THE Background
Since the launch of stock exchanges, retail investors have been able to easily buy equities – which represent shares of companies – through initial public offerings or through secondary markets. In contrast, the retail participation in both Eurobond and domestic bond markets has been very limited. Corporates, international organizations, central and local governments usually issue their bonds to syndicates of institutional buyers, or through auctions, leaving retail investors behind. Although a couple of governments have sold savings bonds or diaspora bonds directly to the public, the amount of these types of bonds is relatively small compared to those issued to institutional investors.
Since equities are generally riskier than bonds, risk-adverse retail investors would like to have the opportunity to hold bonds in their portfolios. Therefore, these investors need a flexible bond market that is not hamstrung by heavy regulations. Thus, our aim is to leverage the legitimate use of blockchain technology – that satisfies the requirement of avoiding money laundering and terrorism financing – to create a marketplace in which retail investors can easily buy government and corporate bonds.
The Vision
We propose a marketplace, GREB, that leverages blockchain technology to tokenize global retail bonds and collateralized loan/debt obligations, which allows access to a broad range of retail investors all over the world. This marketplace removes multiple financial intermediaries, increases transparency, reduces transaction times, and costs, and provides tremendous cost-savings to both bond issuers and investors. Our innovative approach of paying interests allows the tokenized bonds to be easily transferable through peer-to-peer transactions or through crypto-exchanges. GREB coin is an asset token representing ownership in GREB Marketplace that creates bond tokens on behalf of bond issuers. This marketplace has multiple use cases, such as helping developing countries’ governments in issuing Eurobonds; and allowing banks to securitize their existing illiquid loans into liquid crypto bond-tokens.
Issuing bonds on blockchains is not new to the technology community. Governments, private companies, and multilateral financial organizations have issued tokenized bonds in the past. But, so far, each bond issuance had targeted only a couple of institutional investors. This is due to their design limitations. In contrast, GREB Marketplace’s bond design has the following appealing features:
- Reaches a broader investor base, i.e., more institutional and retail investors, as the bond issuance will target the world globally.
- Allows for quick issuance time, by cutting the administrative burdens of underwriting and registration.
- Helps bond issuers avoiding the burden of dealing with blockchain technology or crypto currencies. Bond issuers receive the proceeds of their bonds sold in fiat currencies and repay their debts in fiat currencies as well.
- Allows for a secondary market of the tokenized bonds, either on the marketplace, on crypto-exchanges, or through peer-to-peer transactions.
- Helps developing countries’ governments in the issuance of Eurobonds and diaspora bonds.
- Helps commercial banks securitizing their existing illiquid loans into liquid cryptographic bond tokens.
- Increases financial inclusion, as an investor can buy a very small amount of a tokenized bond. Hence, this contributes to relieving millions of people from poverty.
- Can be used by developing countries’ governments in issuing diaspora bonds.
IN A NUTSHELL
The GREB Coin
The GREB coin is a SPL (Solana Program Library) asset token representing ownership in GREB Marketplace. On behalf of bond issuers, GREB Marketplace will create and manages bond tokens – which are also SPL tokens. SPL is the token standard of the Solana blockchain, which has been selected because of its fast speed, and low transaction costs.
GREB Marketplace will charge a fee on any fund collected from investors, before sending the remaining amount to the bond issuers. A part of the collected fees will be used for administrative expenses and future developments of the Marketplace. The rest will be distributed to GREB coin holders as dividends for their investment. These dividends will be paid in stablecoins.
Investors can buy and sell bond tokens, as well as GREB coins, either on the GREB Marketplace, centralized crypto exchanges, or through peer-to-peer transactions.
The Bond Token
GREB Marketplace, acting as a fiduciary agent for bond issuers, manages the life cycle of all bond tokens. In this regard, the GREB Marketplace has the following duties:
- At the effective date of the bond, receives invested funds from investors (in either fiat or crypto currencies), and forwards them to the bond issuer (in fiat currencies). Then, mints bond tokens and forwards them to investors.
- During the life of the bond, it pays daily interest (in stablecoins) to investors or to the current bond token holders, on behalf of the bond issuer.
