Credit Origination
Playbook.

End-to-end infrastructure for onchain credit

Pareto provides the infrastructure to originate, operate and manage onchain credit facilities from start to finish. We bring facility structuring, permissioned access, funding, servicing, reporting and DeFi connectivity into one platform, enabling underwriters, lenders and borrowers to run credit programs on transparent, programmable blockchain rails.

With Pareto’s onchain credit infrastructure and Pareto Studio, Credit Vaults allow operators to launch and manage standard cycle-based or revolving facilities with tailored rates, repayment schedules, permissions and risk controls. Studio provides the interface to configure and manage facilities, while Credit Vaults record capital, borrower exposure, interest and lender positions onchain. Underwriters bring their credit expertise and borrower relationships.

The full spectrum of collateral and credit support

Pareto infrastructure works with:

• Onchain collateral. Flexible collateral management with configurable monitoring, margin calls and grace periods, so collateral requirements and responses can match the facility’s risk profile and agreed terms.
• Offchain collateral. Facilities supported by assets held with qualified custodians, connecting custody arrangements and offchain evidence to the facility’s monitoring and servicing workflows.
• Managed accounts and CEX/bank accounts. Structures built around managed accounts and accounts at centralised exchanges or banks, with agreed account controls, visibility and reporting.
• Unsecured corporate credit. Facilities underwritten against the borrower’s balance-sheet strength and cash flows, including structures supported by parent-company guarantees.

Support across the entire loan lifecycle

Pareto supports facility design and deployment, KYC/KYB and permissions, lender onboarding and funding, borrower drawdowns, interest and fee accounting, repayments, renewals and revolving redraws. Ongoing workflows cover collateral and covenant monitoring, margin calls, grace periods, lender withdrawals, callbacks, defaults and recovery administration.

Underwriters and borrowers can manage facilities through Pareto’s tools or connect their own systems through APIs and SDKs. Facility records and reporting connect onchain activity with the financial, custody and account information needed to operate the credit relationship. Multi-facility coordination supports operators managing a broader credit book.

DeFi integrations out of the box

Built-in integrations with Morpho, Pendle, Aave, Euler and a wider DeFi ecosystem connect credit facilities to onchain liquidity and yield opportunities. Depending on the facility design, these connections support productive use of undrawn capital, lender distribution and complementary yield strategies, without requiring operators to build each integration from scratch.

The result is one infrastructure platform spanning origination, day-to-day loan management and DeFi connectivity – across collateralised and unsecured credit.

Download the playbook below and upload it to your AI assistant. Paste the prompt, choose Q&A or guided completion, and answer its questions. Add supporting documents as requested, then review the completed draft with the underwriter and Pareto operations.

The underwriter owns the credit decision; the borrower prepares the information and repayment plan; Pareto operations configures and tests the facility. Use the detailed sections and reusable templates to complete each step. Launch follows approval and testing, not a promised setup time.

1. Establish the fit. Borrower: explain the business, funding need, currency and use of proceeds. Underwriter: assess the credit case and agree on the diligence scope.
2. Agree the terms. Set the facility cap, interest model, fees, loan cycle and repayment obligations. Record the decisions in the term sheet (Section 3).
3. Set the protections. Agree credit support, covenants, reporting, withdrawal rights and callback notices. Make the borrower’s liquidity plan consistent with those obligations.
4. Complete eligibility. Borrower: supply entity and ownership documents and authorized wallets. Underwriter: obtain the required KYB and compliance approvals (Section 4).
5. Prepare to operate. Name the reporting and treasury contacts, agree a cycle calendar, and confirm which cash must be available for repayment and lender exits.
6. Deploy and test. Pareto operations configures the approved facility. All parties review a successful test of funding, repayment and withdrawal before launch.
7. Approve and fund. Complete the GREEN launch gate, confirm initial lender commitments, then fund the facility and confirm the borrower’s receipt.

