This series translates TradFi building blocks into their onchain counterparts, highlighting what changes when real world assets become programmable, composable, and transparent. We will compare familiar instruments such as T-bills (U.S. Treasury bills), CLOs (Collateralized Loan Obligations), money market funds, private credit, and more with their tokenized versions that settle on public ledgers, integrate with DeFi, and are verified by oracles.
We’ll begin the series with CLOs (Collateralized Loan Obligations).
Until recently, most DeFi lending has taken the form of overcollateralized crypto loans or passive exposure to T-bills. While both serve important purposes, they offer limited upside. In this post, we’ll explore how credit can be applied more broadly onchain by looking at one of the most widely used institutional-grade credit products in traditional finance: CLOs.
What are CLOs in TradFi?
Collateralized Loan Obligations (CLOs) are structured financial products that pool together a portfolio of below investment-grade corporate loans, then repackage them into tranches that are sold to investors. Each tranche has its own risk/return profile, ranging from safer senior notes to high-yield equity tranches.
Think of CLOs as cousins of Collateralized Mortgage Obligations (CMOs)—the same tranche-based structure, but instead of mortgages, CLOs are backed by corporate loans. CLO managers actively oversee the loan pool, reinvesting and adjusting over time, which makes CLOs a more dynamic instrument compared to static securitizations.
From an Investor Perspective, CLOs Provide:
- Diversification: exposure to a wide range of corporate borrowers rather than a single loan.
- Risk-adjusted returns: senior tranches appeal to risk-averse investors, while equity tranches attract those comfortable with higher risk in exchange for potentially higher yields.
- Mitigation of volatility: by spreading risk across borrowers, industries, and tranches, CLOs can help cushion portfolio swings.
Benefits of Bringing CLOs Onchain
- Programmable rails: Instead of relying on manual administration and trust in third-party intermediaries, smart contracts can automate the most important functions of a CLO such as coupon distributions, reinvestment periods, and cash flow waterfalls.
- This removes human error, reduces operational overhead, and ensures predictable execution in real time. The result is a self-enforcing instrument that operates according to predefined rules rather than periodic trustee updates.
- Composability: Traditional CLO tranches are siloed products, held to maturity or traded in OTC markets. Once tokenized, senior or mezzanine tranches can serve as collateral in DeFi lending protocols, be packaged into structured vaults, or even route coupon payments directly to DAOs or onchain treasuries. This creates a new layer of capital efficiency: investors are not just earning yield but also reusing their positions as productive assets within broader DeFi ecosystems.
- Access & distribution: Tokenization enables fractionalization of what were once institutional-only, high-ticket instruments. Through programmable compliance layers (KYC/AML checks, jurisdictional restrictions), issuers can expand access to qualified global participants without compromising on regulation. The outcome is a more inclusive investor base, lower minimum allocations, and the possibility of broader participation in structured credit markets that were previously limited to banks, insurers, and hedge funds.
- Operational efficiency: Traditional CLOs involve significant administrative overhead, managers, trustees, agents, and custodians handling settlements, reconciliations, and investor communications. Tokenized CLOs cut through this stack with 24/7 transferability, instant settlement, and automated reporting baked into the blockchain. This streamlines operations, compresses costs, and reduces reconciliation risk, while also aligning settlement speed with the always-on nature of global digital markets.
Protocols Tackling Onchain CLOs
Grove, a newly launched credit platform within the Sky ecosystem, anchors the move toward tokenized structured credit. Grove
has committed $1B to CLO strategies, including initial allocations to Janus Henderson’s Anemoy AAA CLO Fund (JAAA) and the JTRSY Treasury Fund, both issued natively on Centrifuge. Grove supplies the institutional-grade credit rails, while Centrifuge provides the issuance and operational backbone for these funds. Together, they create one of the first fully tokenized, institutional CLO strategies available onchain.
Chronicle’s Involvement
Chronicle has been announced as an exclusive partner for Grove. Chronicle underpins Grove’s credit rails with verifiable, cryptographic data attestations, ensuring allocations are transparent and composable across DeFi. This partnership not only offers security and scalability, but also strategic alignment.
Closing Thoughts
CLOs are just the first step in reimagining how traditional credit instruments operate in a programmable, transparent environment. As more real-world assets move onchain, the distinction between TradFi and DeFi will blur, opening capital markets to broader participation and more efficient risk allocation. Chronicle’s role is to make this shift verifiable and composable, ensuring that the foundation of onchain finance is built on data integrity.