- At the maturity date of the bond, receives the invested funds (in fiat currencies) from the bond issuer. Then, returns these funds to investors (in stablecoins), and burns the bond tokens.
THE BOND TOKEN MECHANISM
Each GREB’s bond token is a SPL tokens, which runs on the Solana blockchain. It is minted (or created) only when the corresponding amount of stablecoins or fiat currency is received by GREB Marketplace, and it is automatically burst (or destroyed) at the maturity date of the underlying debt. What follows describes the entire bond token mechanism.
At the start of the investment period, the investor provides GREB Marketplace with an amount of a major stable stablecoin (such as USDT, USDC, or RLUSD) or a major fiat currency (such as USD, EUR, JPY, GBP, CAD, CHF, or AUD) or its corresponding central bank digital currencies (CBDC), representing his/her investment. Upon receiving this investment, GREB Marketplace mints (i.e., creates) and provides the investor with bond tokens representing his/her investment. Then, GREB marketplace converts the amount received from the investor into a fiat currency such as the USD, and transfers the proceeds to the bond issuer, retaining the interest amount to be paid to the investor for the current interest period. During the current interest period, GREB Marketplace provides the investor with daily interests in a major stable stablecoin.
At the start of each subsequent interest period, the bond issuer forwards to GREB Marketplace, in a fiat currency, the amount of interest to be paid to the investor during the interest period. Then, GREB Marketplace converts this amount into stablecoins and pays daily interest to the bond token holder during the interest period.
At the end of the investment period, the bond issuer forwards to GREB Marketplace, in a fiat currency, the amount of the investor’s initial investment (or the bond face value). Then, GREB Marketplace converts this amount into stablecoins, and simultaneously transfers the proceed to the bond token holder and immediately burns (destroys) the corresponding bond tokens.
During the investment period, the investor can totally or partially transfer or sell his/her bond tokens to a third party, through peer-to-peer transactions, on GREB Marketplace, or on any crypto-exchange that lists these tokens.
ILLUSTRATING EXAMPLE OF BOND TOKEN
A bond issuer issues a discount bond with the following attributes:
- Effective date: t0
- Maturity date: T
- Notional amount: not specified
- Currency: $ (i.e., USD)
- Annualized discount rate: R
- Interest basis: Actual/365
- T – t0 represents the initial bond’s tenor in calendar days.
Let us consider that, after the effective date, an investor is interested in buying newly minted bond tokens from GREB Marketplace. Thus, at date t – called start date of his/her investment (here it is assumed that t > t0) – the investor sends to GREB Marketplace an amount equivalent to $ N to buy bond tokens. This amount can be either in fiat currencies (i.e., USD), or in the equivalent amount of stablecoins (such as USDT, USDC, or RLUSD). What follows describes the transactions from the start to the end of the investment period.
At start date t, the following happens if the investor invests N $ in a fiat currency such as the USD
(1) The investor either:
- Indirectly, sends $N to GREB Marketplace, i.e., through a crypto exchange (such as Coin Base or Kraken);, or
- Directly, sends $N to GREB Marketplace’s website, as well as a public address of his/her Solana wallet, on which he/she will receive his/her bond tokens, and the daily interest payments in stablecoins (e.g., USDT), and the face value of his/her investment at maturity in stablecoin (e.g., USDT). In this case, GREB Marketplace will firstly make sure the investor passes the KYC/AML requirements.
(2) GREB Marketplace mints N bond tokens and forwards them to the investor’s Solana wallet.
(3) GREB Marketplace transfers N x [1 – R x (T – t)/365] $ minus its fees to the bond issuer.
(4) GREB Marketplace forwards N x R x (T – t)/365 $ to a crypto exchange, for conversion.
(5) The crypto exchange returns N x R x (T – t)/365 USDT stablecoins to the GREB marketplace, which keeps these stablecoins for the daily interest payments to the investor.