The underwriter (also called the curator) assesses the borrower, structures the facility and monitors credit risk. The borrower provides information, accepts the terms, manages liquidity and meets payment and reporting obligations. Pareto supplies infrastructure and deployment support. The executed agreement defines each party’s legal role; operational permissions are assigned separately.

1.1 Responsibilities

• Underwriter: set borrower eligibility, complete diligence, approve credit terms and document the decision.
• Underwriter and borrower: agree economics, covenants, notices, reporting and the repayment calendar.
• Borrower: provide complete financial information, explain material changes and support ongoing monitoring.
• Underwriter and operations: approve eligible wallets and verify that the configured permissions match the approval.
• Borrower: deliver the agreed data. Underwriter: reconcile it and issue lender reports.
• Borrower: fund payments and raise expected shortfalls early. Underwriter: own the exception and recovery process.
• Underwriter: coordinate initial lender commitments and approve any later expansion.

1.2 RACI Matrix

R = Responsible, A = Accountable, C = Consulted, I = Informed

Legal roles, liability and enforcement rights follow the executed facility agreements.

A Credit Vault is the on-chain record and settlement point for an agreed credit facility. Approved lenders provide funds; the borrower receives them through the configured funding route. A loan period is also called an epoch. Interest, repayment and lender exits follow the facility’s terms and operating calendar.

2.1 Lifecycle Stages

2.2 Choose the funding route

In the standard cycle model, eligible deposits between loan periods are deployed when the next period starts. During an active period, a deposit queue can hold funds until processing; queued cash is not yet a borrower drawdown. Confirm receipt before treating funds as available to use.

Some facilities enable direct deposits during a running period or an AA prefunded queue. Prefunded cash reaches the borrower before final deposit pricing and cannot then be cancelled by the lender. These are distinct modes with different closing and exit restrictions; operations must confirm the selected route. A revolving facility is a separate product variant – do not assume on-demand draws are available in every Credit Vault. See Section 3H for the revolving-facility workflow.

Use these five groups to agree the facility before deployment. The tables are a decision guide, not a menu of universally available settings. The borrower and underwriter agree commercial terms; operations confirms that the selected Credit Vault supports them.

3A. Economics

3A.1 Choose the Facility and Interest Model

Choose the facility type, then agree rate timing, benchmark, cash treatment and the balance on which interest accrues. Revolving is a facility structure, not a rate type; it can use fixed or variable pricing. Operations confirms the supported combination. See Section 3H.

3B. Risk

3C. Liquidity

3D. Operations

3E. Access Control

Eligibility handover: borrower KYB and lender eligibility are separate checks. Confirm whether the facility uses existing third-party verification through Keyring Connect or a tailored Keyring Pro review. Record who approves the evidence and verify the live wallet permissions; a “KYC-gated” label is not sufficient.

3F. Parameter Decision Tree

Step 1: What supports repayment?

• For unsecured credit, assess the borrower’s cash generation and balance sheet and agree to any guarantee. For secured credit, verify the pledged assets, valuation, control and enforcement arrangements. Neither structure removes the need for a repayment plan.
• Choose covenants and reporting that reveal deterioration early. Match the facility cap and cycle to the borrower’s liquidity and asset maturity; collateral alone does not justify a longer cycle.

Step 2: How will interest and lender exits be funded?

• Cash-paid interest makes payment performance observable each cycle. Interest retained in facility value requires clear monitoring of cash versus accrued value and an agreed plan to meet withdrawals.
• Agree standard withdrawal timing, callback terms and any conditional accelerated exit. The borrower should forecast these obligations together with interest and any principal due.

Step 3: Which vaults and currencies are needed?

• For the standard facility, record the designated borrower and deposit asset for each vault. An additional currency normally needs a separately configured vault and separate reporting.
• If several vaults will be coordinated, operations confirms the Orchestrator setup and permissions. Shared execution does not combine cash, claims or credit exposure (Section 5.7).

Step 4: Who can participate?

