Why Orca Is Betting On Onchain Credit | Luke Truitt

Formation brings Orca’s trading and secondary-market products together with LoopScale’s fixed-rate credit and vault platform on Solana. CEO Luke Truitt said the companies had worked closely for about five years, with tighter product integration over the past year and overlapping users and issuers. He sees secondary liquidity as central to making credit usable at scale: it lets borrowers sell collateral or unwind leverage rather than wait for scheduled redemptions. LoopScale’s ONYC market became one of its largest by deposits, partly because users looped the asset for leveraged yield. By contrast, its Acreage private-credit market stalled at roughly $10 million to $12 million in deposits without secondary liquidity, despite quarterly redemptions.

ONYC’s quarterly redemption schedule makes secondary trading important to users who want to treat it as liquid within DeFi. Truitt said USDC lending rates against ONYC were about 1 to 2 percentage points above standard USDC market rates, but lenders take derivative risk that could expose them to claims against the asset. He distinguishes leveraged ONYC, spot ONYC, and senior lending exposure; depending on the exposure, lenders may have 25% to 30% drawdown protection. More broadly, he said credit can expand DeFi activity beyond spot holdings, as lending-market yield products layer additional positions and returns onto tokens.

Orca views credit as recurring revenue that can offset trading’s dependence on market cycles, while trading revenue can help finance growth in credit. Truitt said monetization is difficult when lending products are interchangeable and liquidity can move, so Orca and LoopScale focus on paid risk-management work such as market making, vault management, and liquidations. Issuer relationships and attractive-yield assets may make products easier to sell, especially to customers less focused on fees. Formation’s Don product, for example, finances telecom infrastructure through an off-chain originator and a LoopScale-powered vault. The near-term focus is distributing yield products and building issuer relationships, not direct origination, though Truitt said that could come later.

Truitt expects many new DeFi credit markets to be bespoke, often $5 million to $20 million each across a range of assets, rather than copy-paste lending pools. Orca’s fixed-rate, rolling-duration model lets managers tailor parameters to individual assets. He said borrower demand is easier to attract than stablecoin deposits: users seek leveraged yield, while lenders remain wary of smart-contract risk. DeFi yields may be underpriced for the risks involved, including smart-contract, oracle, counterparty, and off-chain asset risks. Truitt noted that depositors might weigh a 7% DeFi yield against 6% in a Charles Schwab account. Delayed settlement, deposit and withdrawal limits, flow caps, and clearer disclosures could help make the trade-offs more legible, though layered tail risks are difficult to model fully.

Formation aims to connect traditional capital markets with DeFi by combining regulatory readiness with blockchain-based efficiency. Truitt cited compliance, legal risk, security concerns, and crypto’s reputation as barriers to institutional capital; licensing, disclosures, KYC, and AML could help bring in larger institutions and non-crypto-native retail users. He said Orca is preparing for possible regulatory changes, including the Clarity Act and other proposals, after years of operating in a regulatory gray area. On-chain vaults could also reduce the fixed costs that make smaller loans difficult to originate and securitize traditionally. Neocloud providers may pay 14%, 16%, or 20% for capital, he said, while $10 million, $20 million, or $50 million offerings can be difficult for traditional allocators to underwrite as investment grade.

Orca describes itself as a market-structure company rather than only an AMM, since the suitable secondary-market design depends on the asset. Truitt said passive AMMs can serve long-tail assets with limited on- and off-chain bridging; ONYC, for example, combines RFQ and Prop AMM components with substantial AMM volume. Orca’s Trident market-making operation quotes across Whirlpool, RFQ, and Prop AMM venues alongside third parties. Riptide is intended to let users build asset strategies without maintaining the underlying systems, and to connect non-crypto-native market makers’ off-chain expertise to Solana distribution.

Orca and LoopScale combined their capital stacks and placed their intellectual property under one umbrella; LoopScale had no live token at the time. Truitt said Orca’s token is the structure’s sole value-accruing asset, with value intended to accrue under a Cayman foundation rather than an equity business, and that major changes affecting token holders require ratification. He said clearer ownership and governance protections are important because token rights can conflict with equity companies that own intellectual property. LoopScale points are to be honored and converted into some Orca tokens when the new product launches, with mechanics to be announced then. Truitt favors reinvesting revenue in hiring, partnerships, and marketing over short-term distributions, distinguishing revenue from free cash flow and describing staking yield as a continuing, non-discretionary distribution.