As a fixed income tool, bond requires the issuer to pay the pre-agreed interest on a specified date and repay the principal on the expiration date. In the traditional financial market, the issuance of bonds relies on many institutions such as regulatory agencies, underwriters, auditors, lawyers, ratings, custody, registration, and settlement. The process is complicated and costly.
In the scenario of multi-party collaboration, blockchain technology has natural advantages. With blockchain technology, multiple parties place the ledger in a commonly visible network and all transaction records can be seen so information is untamable, open and transparent.
Many financial institutions including the World Bank have tried to utilize blockchain technology to issue bonds. The application of blockchain in the bond market can be divided into two types: one is to optimize the bond issuance process, improve efficiency, and reduce costs using consortium blockchain technology; the other is to realize bond issuance and transactions using public chain technology. The former has greater feasibility in terms of current laws and difficulty of implementation, but the commercial value is smaller; the latter may impact current regulatory laws and technical implementation is more difficult, but the commercial value is higher.
Crypto Bond is a new type of bond issued and booked in the form of tokens. On the one hand, it provides financing for outstanding projects or crypto asset holders in the industry; on the other hand, it supplements the market with fixed income products to meet needs of part of investors.
The issuance of crypto bond no longer requires the approval of regulatory agencies and the participation of many intermediaries. The core business processes rely on automatic execution of smart contracts, so efficiency is greatly improved. At present, crypto bond is usually issued with over-collateralized crypto assets as a method of credit enhancement. Once the issuer is unable to repay the debt, the collateral will be liquidated according to the agreed rules, which is similar to traditional collateral trust bond. Crypto bond is still just a new type of innovative financial products. The business model is not mature enough and a certain market size has not been formed yet.