• Agree eligible lender types, jurisdictions, the invitation process and approved wallets. Confirm the Keyring eligibility route and the actual access settings.
• Approve the distribution approach under the applicable mandate and legal documentation. Eligibility approval and credit approval are different decisions.

3G. Senior and Junior Positions

If the facility uses AA (senior) and BB (junior) positions, agree each class’s economics, contribution, deposit permissions and loss treatment. A junior contribution may absorb ordinary active-position losses first, but withdrawal claims and hard-default recoveries follow different rules. Underwriter and borrower should reconcile the investor description with the actual facility and agreement before launch.

3H. Revolving Credit Facilities

A revolving facility lets a borrower draw, repay and draw again within an agreed limit and availability period. Pareto’s described model places undrawn capital in a designated DeFi yield vault; drawn capital funds a loan cycle. This suits recurring working-capital needs, such as receivables finance or trading liquidity. It is a distinct facility variant, not an automatic feature of every Credit Vault.

3H.1 Agree the line before launch

Underwriter and borrower: record the credit limit, currency, availability period, final maturity, permitted uses, draw conditions, cycle length, repayment dates and redraw rights. Confirm the drawn rate, calculation basis, fees, reporting and circumstances that suspend further draws. Keep the facility’s maturity separate from each loan cycle.

Borrower: provide a draw-and-repayment forecast, expected and peak utilisation, repayment sources, treasury contacts and approved wallets. Demonstrate how obligations will be met if receipts arrive late or the next draw is unavailable.

Underwriter and operations: approve the idle-capital vault and its liquidity and risk limits; confirm the supported integration, permissions and lender exit terms. Test withdrawal from the yield vault, borrower receipt, repayment and reallocation before launch. Confirm actual draw timing and any notice requirement before promising on-demand access.

3H.2 Draw, repay and redraw

Available capital: undrawn funds earn the selected vault’s yield. The credit limit is a contractual ceiling; immediately available liquidity may be lower. Operations confirm what can actually be withdrawn.

Drawdown: the borrower requests funds through the approved route. Check remaining headroom, draw conditions and available liquidity; operations confirm receipt and records the drawn balance, rate and due date. The drawn portion earns the credit rate while the undrawn portion remains in the yield vault.

Settlement and redraw: pay the principal and interest due for the loan cycle, reconcile receipts, and return settled capital to the yield vault as configured. Confirm restored headroom before another draw. Redraw remains subject to the agreement, eligibility and liquidity; repayment does not extend final maturity.

3H.3 Price and monitor both balances

Choose a fixed credit rate or a variable rate linked to the underlying yield-vault return plus an agreed spread. Specify the benchmark, observation/reset method and fallback. In the described model, borrower interest applies only to drawn capital; undrawn yield comes from the DeFi allocation. Confirm any separately agreed fees rather than assuming they are zero.

Report the limit, drawn balance, remaining headroom, idle allocation, available cash, accrued and paid interest, upcoming repayments and lender exits. Keep borrower borrowing cost separate from blended lender return, which combines drawn-credit earnings and undrawn yield. Neither the idle yield nor the blended return is guaranteed.

Agree draw-stop triggers and an escalation owner for late payments, covenant breaches, insufficient liquidity or a yield-vault incident. Underwriter directs the response; borrower supplies a cash plan; operations verifies balances and supported actions. Apply Sections 5.6 and 5.8 for exits and recovery, with the revolving facility’s agreed terms.

The borrower prepares the evidence; the underwriter evaluates it and records the decision. Core diligence applies to every launch. The underwriter adds depth according to size, complexity and risk; a known borrower does not remove the required checks.

4.1 Core Diligence

• Entity verification: legal name, jurisdiction, registration number, corporate structure.
• UBO (Ultimate Beneficial Owner) identification and sanctions/PEP screening (Underwriter collects directly from borrower).
• Most recent audited or management-prepared financial statements (balance sheet, P&L).
• Description of borrower business model and intended use of facility proceeds.
• Signed Master Loan Agreement (MLA) or equivalent legal documentation.
• Wallet binding confirmation (approved wallet addresses linked to verified entity).

