Bonds under the Blockchain: Bonds Issuance on the Tokenizer Platform

Blockchain, the technology behind cryptocurrencies like Bitcoin (BTC), is revolutionizing the entire finance and investor industry; and, the bond market has not been left out. Let us take a closer look at how blockchain can, and already is, transforming the bond market.

Reduces costs

In January 2018, Swiss asset manager, Lomard Odier Investment Managers (Lomard Odier IM), made what is thought to be the first-ever private bond transaction using a blockchain network. They bought catastrophe (CAT) bonds from Solidum Partner, an investment advisory firm specializing in insurance-based securities.

The main reason for using a blockchain network was because blockchain allows both parties to eliminate middlemen and save on fees- in this case, a traditional bank’s structuring fee. “Issuing on the blockchain allows us to lower fees and retain financial service providers only for the structural aspects that are required for the specific issue,” said Simon Vuille, Portfolio Manager, ILS team, Lombard Odier IM.

But what exactly is blockchain?

As outlined in our previous blog, blockchain is a distributed ledger technology, which is a non-centralized Peer-to-Peer digital network that sees all information stored on each node in the system, rather than in a centralized server.

The ‘chain’ of information is entirely open for all peers to access, but also securely encrypted, meaning peers (and especially, regulators), can see the whole transaction history of the network without altering it.

In the bond market, the elimination of third parties not only saves money but also …

Accelerates the issuance process

Traditionally, this process has involved a complicated number of several parties, from the issuing company to different types of banks, legal counsel, and rating agencies. There are emails, negotiations, and documents that have to be drawn up and signed, and an evaluation by the authorities, all of which can take several weeks to months to finalize.

Blockchain offers a solution (which is already used to issue and validate contracts), by accessing the single decentralized source of data kept on the network. The technology reduces expenses as there is no need for the long-winding operations and reconciliation processes.

The system allows for near-instant access to the ledger when it would traditionally have to be done manually and could take several days to be finalized.

So far, almost 50 big banks have tested blockchain-based bond trading systems, including HSBC and Citi. Surprisingly, even the governments of Thailand, Singapore, and China have embraced blockchain-based bonds. Nevertheless, despite these milestones, the bond market is highly regulated, so it could take a lot of time before more governments adopt these solutions.

The Tokenizer solution

Tokenizer platform uses blockchain technology to create “smart contracts” for bonds and specify coupons, payment dates, and maturities. Our objective is to settle trades instantly and for money to exchange hands within just one day. With our end-to-end Defi infrastructure, costs can be reduced substantially by half or even a quarter of the current expenses.

While most of the blockchain applications and digital currencies out there are unregulated or stuck in a regulatory gray area, we are working in close partnership with the European regulatory agencies to ensure we meet all regulations.

The Tokenizer platform has taken a step further, merging both issuance and trading of bonds into one blockchain-powered platform. We can issue bonds through a similar contract process, with coupon payment dates specified, and buyers required to use a cryptocurrency to purchase the bond.

Are you involved in the bond market and blockchain technology, and you wish to tokenize your assets? Contact us today for all tokenization needs.

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