Obligate’s blockchain-based debt securities protocol just reached its first milestone on the Polygon Network by serving as the vehicle for Swiss-based commodities trading boutique Muff Trading AG’s first bond issuance on the blockchain. What makes this achievement even more noteworthy is that the activity did not involve any banks, further highlighting the increasing role of blockchain technology in reshaping traditional financial markets.
The Obligate Protocol
Obligate’s decentralized finance (DeFi) platform is regulated as a financial intermediary in Switzerland. It enables companies to issue bonds and commercial documents on the Web3 realm without the involvement of traditional banking institutions. The platform combines the best of both worlds with the utilization of smart contracts governed by traditional finance regulations to streamline the issuance process.
The Obligate digital platform is yet to be launched to the general public on March 27. Thus, the affair with Muff Trading serves as a preview of what it’s capable of.
Blockchain Bond Issuance Requirements
As a government-licensed platform, there are some requirements Obligate has to fulfill with regulators. To comply with the rules, issuers must undergo the customary know-your-customer (KYC) checks before onboarding to prevent money laundering or any form of financial fraud.
As proof and safeguard of their investments, investors are given ERC-20 tokens in their cryptocurrency wallets that represent the bond. The tokens give them the right to payment at the maturity of their investments. In case of a default, the tokens entitle them to collateral.
Muff Trading’s Bond Issuance
Muff Trading is a Swiss physical commodities trading boutique. Its business primarily centers on sourcing precious metals and raw materials from South America. The nature of its recent tokenized corporate bonds sale gives it the bragging rights to do so on the Obligate system within Polygon.
The details of the debt issuance’s size and terms were not divulged. However, the most significant advantage of issuing debt via blockchain-based protocols is that it connects bond issuers with investors without intermediaries, eliminating costs and administrative fees associated with them, according to Obligate CEO Benedikt Schuppli in an interview.
The Future of Blockchain in Traditional Financial Markets
The successful bond issuance by Muff Trading using Obligate’s DeFi platform on the Polygon network demonstrates the growing adoption of blockchain technology in raising capital for institutions. Other notable entities that have recently ventured into the Web3 space include Europe’s largest industrial manufacturing company Siemens, which issued $64 million of bonds with a one-year maturity on Polygon.
Due to regulatory and operational constraints though, Siemens’ blockchain bond issuance had to employ the help of banks in its final phase during the payment settlement between the accounts of the parties involved. In contrast to this, Muff Trading’s transaction mainly used Circle’s USDC stablecoins.
Final Thoughts
Muff Trading’s successful bond issuance highlights the benefits of utilizing blockchain technology to streamline the issuance process and facilitate access to financing for smaller firms. As the technology continues to evolve, the use of blockchain in traditional financial markets is likely to become more widespread, opening up new opportunities for investors and issuers alike.