4.2 Additional Institutional Diligence

Where proportionate to the credit decision, request the following in addition to core diligence:

• 2–3 years of audited financial statements.
• Detailed risk analysis: credit scoring, leverage analysis, liquidity assessment.
• Operational due diligence: key personnel, systems, controls, business continuity.
• Legal opinion on enforceability of MLA and guarantee/collateral arrangements.
• Third-party credit assessment or rating (if available).
• Covenant package: financial covenants, reporting covenants, negative pledges.
• Insurance coverage review (if applicable).
• Management meeting or site review where warranted by the borrower’s operating model and the underwriting policy.

4.3 Red Flags & STOP Criteria

5.1 Pre-Launch Checklist

• Borrower KYB and required compliance approvals complete; lender eligibility handled separately.
• Terms agreed and matched to the configured facility, including currency, rate, fees and cycle.
• MLA / legal documentation executed.
• Agreed credit support and enforcement arrangements finalized and documented.
• Borrower reporting, treasury responsibilities and notice calendar agreed.
• Deployment and permissions verified; funding, repayment and withdrawal tests passed.
• Authorized borrower, operator and eligible lender wallets recorded and tested.
• Initial lender commitments, facility cap and funding route confirmed.
• GREEN launch decision recorded and accepted by the relevant parties (Section 7).

5.2 Monitoring KPIs

5.3 Minimal Reporting Pack (Monthly Snapshot)

Agree actual delivery dates with the borrower. A monthly snapshot can be the starting point, supported by monitoring around each cycle and prompt reporting of material events.

• Value and cash: outstanding exposure, accrued interest, actual cash and reconciled facility value, shown separately by currency and tranche.
• Positions and exits: lender balances, pending withdrawal requests, funded claims, callback offers and expected payment dates.
• Performance: interest recognized versus cash collected, fees, losses and repayment performance.
• Changes and incidents: revised terms, wallet or permission changes, late payments, system incidents and actions taken.
• Covenants: agreed measures and thresholds, evidence, pass/breach/waiver status and responsible owner.
• Attestations: borrower confirms supplied data; underwriter records its review, exceptions and conclusions for lenders.

Integration handover: confirm the facility’s available portal, exports, API/SDK, custody connections and monitoring tools with Pareto operations. Assign an owner for each data feed and reconciliation. Product-level integration descriptions do not establish that a particular facility is configured to use them.

5.4 Exception Handling

5.5 An Illustrative Operating Calendar

5.6 Withdrawals and callbacks

Plan lender exits before accepting funding. A standard withdrawal requested between loan periods ordinarily settles after the following loan period. A request queued during an active period waits for the next eligible processing window; joining the queue does not make payment immediate.

Underwriter: communicate the route, notice and expected payment date. Borrower: include due withdrawals in the treasury plan. Operations: distinguish requests awaiting processing from claims already funded, and confirm the cash actually available to pay.

A rate reduction may enable a conditional accelerated exit where configured. It is not unconditional instant liquidity. Agree the applicable notice and funding timetable; the agreement’s Business Days and the system’s timing must be reconciled.

For a callback, confirm the contractual right, valid notice, amount, fees and settlement deadline. A lender’s callback escrow offer is a separate step: the price is fixed until cancelled and recreated, and the offer must be filled in full. The borrower or another buyer pays for the offered position; a borrower may then separately retire the acquired position. Do not count an unfilled offer as cash repaid.

5.7 Multiple currencies and the Orchestrator

Use a separate facility record for each vault: borrower, currency, chain, terms, lender claims and cash due. The Orchestrator lets an authorized operator coordinate supported actions across approved vaults. Operations must verify permission for every participating vault and check every outcome after execution.

