Obligate, a crypto-based debt securities protocol has executed the first bond issue without banks using the Polygon blockchain. The protocol announced Wednesday in a release.
Muff Trading AG, a Swiss physical commodity trading boutique that specializes in South America sourcing, was the issuer. Muff sold tokenized corporate bonds using Obligate’s marketplace. The firms did not disclose the debt issuance’s size and terms.
This development comes before Obligate opens its platform to the wider public on March 27,
Obligate, which in Switzerland is regulated as financial intermediary, allows companies using blockchain technology to issue bonds and commercial paper without having to rely on banks. It combines smart contracts with traditional finance regulations. In order to comply with regulations, all issuers must pass know-your customer (KYC), checks prior to being onboarded. ERC-20 tokens, which represent the bond, are sent to crypto wallets by investors. Investors have the right to receive payment at maturity and collateral in the event of default.
This is a sign of the growing popularity of decentralized debt markets (DeFi). It also shows that crypto markets are offering sophisticated investors and real-world financial service. German industrial giant Siemens issued $64 Million of bonds on Polygon with a one year maturity.
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“The bond market is the largest financial market, but it only works well for large companies,” Benedikt Schuppli, Obligate’s CEO, told CoinDesk.
Shuppli stated that the most important advantage to issuing debt through blockchain-based protocols is its ability to connect bond issuers and investors without intermediaries. This reduces administrative costs. This allows smaller businesses to access financing through the bond market.
Muff Trading founder and CEO Luca Muff told CoinDesk this was the first time that his company had issued bonds. Muff Trading chose Obligate to gain access to markets. “As a mid-size commodity trader, it’s a very tough environment these days with traditional banks,” he said.
Obligate charges 0.5% in issuance fees based on the amount of debt issued.
Unlike Siemens’ on-chain bonds, Muff’s issuance sidestepped banks’ traditional fiat money payment rails and was funded using Circle’s USDC stablecoin. The debt was secured by receivables from Apex Group, which is a partner in Obligate and has around $200 billion worth of assets.
“With traditional sources of lending restricted by current market conditions, this issuance enables investors to access on-chain bonds and commercial paper at a fraction of the cost and time, within the same secure and regulated framework they are familiar with from the traditional financial markets,” Bruce Jackson, Apex’s chief of digital asset funds and business, said.
Obligate’s choice to use Polygon, an Ethereum sidechain, showcases the blockchain’s growing lure for institutional capital. Investment-management firm Hamilton Lane opened tokenized funds on Polygon earlier this year, while Clearpool, a DeFi debt protocol, is set to open its institutional platform Prime exclusively on Polygon in the coming months.
Obligate raised $4million from Circle Ventures earlier in the year after receiving a $4.5million investment from Blockchange Ventures and Earlybird Venture Capital.
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