Tokenization of Corporate & GSEC Bonds
What is BondDeFi?
BondDeFi represents fractional bonds traded on the BondDeFi exchange and contains fractional interests in the Underlying Bond.
Bond tokenization is the fact of representing the ownership of a bond by a token on a blockchain, and automating the execution of the bond's terms via programmable smart contracts.
The BondDeFi created works using simple pass-through mechanics where the beneficial entitlements to the Underlying Bonds are conferred to the BondDeFi holder, based on the fractional size held.
You can invest in these Bonds using your wallet and the funds will be deducted from your wallet balance. Bond will be credited to your wallet upon successful allotment and all interest payments and maturity proceeds will be credited to your wallet account. This contrasts the over-the-counter model that currently exists with phone dealers servicing individual investors.
Settlement also happens instantaneously on blockchain and participants on the blockchain do not face the usual T+2 or T+3 settlement cycles when trading BondDeFi.
By changing the order flows, order matching processes and allowing BondDeFi to trade electronically on an exchange model, we have a great efficiency advantage over the current human-dependent over-the-counter model. All these cost savings translate into better prices and lower fees.
Record of Ownership of BondDeFi
Ownership of BondDeFi is recorded on blockchain and the blockchain is maintained by multiple parties (including our Designated Custodians) each deploying nodes to run consensus that together share the same data.
The debentures register maintained on blockchain provides the definitive record of BondDeFi ownership. Blockchain maintains data in an immutable fashion where every transaction is recorded and cannot be altered without other parties knowing.
As of August 2020, ICMA estimates that the overall size of the global bond markets in terms of USD equivalent notional outstanding is approximately $128.3tn. This consists of $87.5tn SSA bonds (68%) and $40.9tn corporate bonds (32%).
Shorter settlement time
Bonds can be traded 24/7/365 with a record that can be updated within seconds or minutes (depending on the underlying blockchain), compared to traditional T+3/ T+2 settlement times.
Reduced friction and transaction costs for creation, distribution, trading, and settlement of financial assets.
Increased auditability and transparency of transactions through blockchain-based records.
“We pay interest per the minute. We firmly think this will change the nature of the intraday marketplace,” McDermott said.
Smart contracts on the blockchain enable the cash and collateral to interchange simultaneously, and McDermott noted that this is a big step up for the repo market, which is valued at $4.6 trillion.
The asset can be split into far greater amounts than using traditional methods. This lowers the entry barriers to investments that have high minimum investments and lower ticket numbers.
Data can be stored and accessed securely on the blockchain due to the immutable and distributed nature of blockchain technology.
Processes such as compliance, whitelisting, escrow account management, dividend distribution, corporate action management, and drag-along actions can be automated with smart contracts.