It does not convert currencies, pool cash or automatically use one vault to cover another’s losses. A combined action may fail as a whole if one part fails; an allowed default outcome is not proof that all borrowers paid. Reconcile each currency separately, and review any contractual links or shared-borrower risk before describing facilities as independent.

5.8 Loss, default and recovery

Raise an expected shortfall early. The borrower supplies the cause, available cash and a remediation plan. The underwriter records the assessment and follows the agreement’s notice, cure and enforcement process. Operations distinguishes a failed transaction from a recorded default; an operational error alone does not establish insolvency.

For a loss recognized while the facility continues, agree the valuation evidence and allocation before communicating revised balances. Pending withdrawal claims can also bear losses. Senior/junior protection for active positions must not be presented as a guarantee for every claim or recovery scenario.

If hard default is recorded, stop unsupported lending activity and reconcile affected positions, pending exits and previously funded claims. The reviewed recovery process finalizes once, using an approved recovery amount and source. It cannot simply be topped up later or restart lending. Operations must confirm the deployed process before execution.

The underwriter coordinates legal allocation and communications; the borrower supports recovery and evidence collection; operations verifies funding and claims. Previously funded claims and affected claims may receive different treatment. The reviewed hard-default process applies one recovery ratio to affected balances without automatic senior priority. Report actual proceeds and any remaining recovery steps clearly.

For an economic loss that does not constitute a hard default, the curator should first establish and document a defensible valuation using reliable evidence – such as audited NAV, an independent collateral valuation, or third-party marks – and share the loss methodology with lenders. At the end of the loan cycle, the curator can register the approved loss through the loss-enabled stopEpochWithDuration(_lossAmount) flow. This burns the corresponding strategy tokens and immediately reduces the vault’s virtualPrice, realizing the loss on-chain while allowing the Credit Vault to continue operating at the revised value. This path does not set defaulted = true.

For a hard default, the curator should treat the BorrowerDefault event as an immediate freeze of the facility. The current contracts pause the vault, prevent new deposits, withdrawal requests, and lending activity, and do not automatically reduce virtualPrice; downstream collateral integrations should therefore be informed not to rely on an automatic repricing. The curator should reconcile positions at the default boundary, distinguishing funded withdrawal claims, unfunded pending withdrawal claims, and remaining CV token holders, and should not resume ordinary operations until the recovery process is complete.

Recovery is primarily an evidence-led, offchain process: pursue borrower remedies, preserve the facility’s recovery record and communicate the expected treatment of each claim class. In the reviewed FalconX implementation, the owner or manager finalizes recovered funds through finalizeDefault(), with reserve and claim accounting handled by the strategy. This path covers affected active positions and pending claims; previously funded claims remain separately protected. Verify the deployed recovery mechanism and reconcile actual proceeds, remaining claims and next steps before execution.

The underwriter coordinates capital formation within its mandate. The borrower supports diligence and funding readiness. Initial capital helps establish operating history; it does not replace credit approval or guarantee later lender demand.

6.1 Bootstrap Options

• Borrower seed: the borrower may invest alongside lenders under disclosed terms. Record whether it has the same rights or a junior position; seed capital alone does not establish first-loss protection.
• Anchor lender: agree a meaningful initial commitment, eligibility, funding timing and any differentiated terms. Do not assume a fixed percentage of the cap or promise priority that the facility does not provide.
• Phased cap: begin at the approved launch size and review increases only after performance, reporting, borrower need and liquidity support the change.

6.2 LP-Facing Materials Checklist

• One-pager / Facility Summary (see Appendix A template).
• Risk Summary: credit support type, key risks, mitigants, covenant summary.
• Reporting Cadence: what LPs receive, when, and in what format.
• Scaling criteria: repayment history, covenant compliance, reporting quality and lender liquidity; every cap increase requires approval.

6.3 A Staged Launch-to-Scale Plan

The underwriter records the launch decision with borrower acceptance and operational sign-off. All required conditions must be GREEN before funds are released. YELLOW is a preparation status: document the owner and remedy, then resolve the condition or formally approve an allowed mitigation. RED blocks launch.