At start date t, the following happens if the investor invests N $ in stablecoins (such as the USDT or the USDC)
(1) The investor either:
- Indirectly, sends $N in stablecoins to GREB Marketplace, through a crypto exchange (such as Coin Base or Kraken), or
- Directly sends $N in stablecoins to GREB Marketplace’s website, and as well as a public address of his/her Solana wallet, on which he/she will receive his/her debt tokens, and the daily interest payments in stablecoins, and the face value of his/her investment at maturity in stablecoins. In this case, GREB Marketplace will firstly make sure the investor passes the KYC/AML requirements.
(2) GREB Marketplace mints N Bond tokens and forwards them to the investor’s crypto wallet.
(3) GREB Marketplace forwards the N stablecoins, received from the investor to a crypto exchange, for conversion.
(4) The crypto exchange simultaneously sends to the GREB Marketplace:
- N x R x (T – t)/365 USDT stablecoins, which keeps these stablecoins for the daily interest payments to the investor,
- and N x [1 – R x (T – t)/365] $
(5) GREB Marketplace transfers N x [1 – R x (T – t)/365] $ minus its commission fees to the bond issuer.
Every day, from the start date t to the maturity date T, the following happens
Every day during the investment period, the GREB Marketplace deposits N x R/365 USDT to the investor’s Solana wallet address, or to the address of the current bond tokens’ holder.
At the maturity date t, the following happens
(1) The debt issuer sends N $, in fiat currency, to the GREB Marketplace, for the repayment of its initial debt.
(2) The GREB Marketplace forwards the N $ to a crypto exchange, for conversion.
(3) The crypto exchange converts the N $ into N USDT and sends the proceed to the GREB Marketplace.
(4) The GREB Marketplace simultaneously:
- Burns the N bond tokens held by the investor or by the current bond token holder; and
- Deposits N USDT on the investor’s Ethereum wallet, or to the address of the current bond tokens’ holder.
THE TEAM
Washington Financial LLC is a group of consultants with over a hundred years of combined experience in financial engineering and blockchain technology. They also proprietary trade crypto currencies. To view the company’s full details, please visit https://washington-financial.com/
Dr. Tchuindjo is the founder of Washington Financial LLC. He has over fifteen years of Wall Street experience, valuing and managing bonds and financial derivatives.
During President Obama’s Administration he worked as a Debt Manager at the United States Department of the Treasury, where he restructured the valuation of Savings Bonds. He also modeled dealers’ behavior during Treasury bond auctions. Other relevant experiences include: The Inter-American Development Bank, where he supports the funding activities in issuing exotic bonds and swaps in over thirty different currencies; Fannie Mae, where he supported the long-term funding desk, and managed a portfolio of exotic bonds and swaps of over one hundred billion dollar in notional; and Numerix, where as a Director of Financial Engineering, he led the development of new financial models, and advised financial institutions (banks, hedge funds, pension funds, and insurance companies) all over the world in valuing their financial derivatives.
He also has a long experience in blockchain technology, and in cryptocurrency mining and trading. In the academic arena, he taught finance courses at Georgetown and George Washington Universities, and held a visiting position at the University of Michigan Ann-Arbor. He published a dozen of articles on bonds and derivatives in leading academic journals such as Journal of Banking and Finance, Journal of Risk Finance, Applied Mathematical Finance, and Applied Mathematics and Computation. He holds a Ph.D. in Operations Research and a M.S. in Finance, both from George Washington University. He also holds a M.S. in Engineering from Ecole Polytechnic de Yaoundé.
Email: tleonard@washington-financial.com
www.linkedin.com/in/leonard-tchuindjo
DISCLAIMER
This webpage is for marketing purpose and is not intended to be legally binding. Nothing in this webpage shall be deemed to constitute a prospectus of any sort or a solicitation for investment, nor does it in any way pertain to an offering or a solicitation of an offer to buy any securities in any jurisdiction. This webpage does not constitute an offer to sell, or a solicitation of an offer to buy, an interest in any jurisdiction in which it is unlawful to make such an offer or solicitation. The information in this webpage does not constitute a recommendation by any person, nor does it constitute advice on the merits of participation in any purchase of GREB tokens or any other cryptographic token or currency. Nor has the information contained in this webpage been approved by any regulatory agency or governmental authority of any kind.