On The Brink with Castle Island - Connor Dougherty (Valinor) on the Evolution of Private Credit (EP.712)

Episode Date: April 9, 2026

Connor Dougherty, Co-Founder and CEO of Valinor Digital, joins the show. In this episode: Connor's background working at a large private credit shop Pioneering a new category of Open Credit and how it expands the TAM for private credit Explosion of stablecoin demand enabling new borrowing types Structuring deals to align with traditional private capital and onchain lending Building a modern credit institution by utilizing technology See more at valinordigital.com

Welcome to On the Brink. My name is Sean Judge. Today on the podcast, I sat down with Connor Dardy, co-founder and CEO of Valanor Digital. Valanor is building a modern credit institution and we're thrilled to be partnering with them on the journey. Here's my conversation with Connor D'Ordie. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy,

but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. the Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of

quantitative easing. You print a couple trillion dollars and all of a sudden people started to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Connor, welcome to On the Brink. Thanks, Sean. Happy to be here. Well, last week, Valenor, your company announced a $25 million seed financing that we had Castle Island led alongside Maiden 11, Susquehanna, and many other great investors. but before diving into that, it would be great to share more about your background.

Yeah, happy to. Well, as you know, I've been in and around the credit space my entire career. Right out of college, I started investment banking. I was in the leverage finance business there. After a couple years in banking, I jumped over to Blackstone Credit. At the time, it was called GSO, and it was really much more of an opportunity to credit an investment firm.

The seat there, you worked across the funds, you worked across the class, And as the time went on, the shift at Blackstone really became what it is today, which is the powerhouse and private credit. Some of that was due to the banks retracting from leverage lending post-crisis. But a lot of it was that the product that Blackstone was offering had inherent benefits. Direct lending was really attractive to borrowers because it could interface directly with who their lender was. And so that was the big takeaway for me that there was some product market fit in direct lending. but Blackstone's course was definitely going further up market.

They wanted to serve better borrowers. They really wanted to take on the banks in a bigger way. And for me personally, I think I was more interested in innovation, the entrepreneurship track. And so it was clear that that was diverting. And I was going to have to get that in some other type of role. And parallel to this, my personal interest in crypto was really strong. To me, it was obvious that that was going to impact financial markets. And so four years ago now, it was a perfect opportunity to blend my background with a personal interest and I jumped over to the space. I'll tell you, it wasn't abundantly clear. I wouldn't tell you that the features we have today was abundantly clear at the beginning. But over those years, I've become increasingly convicted that this technology was going to impact honestly my old job more than I ever realized in the beginning. And it really set up the foundation for this thesis. We

have at the firm today, which we call Open Credit, which gave us the competency found Ballinor and really go try to raise an equity, scaled equity rounds to go out, chase it. Super, super helpful and obviously a really unique background within our space. Share a little bit more about Open Credit, this concept. Why does it matter? Yeah, totally fair. I think I just kind of went through a little bit of the arc, right? So you had leverage lending originated out of the banks. This next era was originated out of large institutions now colloquially referred to as private credit, everybody knows about it. We think we're on the preface of this new era, which we refer to internally as open credit. And it's a big deal because it's a big market shift.

I think digital infrastructure is going to propel this entire change in capital markets where you're going to have fundamentally more participation. The coordination between borrowers and lenders has never been easier. And so I was talking about direct lending, how attractive that was from a product market fit standpoint. Yeah, we, can direct lend to borrowers easier than we ever could. And so if you play a lot of that out, a lot of people talk about efficiency gains in crypto. We get really excited about the paym expansion and how big the market is going to get. And that is this open credit concept. And so private credit now is 40% of direct lending, direct leverage lending. Leverage lending is going to grow

tremendously. And this is going to be a big reason why. Well, how does this vision compare with where traditional private credit is today. What does it like to actually work in one of those seats inside of a large organization like Blockstone? That's a good question. I think for us, I mean, we're massive benefactors from sitting in those seats. I'll start by just saying growing up there,

learning the institutional rigor that goes into credit underwriting, there's a lot right about those places. And we are definitely pulling the stuff that is right. And I think the crypto space, there's definitely an institutionalization that's our thesis that needs to be had, and we're going to bring that to bear with Valnor. When I think about the old role and I think about the processes, I don't think it's really evolved that much in the past 20 years. The space has grown tremendously, but I think the core processes are pretty much the same, and they're definitely not reflective of the Internet era. So sitting in those seats, what I think about is to effectuate a transaction, to monitor a transaction.