7.1 Readiness Table

7.2 Decision Memo Template

Prepare a short decision memo that both parties can use for handover:

• Borrower: [Entity name], [jurisdiction], [business description]. KYB status: [Approved/Pending].
• Facility Terms: [Size], [rate], [cycle length], [credit support type]. Key parameters per Section 3.
• Diligence: evidence reviewed, key findings, residual risks and the underwriter’s approval.
• Readiness: each launch condition, supporting evidence, any approved mitigation and remaining preparation items.
• Decision: GO or NO-GO for funding; approver and approval date, borrower acceptance and operations sign-off.

Appendix A: Credit Facility Summary Template (LP-Facing)

Appendix B: Borrower Data Request List

• Certificate of Incorporation / Registration (certified copy).
• Ownership and control chart, with UBO information required by the approved policy.
• Identity documents for relevant owners/controllers and authorized signers, as required.
• Most recent audited financial statements (or management accounts if audit unavailable).
• Description of business model, revenue sources, and intended use of facility proceeds.
• Bank account details for fiat settlement (if applicable).
• Wallet addresses to be bound to the entity.
• Signed MLA / legal documentation.
• Guarantee letter or collateral pledge documentation (as applicable).
• Insurance certificates (if applicable).
• List of material litigation, regulatory actions, or pending proceedings.
• Contact details for CFO / finance lead and legal counsel.

Appendix C: Sample Term Sheet Skeleton (Headings Only)

Note: These are structural headings only. No legal clauses are provided. Consult legal counsel for drafting.

1. Parties (Underwriter, Borrower, Pareto as Infrastructure Provider)
2. Facility Description (Type, Size, Currency)
3. Interest Rate and Fee Structure
4. Loan Cycle Mechanics (Draw, Repay, Rollover)
5. Credit Support (Guarantee / Collateral / Unsecured)
6. Covenants (Financial, Reporting, Operational)
7. Eligible Lender Criteria and KYB Requirements
8. Withdrawal and Callback Mechanics
9. Events of Default and Remedies
10. Reporting Obligations
11. Representations and Warranties
12. Governing Law and Dispute Resolution
13. Confidentiality
14. Miscellaneous (Amendments, Notices, Assignment)

Appendix D: Frequently Asked Questions

How long does it take to launch a facility from start to finish?

Timing depends on diligence, documentation, eligibility and deployment testing. Agree a plan after the initial review; the quickstart is a sequence of steps, not a promise of launch in minutes or a fixed number of weeks.

Can an Underwriter run multiple facilities simultaneously?

Yes, subject to capacity, approved terms and permissions. Keep records for each vault. The Orchestrator can coordinate supported actions but does not pool different currencies or make one vault cover another’s losses.

What happens if a borrower misses a repayment?

The borrower promptly explains the shortfall and provides a cash plan. The underwriter applies the agreed notice and remedy process; operations checks whether settlement failed or a default was recorded. Recovery is handled separately from a normal rollover.

Who is liable if a borrower defaults?

Responsibilities and liability follow the executed agreements and the circumstances. Pareto provides infrastructure; the underwriter makes the credit decision. The playbook does not replace the facility’s legal allocation of obligations.

Can facility parameters be changed after launch?

Only through the agreed approval and amendment process, with any required lender notices or consents. Operations then applies supported changes and verifies them. A commercially agreed change is not complete until the operational records match.

How does on-chain settlement work?

The Credit Vault records the supported movements in its configured asset. At a rolling close, the borrower pays the amount due under that mode; not all principal necessarily returns. Confirm actual receipts rather than treating accrued value as available cash.

What reporting does Pareto provide vs. what the Underwriter must produce?

The borrower supplies financial and operational data. Pareto’s tools support on-chain records and exports where available. The underwriter reconciles both, reviews covenants and prepares the lender report. Confirm the available integrations for the facility.

Appendix E: Glossary