Aspect | Without RAVA | With RAVA |
|---|---|---|
| Can be used as collateral? | No | Yes |
| Transparent risk pricing? | No | Yes (haircut + discount) |
| Can be traded? | Barely | Yes, with proper margin |
| Lenders protected? | No | Yes (margin covers losses) |
| Asset becomes more useful? | Stuck | Unlocked |
The Key Insight
Time-to-cash uncertainty gets priced, not ignored.
The private credit fund's quality doesn't change. It's still a well-managed fund with good credit metrics. What RAVA provides is:
- Quantified risk:The 35% haircut reflects actual time-to-cash uncertainty
- Transparent methodology:Everyone can see how the haircut was computed
- Continuous updates:As market conditions change, haircuts adjust
- Products built on top:Standing Bid guarantees exit at discount, protocols can accept as collateral
Comparison to Other Asset Types
| Asset | Haircut | Discount | Why Different? |
|---|---|---|---|
| T-Bill Token | 2% | 3% | Continuous liquidity, no gating |
| This Private Credit Fund | 35% | 42% | Monthly redemption, 90% gating |
| VC Fund Token | 45% | 55% | Quarterly liquidity, long exit |
The haircut is not a judgment on asset quality. It's a measurement of time-to-cash uncertainty.
A high-quality private credit fund with gating provisions requires a larger haircut than a lower-quality T-bill token because the risk being priced is settlement timing, not creditworthiness.
Result
The asset becomes marginable because the risk is quantified.
Private credit with gated liquidity is not incompatible with on-chain markets. It requires clearing systems that explicitly price settlement timing risk.
By separating asset design from settlement guarantees, RAVA allows these instruments to become tradable and marginable without changing their redemption terms or forcing artificial liquidity.