A lot of that are just manual, spreadsheet-based, PDF-fushing, emails. There's not much that's automated, period. As a result of that there's just a lot of inherent trust that exists in the process. We don't need to dive into that now, but ultimately, you're trusting that the borrower is going to do what they say, and you have a document that can back that up. But a lot of the time, what the big private credit firms turn to is just the relationship element. It's really relationship-ledding. I mean, the banks have always done that, but that's where I think the big differences are.

is that you rely on relationship and you have a lot of manual processes. And so you end up being, you know, there was some innovation of private credit, but looking a lot like the same as it's always been. And so maybe that transparency aspect of defy is something that you look at and see as something that's super exciting to inject into this space. Yeah, I think if I was obviously private credit in the news every day relentlessly. And so I don't really want to comment on here there. But I will say the one thing that seems that probably would be beneficial, especially when you're looking at retail money, is just a greater sense of transparency. I think that would be the one thing I point to as could probably be better. A lot of folks look at the marks of these BDCs and they

don't have a ton of confidence in them because they don't know what backs them up. I think that alludes to this point of not just trust on the borrower side, but trust on the investor's side and transparency seems to be, obviously the technology could be very beneficial there, but it seems to be something that could be approved on for sure. Makes a lot of sense. And so what, for the listeners here, what is Valinor? What do you guys do? What is the vision of the company?

Yeah. So we call ourselves a modern credit institution. A very simple way of thinking about that is we think digital tools or digital infrastructure can help us do the job of credit investing better. And at a high level, our goal is to accelerate attractive, real economy, risk. on chain. For the immediate term, there's this really exciting subset of new age, digitally native businesses that are adopting these tools themselves to go to market. Their supply side hasn't kept up. So these are a lot of companies and your portfolio companies of yours that you know are highly

performant, adopting digital processes, adopting stable coins, giving their customer real-time business, but their financing is not real-time or performant at the same way. And so for us delivering high performance credit solutions using these digital tools is really what Ballinor's going to do. And then we can package those and bring those to a broader audience through DFI and another way. Yeah, we've seen it across our portfolio, right? As stable coins get bigger and bigger, they're still interacting with this fiat system. And so it creates this opportunity where historically you've had to finance these things within these companies using equity, which is kind of inefficient. And when you have conversations with private credit folks,

there's this gap in knowledge in terms of understanding, even just the vernacular that's used within the crypto space. And so that's what attracted us to you and Lily and the Valenor team was bridging that. But maybe just to double click on some of these types of solutions, can you provide maybe an example of a borrower and how you structure something for that borrower? Yeah, definitely happy to. Sticking on the theme of stable coin needs of businesses, it's probably worth talking about one of those, one that immediately comes to mind, large company now just congrats to them, but raised slightly under $2 billion. And so Rang card, you should think about them as a stable coin-backed credit card business issuer.

And the credit limit for their customers is determined by the amount of stable coins that they post. And why that business is so successful is because they basically had utility to anywhere around the world to use and spend their stable coins because they're a visa partner. And so now you have a stable coin and tap to pay basically anywhere there's commerce. the financing comes into play because they need to settle with Visa before they liquidate the stable coins to pay themselves back. So there's this float dynamic where they meet the obligations to allow Visa authorize those transactions. But there's the timing delta between when they get repaid by their customer for the balance. And so unlike typical credit card where you, as everybody probably listening to this knows, you repay on a monthly basis, they liquidate their customer stable coins to repay themselves daily.

And so the delta that we're bridging is only a day. And so we are doing a settlement financing for them that is daily. We are protected by this. We are collateralized by the stable coins of the customers. So we are doing a fully collateralized basically float financing. And why this is super interesting. And it's only possible in the digital age is because it's 100% stable coin enabled. It's 100% programmatic.

And that's the only way you could do the financing. You couldn't do it the manual way. It's too quick and it turns over too fast. we get repaid and draw down again every single day. I'll repeat that. That is incredibly dramatic, high philosophy to turnover for a revolving credit facility. The size of the most is it's a great risk for reward. We are just settling a stable coin back part program with one day float.

And an example of something you just could not power with the legacy financial system. And there's a number of those types of situations that were around. Yeah. Obviously, in that case, the borrower is thrilled. They have someone that understands the business. They can make their business more efficient. How do you guys get when you're structuring these things and you're bringing, whether it's with this example or others, like, how do you get the supply side comfortable

with this concept? Yeah, this is a little bit of the impetus for Valenor in general. The opportunity set is so large. There's so many companies that are growing like a rain card that are just not getting met on the supply side as they should. Rain to date has been financed by like a hodgefog of more crypto-native players, but not real institutional credit partners. And so there's this scaling journey that they need to go on, which they're already well on on the demand side, but they need to match that on the supply side. And we're going to be working with Rain to help

