Nicolò Manni | Pareto

Credit markets still run on outdated legacy systems Trillions are managed through spreadsheets and phone calls Opacity is the norm and risk hides in the gaps Discover how Pareto sets a new standard - visit our updated website pareto.credit

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We did an atomic levered loop with @paretocredit , @centrifuge and @eulerfinance ✅ no external OTC liquidity ✅ async redemption ✅ async mint ✅ extendable to every DeFi protocol. Here's how the wind/unwind works: # WIND FLOW: opening a leveraged RWA position 💵 Stage 1: User funds the position The borrower deposits USDC equity and selects target leverage. That USDC transfers to the wind manager, not directly into the final RWA position. A per-request escrow is deployed to isolate this position from every other request, one escrow per request, no commingling. 🌉 Stage 2: Virtual collateral bridges the settlement gap The manager mints a pending settlement token (psToken) to the escrow. That token represents a confirmed dollar-denominated pending subscription and functions as virtual collateral during the settlement window. It bridges the gap between "capital has been committed" and "fund tokens have not arrived yet." 🏦 Stage 3: Temporary CDP opens on Euler The escrow deposits the psToken into a dedicated Euler vault as collateral. The escrow borrows USDC against that virtual collateral and sends the borrowed USDC back to the manager. This creates the temporary CDP: virtual collateral + real debt. 📦 Stage 4: Total capital enters the fund subscription path, fee is collected The manager now holds the borrower's original equity plus the newly borrowed USDC. The Keyring fee is excluded from the total sent to the fund. The total assets (minus fee) are sent through the Pareto adapter into the async subscription queue toward the RWA fund. The Keyring fee is then transferred to a separate fee collector. Multiple requests within the same epoch accumulate into a single batch. 📅 Stage 5: Issuer processes at NAV The fund administrator does not see or care about the psToken. The issuer processes subscriptions at the next NAV strike and determines how many real fund shares the subscribed capital buys. Standard off-chain fund logic, bridged back on-chain through the tokenisation layer. 🧾 Stage 6: Queue settles, shares are allocated Settlement runs opportunistically when users transact (new wind requests or finalisations) and can also be triggered directly via settleQueue. An off-chain operator ensures timely settlement when no user transactions occur. The adapter claims all tranche shares in one shot and streams them pro-rata across pending requests in FIFO order. At this point the request's share allocation is recorded, but the escrow still holds psToken as collateral. 🔁 Stage 7: Finalization swaps virtual collateral for real collateral A separate finalizeWind call is made by the operator. The escrow atomically swaps: psToken withdrawn and burned, real RWA collateral deposited into the Euler position. If any step fails, the entire transaction reverts. 🎯 Stage 8: Borrower holds the final leveraged position The completed CDP, now backed by real RWA collateral, transfers to the borrower's own Euler sub-account. What would normally require multiple looping transactions to build leverage happens in a single atomic action. The user holds the leveraged RWA position directly on the lending market. Wind TLDR - USDC equity to the manager - psToken minted to escrow - temporary CDP opened on Euler - borrowed USDC sent back to manager - total capital (minus fee) sent through Pareto into fund subscription - fee transferred to collector - issuer allocates fund tokens at NAV - queue settles, shares allocated to request - operator calls finalizeWind, psToken burns, real RWA collateral replaces it - final leveraged position transfers to borrower # UNWIND FLOW: closing a leveraged RWA position 🔒 Stage 1: User locks the existing position The borrower starts with a leveraged RWA CDP on Euler: real collateral (deACRDX) and USDC debt. They submit an unwind request. The system checks position health is below liquidation LTV minus a safety buffer. Positions already close to liquidation cannot enter the unwind flow. 🏦 Stage 2: Position moves into the unwind escrow A dedicated unwind escrow is deployed. Collateral shares transfer from the borrower's sub-account to the escrow first. Then the debt relationship is pulled into the escrow. The position is now isolated. 🪄 Stage 3: Virtual collateral replaces real collateral in one atomic step The manager mints psTokens to the escrow. In a single atomic batch, the escrow deposits psToken as Euler collateral and withdraws the real RWA collateral back to the manager. Same bridging logic as wind, running in reverse. The psToken keeps the Euler position healthy while the real asset enters the redemption queue. 📤 Stage 4: Real collateral enters the redemption path The manager sends the real RWA collateral through the Pareto adapter into the fund's redemption queue. The fund processes the redemption according to its normal notice period and dealing cycle. 🎟️ Stage 5: Receipt NFT is minted After all escrow setup, debt pulling, collateral swapping, and adapter submission is complete, the system mints an ERC-721 Receipt NFT to the borrower. An NFT because every exit has unique parameters: size, fee, and path. It tracks the request through its lifecycle. ⏳ Stage 6: Operator settles when proceeds are available Settlement liveness depends on an off-chain operator. When the fund settles and the adapter reports claimable assets, the operator calls settlement. The FIFO queue distributes proceeds in order: first request in gets settled first. Settlement correctness is enforced on-chain, but settlement liveness requires the operator call. 💸 Stage 7: Fees deducted, surplus distributed, debt repaid, virtual collateral removed The NFT holder or operator calls fulfilment. Fees are computed and paid first: Keyring fee to the fee recipient, adapter fee to the adapter's recipient. Any surplus after fees and debt is transferred to the borrower. The repay amount goes to the escrow. The escrow repays the Euler debt, withdraws psToken to the manager (which burns it), and transfers any remaining position to the caller's sub-account. 🚨 Stage 8: What happens if the escrow goes unhealthy during the wait The settlement window can last days to weeks. If debt accrues faster than psToken collateral can sustain, the escrow breaches Euler's liquidation LTV. A liquidation operator deploys a per-liquidation contract that executes Euler's native liquidation: seizes psToken collateral, settles debt, distributes surplus. The request is marked as liquidated and skipped during subsequent queue processing. Wind is configured to avoid this scenario. The unwind system includes a dedicated liquidation path for it. Unwind TLDR - health check passes - collateral to escrow, debt pulled in - psToken minted, real collateral swapped out atomically - real collateral sent through Pareto for redemption - Receipt NFT minted - issuer redeems at next settlement window - operator settles queue when proceeds arrive - fees deducted first - surplus transferred to borrower - escrow repays Euler debt, psToken burns - remaining position to caller's sub-account Why this is an innovation for RWAs The fund never sees the psToken. It settles subscriptions and redemptions the same way it always has. The psToken exists purely at the protocol layer. It keeps the Euler position collateralised while the real asset moves through the fund's settlement cycle. Virtual collateral that bridges DeFi's atomic execution with TradFi's async fund mechanics, then disappears. Winding in uses psTokens that are pegged 1:1 to the debt asset (USDC in this case), whereas unwinding uses psTokens that are pegged 1:1 to the RWA asset (pACRDX in this case). rwa [un]wind is coming.

