Where We’ve Been—and Why It Still Matters
The internet fundamentally changed how we manage and price risk, unlocking entirely new asset classes in the process. Many of these innovations are now so embedded in financial infrastructure that we take them for granted—but they marked meaningful shifts in how capital could be deployed. Examples include marketplace lending (e.g., LendingClub), merchant cash advances (e.g., Square Capital), and revenue-based financing (e.g., Pipe)—each reimagining the lender-borrower relationship through technology.
In the aftermath of the Great Financial Crisis (GFC), regulations like Dodd-Frank led traditional banks to pull back from lending to consumers and small-to-midsize businesses (SMBs). This retreat left a sizable financing gap. In response, non-bank lenders emerged—typically with a technology-first approach and without access to a deposit base. These lenders turned to institutional capital to fund originations, giving rise to a parallel ecosystem of private credit firms focused on asset-based lending. The asset-based lending shops act as a conduit for the originator to access bank or public (i.e., lower cost) funding, but are much more than that: they are partners in building durable, scalable financial products.
At the heart of asset-based lending is underwriting both individual risk units (e.g., loans, contracts) and their aggregate performance (i.e., portfolios). To align incentives, capital structures often required originators to contribute subordinated capital—what’s known as a warehouse facility. In other cases, capital was provided on a forward flow basis, purchasing assets outright with no originator “skin in the game.” Generally, the more novel or esoteric the asset, the more originator alignment is expected. As assets mature or become standardized, forward flows may become more appropriate.
Still, competitive pressure has occasionally pushed investors toward looser standards—underwriting earlier, taking more risk, or doing so without sufficient subordination. And while some fintechs tried to eliminate intermediaries altogether through peer-to-peer (P2P) lending, most struggled to scale meaningfully beyond small volumes of retail capital.
“History Doesn't Repeat Itself, but It Often Rhymes” — Mark Twain
Blockchain technology introduces an entirely new design space for asset origination, risk management, and investor participation. Beyond enabling novel assets, tokenization opens up the possibility of dramatically improving how traditional assets are issued, traded, and financed.
But despite the technological promise, many web3 builders hesitate to commit their own balance sheet to bootstrap demand. This reluctance is understandable—but often at odds with the hard-earned lessons of web2. In most cases, capital needs to come first. Even the most differentiated assets typically require some form of internal support before attracting outside lenders.
For now, the playbook remains largely the same:
Use equity capital to originate initial risk.
Build performance history and investor confidence.
Bring in asset-based lenders to scale the portfolio.
Seek improvements in capital structure scale, price, and flexibility.
However, there may be an opportunity to modify this story in web3.
Rather than deploying originator capital into the assets themselves, what if that same capital could instead serve as a liquidity enhancement mechanism—supporting redemption confidence for primary purchasers?
In traditional structures, subordinated capital functions as a buffer for credit risk. But in crypto, where duration and liquidity often matter more to investors than the underlying credit profile, capital could play a different role: offering secondary liquidity, programmatically, to ensure tradability and redemption optionality.
This isn’t a silver bullet, nor does it eliminate the need for alignment. But it suggests a more capital-efficient way to catalyze early market activity—one that still signals commitment, while potentially reducing actual capital deployment.
It’s a compelling concept. And it raises the question: Could liquidity provisioning in web3 be to instant redemption what subordinated capital was to credit alignment in web2?
We’re exploring exactly that question at Overmatch Capital—and working with forward-thinking builders and originators who see the potential for these hybrid models. If this resonates, we’d love to talk.