them bridge that gap. That role of translation agent to these businesses is a huge opportunity for us because we're a crypto-native, but we're also institutionally credit native. And so that's then diagram of one. Very unique position to be in. And so what we'll do is we'll structure it to the institutional standards that we have and make a financing institutional grade, which we're working on currently. And then we'll look to syndicate or bring partners into transaction with us. And we think that that's repeatable and it's a very needed role in the space. And so there's some education hurdle for sure with the more traditional private credit firms. And I think you have to meet them where they're at. But I think Valnor, in this,

in this translation agent role has the unique opportunity to bridge that gap by focusing on the merits of the transaction versus talking all about technology, right? And there is a technological component to this deal to make it work. But what's more important, and how we will navigate bringing in more supply-side capital into situations like this, is that you're getting a premium return for the amount of risk taken. And that is going to be interesting to any investment committee or front office person in institutional credit, right? That's their job. And so you should focus on what their job is. And we'll acknowledge the risk that exists with relying on smart contracts, doing things digitally native. But I think the rewards far outweigh the risks, the transparency,

the probability, all those things are risk-reducing factors when you really get under the hood. And I think we're well positioned to tell that story and navigate that. Yeah. So now we've talked about the borrow side and the supply side from traditional private credit folks and how they'll be able to enter the space via Valenor. But what about the demand side for on the on-chain side of things? It's obviously been a lot of discussion within the crypto world around on-chain lending over the last few years. How does that side play into this? Yeah, for sure. And we've watched the kind of on-chain lending space evolve over the past few years. And what's super exciting for us. And I think really feels like it's coming our way is the on-chain capital formation and defy interest.

I'll be honest with you, the return on time for our type of risk, it didn't seem like it was there in the past years, and that has fundamentally changed in 2016. I'll be frankly, the amount of inbound interest that we're getting for the type of credit that we're originating, and to help partner with infrastructure in this space has never been higher. And I think there's just clearly demand for attractive real yield. The crypto-native yield has been compressing. Sure, that's supportive. But I think it's more than that. I think there's just an acknowledgement that institutional underwriting, people to stand behind the risk, a lot of the things that we champion, which is we put skin in the game and everything that we do, we're aligned with everything and everyone that we partner

with. I think it's starting to matter. And I won't comment on in the space today, but I definitely think that our narrative is resonating and the market is coming our way on real yields. And the last thing I'll say is that if you really believe that stable coins, and this is more of a longer term view, go from, which I think everybody, you and me believe this, but go from 300 billion to 3 trillion, there's just going to be a tremendous amount of demand for, to make that capital productive by the people that own it. And that plays into us tremendously. And so there's just a lot of factors that really excite us. And we're actually positioning the business to do more in Defi in 2026. Awesome. Super exciting. And so as you just look out maybe five to 10 years,

you highlighted some of the big trends. I think you and I are particularly excited about. But where is this all going? I mean, what does the future look like? And what does Valnor's role in that? So payments, stable coins, those are big secular themes that we both believe in. The derivative of that is credit in capital markets, right? I talked about that open credit theme at the beginning. And I think that's really what I'd probably hone in on again. The capital markets are going to evolve, and there is going to be this seismic shift where technology at a high level is a great equalizer. There's going to be more participants on both sides.

A firm like Valnor could now participate in asset back credit in a way that would have required 5X the back office and infrastructure than we need today. And there's going to be capital will be an opportunity in a much easier way, too, because there's going to be more participants on the investor's side, but also on the borrower's side. And I talked about net new borrowers that are stablecoin native. There's new types of credit, new asset classes. And so technology is going to create a much bigger marketplace, especially in my domain, which is kind of lever lending type of world.

And if you play that out, it's not going to be the same players in my mind that are the winners in that new world. Yes, I think the ones that are smart and realize that, and this is my perspective, that next three to five years this is going to play out, they will be participants. We're talking to a lot of ones that are leaning in, but I do think there's going to be new winners in the digital age, and we are anticipating us to be one of them,

and that's a very exciting future that's. Amazing. Well, we're super excited to be partnered with you. I know we touched on the seed round at the beginning, but there's anything that I missed there, and if you want to just share to the listeners, how people can find you and Valenor and learn more. No, obviously, we're super fired up to be partnered with Castle Island.

We handcrafted the group to really be both strategic and supporting the vision that I've kind of outlaid throughout the call. We're definitely open to making connections. You can see us at Valnorgidigital.com. We're on socials, probably a little bit more trapped by in the sense that we probably lean a little heavier on the LinkedIn side, but you can get into us through any social media. Amazing. Well, Connor, super fired up, and thanks so much for joining us today. All right, Sean, thank you.

Thanks for listening to another episode of On the Brink with Castle Island. To learn more about Castle Island, visit Castle Island.V.C. And to listen to all of our podcast episodes, please visit castle island. dot VC slash podcast or just click on the tab on our website. Thanks for listening.