Blockchain
Obligate, a blockchain-based debt securities protocol, has executed the first bond issuance without any banks involved using the Polygon blockchain, the protocol announced Wednesday in a statement.
The issuer was Muff Trading AG, a Swiss physical commodities trading boutique specializing in sourcing precious metals and raw materials from South America. Muff sold tokenized corporate bonds using Obligate’s marketplace. The firms did not disclose the debt issuance’s size and terms.
The development precedes Obligate opening its platform to the broader public on March 27.
Obligate, which is regulated as a financial intermediary in Switzerland, allows companies to issue bonds and commercial papers using blockchain technology without relying on banks. It combines the efficiency of smart contracts and traditional finance regulations. Issuers must go through know-your-customer (KYC) checks before onboarding to comply with regulations. Investors receive ERC-20 tokens in their crypto wallets representing the bond, carrying the right to receive payment at maturity or collateral in the case of a default.
The development highlights the proliferation of on-chain debt markets in decentralized finance (DeFi) and is the latest example of crypto markets offering real-world financial service for businesses and sophisticated investors. Last month, German industrial giant Siemens issued $64 million of bonds with a one-year maturity on Polygon.
See also: Hong Kong Successfully Offered Inaugural $100M Tokenized Green Bond
“The bond market is the largest financial market, but it only works well for large companies,” Benedikt Schuppli, Obligate’s CEO, told CoinDesk.
The most prominent advantage of issuing debt via blockchain-based protocols is that it connects bond issuers with investors without intermediaries, slashing costs and administrative fees, Shuppli explained. This allows smaller firms to access financing through bond markets.
Luca Muff, founder and CEO of Muff Trading, told CoinDesk that this was the first time his company issued bonds and chose Obligate to access markets. “As a mid-size commodity trader, it’s a very tough environment these days with traditional banks,” he said.
Obligate deducts a 0.5% issuance fee based on the size of the debt paid by the issuer.
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 with receivables held at Apex Group, a financial services firm with some $200 billion of assets under depositary and a partner of Obligate.
“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 $4 million from Circle Ventures earlier this year, after securing a $4.5 million investment from Blockchange Ventures, Earlybird Venture Capital and SIX Fintech Ventures.
Read more: Has Tokenization’s Moment Finally Come?
