Bonds & loans on the Blockchain

Traditionally, happy hour has been about currencies and stock tips. Yuppies in the brokerage business of these major asset classes have always enjoyed offline social success. Fixed income, bonds, and structured products never gained that kind of popularity.

Fast forward today (about 40yrs later): Happy hour and social media chats are about cryptocurrencies and stock indices-ETFs. Fixed income, bonds, and structured products lag in popularity.

No.1 – T-zero

Tzero

Today’s post is a glance at blockchain use cases in capital markets focused on the fixed income market. We have often looked at the equity asset class (most recent post was pre-Christmas Santa brings Real Time Settlement to The Blockchain Economy for Equity Tokens far faster than pundits expected) and we have covered the symbolic moves on the T-zero platform with both the first issuance of a crypto bond and of the preferred shares. T-zero is one of the very few startups that I have not found a way to communicate with someone and get directly color from them. Even after the announcement of their ICO in late 2017, their media presence hasn’t offered more additional information.

T-zero is a proprietary blockchain platform that could be used for the issuance of equity and bonds. Originally T-zero was aiming to raise $500mil. It actually opened up on Dec. 18 for a two month period (on the longer side in today’s market conditions) and in January they announced an extension to March 30, 2018 (unusual – see details in this Seeking Alpha article).

No. 2 – Dharma.io

Last November I spoke to Nadav Hollander in California, the founder of Dharma.io, who had just “graduated” from Y-combinator. At the time, he described his vision to create on the blockchain a tokenized marketplace for loans. In mid-February, the Dharma open source protocol went into alpha testing.

Dharma

Developers can now easily use the Dharma libraries to:

  • Allow would-be borrowers and lender to generate open loan requests for debt agreements of any kind
  • Allow lenders to fill loan requests, formalizing a lending agreement with a borrower
  • Allow users to manage their lending portfolio by making repayments, collecting collateral, trading their debt tokens, etc.
  • Earn fees by underwriting debt agreements generated by Dharma protocol
  • Earn fees by relaying debt agreements between borrowers and lenders

Source Hello, Dharma.js

Dharma will not ICO because Hollander believes that token models are very immature right now. Hollander says “I’d rather build a community of constituent users and, only if and when it makes sense, issue a protocol token.”

No.3 – Nivaura

nivaura_logoNivaura is a UK graduate venture using Microsoft tech and the Accenture lab facilities. They launched their first regulated Ether bond under the FCA oversight. Before Christmas and within the sandbox, the London-based luxury retail startup LuxDeco raised capital for their short-term seasonal needs (see Coindesk news). This is the first cryptocurrency denominated bond that was issued cleared, settled, and registered entirely on a public blockchain.

Nivaura is a public blockchain and is a software as a service approach to the entire capital markets spectrum for all sorts of debt instruments. From bonds, collateralized debt, convertibles and structured products. From onboarding, allocations, book building, operations, to compliance. Pricing, risk management, and CRM.

I spoke to Avta Sehra, CEO of Nivaura who mentioned the private placement LuxDeco transaction and emphasized the flexibility of their platform in terms of accommodating any kind of fixed income instrument. Nivaura is an enterprise level public blockchain solution that offers “pay as you go” capital markets functionality and is regulated.

There is no ICO in the works for Nivaura. There was a strategic investment announcement at the end of January in Nivaura from Fineqia International. Fineqia operates a regulated crowdfunding platform focused on debt instruments and equity. Fineqia is listed internationally the US (OTCPink: FNQQF), Canada (CSE: FNQ) and Germany (Frankfurt: FNQA). Under their agreement, Fineqia will utilize Nivaura’s technology to allow issuers on the Fineqia platform to structure, execute and administer legally enforceable bond contracts using public blockchain infrastructure. As a first step, the bonds will be denominated in fiat currency. The cash held in Nivaura’s client money accounts will, however, be tokenized to enable blockchain clearing and settlement. Fineqia will still minimize costs and drive transparency. (Source)

My take

Only T-zero is taking the private blockchain approach and wants to be the platform for both equities and debt. Without any deep knowledge of their technology, public blockchain will scale faster than private ones. Current evidence offers no support to private blockchain scaling in any industry.

Dharma is taking the open source protocol approach in the loan sector which is illiquid, extremely non-standardized and opaque.

Nivaura is taking the public blockchain approach to the fixed income (bonds) and structured product market. They have developed a full stack technology and should be able to scale as there are many efficiencies to be gained in private placements and structured products.

The blockchain opportunity in fixed income is huge but also complex. Clearly too early to shape solid insights. Stay tuned.

Efi Pylarinou is a Fintech thought-leader, consultant and investor. 

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