The Missing Middle

Why most credit pools never get securitized, and what that costs.

Plyra Protocol Research · May 2026

Securitization is one of the most useful inventions in modern finance. You take a pool of loans that individually are hard to price, hard to sell, and hard to hold, and you turn them into securities that a pension fund can buy. The pool gets sliced into layers of risk. The safest layer pays the least and is protected by everything beneath it. The riskiest layer pays the most and takes the first loss. Capital flows to the layer that matches each investor's appetite, and the originator gets paid and moves on to the next loan.

This machine works beautifully above a certain size. It barely works at all below it.

The floor

The reason is fixed cost. To sell a securitization to institutional buyers, you generally need a rating. To get a rating, you engage a rating agency, and that engagement is expensive before a single note is sold. Legal, accounting, servicing setup, and the rating itself commonly run into six figures before the deal exists. On a five-hundred-million-dollar transaction, that cost is a rounding error. On a five-million-dollar pool, it is fatal.

So there is a floor. Below roughly a hundred million dollars of collateral, the economics of a rated securitization stop making sense. The fixed cost does not shrink to match the smaller pool; it just eats the deal.

What lives below the floor

Plenty of good credit lives below that floor. Community lenders, credit unions, specialty finance shops, and regional originators write solid, homogeneous loans all day. A credit union's auto book, a solar installer's receivables, a small business lender's portfolio: these are exactly the kind of assets that securitize well at scale. They just never reach scale as a single pool.

What happens to that credit instead? It gets financed one handshake at a time. The originator negotiates a bilateral facility with a bank, or sells a whole loan to a buyer they happen to know, or simply holds the paper on their own balance sheet and lets it constrain how much they can lend next quarter. Every one of those paths is slower, more expensive per dollar, and more dependent on relationships than a public securitization would be.

This is the missing middle: too small for Wall Street, too big for handshakes. It is not a small niche. It is most of the credit in the economy by count, if not by dollar.

Why the gap persists

The gap is not a failure of demand. Investors want yield, and diversified pools of consumer and small-business credit are attractive yield. The gap is a failure of infrastructure. The tooling that makes a large securitization efficient, the structuring models, the waterfall accounting, the rating relationships, the distribution, was all built for large deals and priced for large deals. Nobody rebuilt it for the pool that is one-fiftieth the size.

Two things could change that. The first is cost: if the fixed cost of structuring and distributing a pool fell by an order of magnitude, the floor would fall with it, and a lot of the missing middle would become financeable. The second is aggregation: if many subscale pools of similar credit could be combined into one that clears the floor, the individual originator would not need to reach scale alone.

The onchain angle

This is where onchain infrastructure becomes interesting, and where it is easy to overpromise. Blockchains do not make bad credit good. They do not remove the need to underwrite, to structure conservatively, or to price risk honestly. What they can do is collapse cost. Settlement, servicing, and distribution that today require intermediaries and bespoke legal work can, for standardized pools, become software. When the marginal cost of structuring and settling a deal approaches zero, the fixed-cost floor that defines the missing middle starts to look very different.

That is the thesis worth testing: not that tokenization is magic, but that the missing middle exists because of cost, and cost is the one thing this technology is genuinely good at removing. The credit was always fine. The infrastructure was the problem.