Why a structured Debt and Bitcoin Fund performs better than a traditional Debt Fund
~4 minute read
Key Investment Insights
1. Higher Returns from the Same Benchmark Rate
In the current market, senior CRE debt often prices around 7–10% for established sponsors. For simplicity, many institutional funds reference an 8% "headline rate" that typically nets investors 6–7% after management fees and overhead. Liquid Finance, by comparison, maintains a 6.7–8.7% net yield under the same notional 8% reference rate—while still lowering the borrower's cost over the loan term.
Our blended approach accomplishes this by:
- Reinvesting paid‑down principal at the full benchmark rate, even as older loans step down gradually over time.
- Capping net fees at 1.0% for both the base CRE pool and the Bitcoin-financed portion, allowing investors to retain a larger portion of the nominal coupon.
Parameters
Model Assumptions
- BTC Loan Cost of Capital: 1.0%
- BTC Loan Collateralization: 2:1
- Starting CRE/BTC Allocation: 80/20
- Liquid Net Interest Margin: 1.0%
- Traditional Mgmt Fee: 1.5%
- Traditional Carry: 15% above 6%
Annual Data
| Year | Trad Debt (%) | DeFi Debt (%) | DeFi Dual (%) |
|---|---|---|---|
| 1 | 6.42 | 6.65 | 16.65 |
| 2 | 6.42 | 6.70 | 21.70 |
| 3 | 6.42 | 6.97 | 29.47 |
| 4 | 6.42 | 7.59 | 41.34 |
| 5 | 6.42 | 8.71 | 59.33 |
| 6 | 6.42 | 11.06 | 87.00 |
| 7 | 6.42 | 14.59 | 128.50 |
Yield Trends
Aggregate Returns on $10M
2. Dual Yield via Low‑Correlation BTC Exposure
Historical data indicates a near‑zero correlation (~0.1) between CRE debt and Bitcoin returns over the past five years. By allocating a modest fraction of capital to Bitcoin, Liquid Finance captures a "dual yield" that can elevate net returns 2–5× beyond conventional CRE debt yields—while the stable income from senior real estate loans moderates drawdowns.
- Balanced Upside: BTC can surge during bullish cycles, providing additional growth potential, yet the CRE portion mitigates drawdowns in bear phases.
- Regular Rebalancing: The portfolio recalibrates to preserve target allocation, maintaining low volatility relative to pure crypto strategies.
- Broader Diversification: Holding both assets in a single structure reduces overall reliance on any one market cycle.
3. Inflation Resistance & Robust Performance
Combining CRE debt with Bitcoin produces returns that are designed to preserve purchasing power in inflationary environments. While senior real estate loans generate consistent cash flow across various rate regimes, Bitcoin historically has demonstrated strong nominal price gains in multi‑year periods, offsetting inflationary pressures.
- Steady CRE Income: Loan durations typically allow for rate adjustments over time, capturing higher coupons in rising‑rate climates.
- Bitcoin Growth Track Record: Although volatile, Bitcoin has repeatedly outpaced inflation when viewed over multi‑year intervals.
- All‑Weather Stability: Blending these two assets yields a more robust performance profile than either alone, lowering overall drawdowns and smoothing returns.
4. Transparent, Liquid, and Cost‑Efficient
Liquid Finance operates on a tokenized platform that provides full on‑chain visibility into principal repayment schedules, collateral coverage, and other key performance metrics. This level of real‑time insight surpasses the monthly or quarterly reporting cycles typical of large private credit vehicles, and near‑instant redemption ensures greater liquidity than is customary in institutional CRE debt.
- On‑Chain Verification: Loan balances, repayment dates, and collateral movements are accessible 24/7 without reliance on static or delayed reports.
- Tokenized Liquidity: Investors can exit or rebalance positions quickly, circumventing the multi‑month lockups often found in alternative credit funds.
- Competitive Fee Advantage: Unlike top CRE managers that may charge 1.5–2.0% plus incentives, Liquid Finance imposes a 1.0% ceiling on net costs, preserving a larger share of yields for investors.
Key Takeaway
Liquid Finance delivers higher net yields than standard CRE funds referencing the same "8%" market rate, boosted further by Bitcoin's low‑correlation growth. The steady income from senior real estate loans, combined with asymmetric crypto upside, enables inflation resilience and a more balanced risk‑return profile. Through on‑chain transparency, tokenized liquidity, and a 1.0% total fee cap, we offer institutional investors a compelling opportunity to unlock 2–5× the return potential of conventional CRE debt—at comparable or lower cost to borrowers. For more details on projections and historical simulations, please contact our Investor Relations team.