Morpho’s vault data is quietly telling an interesting story. Over $10.5B in deposits, but the structure looks very different from traditional lending markets. Instead of one giant pool, you see multiple vaults curated by professional risk managers like @gauntlet_xyz, @SteakhouseFi, @SentoraHQ, and @SkyEcosystem. Each vault has its own risk profile, collateral exposure, and yield. This is a subtle but important shift. Protocols like Aave built lending with shared liquidity pools. @Morpho is turning lending into a marketplace of curated credit strategies. Stablecoins dominate the flows: $USDC, $USDT, $PYUSD, $USDS. And yields are mostly 3–6%, which increasingly looks like an on-chain version of money markets rather than yield farming. The interesting part is liquidity utilization. Some vaults hold hundreds of millions in deposits while a large share remains idle, meaning supply of stablecoin capital is already there. The real constraint now is borrow demand. In other words, DeFi doesn’t lack capital anymore. It lacks enough real credit demand to absorb it. That may be the real bottleneck now. The next winner in DeFi lending will likely be the protocol that turns idle stablecoin supply into durable borrowing demand.

@phtevenstrong Tokenized RWA private credit is always worth covering, especially use cases with proven pmf x.com/tokenterminal/…

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At over 13% APY since inception, our Levered @FalconXGlobal strategy has built up the largest RWA market on @Morpho. $51M in levered collateral. $26M in borrows. $25M in net TVL. $40M in liquidity supply from Gauntlet-curated vaults. Built on Aera and launched in August 2025, it is powered by @Morpho's vaults and market infrastructure, with automated leverage optimization by Gauntlet. The model for scalable RWA yield, made possible with our partners @FalconXGlobal @M11Credit and @paretocredit

Power to the people 💪 especially LPs Introducing the Pareto Bot on Telegram - your control center for Pareto Credit Vaults - Explore all available Credit Vaults on Pareto - Easily check your position: deposit, earnings, APY, ROI, etc - Receive alerts when your deposit and withdrawal requests are executed - Get notified before a lending cycle ends - Review and manage all active subscriptions Give it a try -> t.me/ParetoCreditBot

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Pareto is heading to @DAF_Global 🛫 Our Co-founder & CEO @pan_teo_ will join an outstanding group of speakers for the panel “Bringing Institutional Funds On-Chain”. Panel speakers: - Heinz Konzett - Senior Legal Counsel, Liechtensteinische Landesverwaltung (LLV) - David Reed - Director, Emerging Technology Innovation, @InvescoEMEA - Matteo Pandolfi - Co-founder & CEO, @paretocredit - Patrick Barrett - Founder & Partner, @members_cap - Amarjit Singh - UK&I Digital Assets Leader, @EYnews - David Burrows - Chief Product Officer, @TheFCA Friday, February 6 at 4:35pm GMT. Cardano Main Stage. See you in London!

Pareto is heading to @DAF_Global 🛫 Our Co-founder & CEO @pan_teo_ will join an outstanding group of speakers for the panel “Bringing Institutional Funds On-Chain”. Panel speakers: - Heinz Konzett - Senior Legal Counsel, Liechtensteinische Landesverwaltung (LLV) - David Reed - Director, Emerging Technology Innovation, @InvescoEMEA - Matteo Pandolfi - Co-founder & CEO, @paretocredit - Patrick Barrett - Founder & Partner, @members_cap - Amarjit Singh - UK&I Digital Assets Leader, @EYnews - David Burrows - Chief Product Officer, @TheFCA Friday, February 6 at 4:35pm GMT. Cardano Main Stage. See you in London!