The "Dogshit Assets" Controversy: Core Drivers
Published 6/20/2026, 4:42:23 AM
The "dogshit assets" debate—a term popularized by industry leaders to describe overvalued, low-quality loans in the private credit sector—is actively forcing a transition toward institutional-grade standards. This shift is characterized by a move away from undercollateralized lending toward rigorous valuation governance and real-world asset (RWA) backing.
The "Dogshit Assets" Controversy: Core Drivers
The debate centers on the realization that many private credit assets, particularly those sold to retail investors through non-traded Business Development Companies (BDCs), may be significantly overvalued.
- Valuation Skepticism: Apollo Co-President John Zito stated in April 2026 that he believes "all the marks are wrong," predicting recovery rates of only 20–40 cents on the dollar for generic small-to-midsize company loans.
- Liquidity Mismatch: Platforms like Blue Owl (OBDC II) have faced "gates" as redemption requests hit ~15%, far exceeding the 5% quarterly caps promised to investors.
- Aggressive Restructuring: The rise of "Liability Management Exercises" (LMEs)—where borrowers use new private credit to strip collateral from existing lenders—has triggered a wave of litigation and demands for standardized intercreditor agreements.
Impact on Private Credit Platform Standards
On-chain private credit protocols (such as Maple, Centrifuge, and Goldfinch) were early victims of poor asset quality in 2022–2023, losing over $100M to defaults (e.g., Orthogonal Trading, Tugende Kenya). This forced an immediate pivot to stricter, institutional-grade norms.
| Feature | Pre-Controversy (2021-2022) | Current Stricter Standards (2026) |
|---|---|---|
| Collateral | Undercollateralized / Crypto-native | Real-World Asset (RWA) backed; SPV structures |
| Underwriting | Algorithmic / Community-led | Institutional Pool Delegates (e.g., BlockTower, Apollo) |
| KYC/AML | Minimal / Basic | Institutional-only KYC; Unique Entity Checks (UID) |
| Transparency | Delayed / Opaque | Live NAV dashboards; 24/7 monitoring |
Mechanisms Driving Stricter Standards
The controversy has moved global regulators and market participants to impose stricter "floors" on the industry:
- Regulatory Pressure: The Financial Stability Board (FSB) issued warnings in May 2026 regarding "non-bank financial intermediation" (NBFI) vulnerabilities, specifically targeting valuation governance.
- Legislative Action: The GENIUS Act (US), signed in July 2025, establishes the first federal capital and liquidity standards for stablecoin-funded credit, with the application window opening in July 2026.
- Market Self-Correction: Capital is consolidating into "scaled platforms" (e.g., Ares, Blackstone, Centrifuge Prime) that can provide the underwriting rigor demanded by the current debate. Ares Management, for instance, manages $422.6B in credit AUM.
Conclusion
The "dogshit assets" debate has effectively ended the "easy money" era of private credit. In traditional finance, it is forcing a "mark-to-market" reckoning and stricter redemption gates. In the crypto/DeFi space, it has largely killed the undercollateralized lending model in favor of tokenized treasuries and secured fintech receivables. While standards are higher, recovery rates for legacy assets remain low (20–40%), and elevated yields continue to reflect significant underlying credit risk.
Next Steps:
- Would you like a deep dive into the risk metrics and current yields of top RWA platforms like Centrifuge or Maple?
- I can monitor the upcoming July 2026 GENIUS Act application window for any new regulatory filings from major credit platforms.