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Introduction to bond tokenization

Introduction to bond tokenization

Insights Crypto Industry Tokenization

Sygnum Bank AG (Sygnum) has now enabled tokenization of bonds on its primary issuance platform, Desygnate. With this expansion of Sygnum’s tokenization offering, issuers can now structure tokenized bonds across the four investment verticals – Venture Capital, Mid Cap, Real Estate, and Art & Collectibles. This means that going forward, issuers can conduct security token offerings (STO) for bonds on Desygnate in a fully compliant and integrated manner.

The tokenization of bonds offers many benefits for both issuers and investors which we will outline in this post.

Automation of manual processes for issuers

In traditional bond issuance and management, operational processes are often handled manually which is not only cumbersome but also costly and time consuming. The digital nature of tokenized bonds offers a solution to this. Corporate actions such as coupon payments can be programmed into the token, automating the process, and providing issuers with the flexibility to offer coupon payments in various fiat currencies, stablecoins like Sygnum’s Digital CHF and USDC, or native cryptocurrencies like Bitcoin and Ethereum.

The same benefits apply for the repayment of principle – with large numbers of bond holders, the process of repayment at maturity can be complex. However, Sygnum’s bond tokenization solution allows for the principal to be repaid to all bond holders in one single blockchain transaction.

Lastly, bond tokens can be traded on SygnEx, Sygnum’s digital asset trading platform, with near instant on-chain settlement.

Smart contracts enable new features

Beyond the operational benefits, tokenized bonds also pave the way for greater innovation in terms of how bonds are created and designed. With smart contracts, new features can be programmed into tokens allowing issuers to create completely new forms of bonds with special characteristics. For example, one can now issue a bond with coupon payments that are continuously executed in real-time via a stablecoin, instead of periodic semi-annual or annual payments, which is the usual practice in the traditional world. This way, the investor receives a small portion of interest every second, at no operational cost to the issuer.

Closing thoughts

The main benefit of tokenizing bonds lies in the increased efficiency and reduced cost achieved through the automation of corporate actions. Innovative investment products can be structured for investors with smart contracts that are enabled by distributed ledger technology. At Sygnum, we strive towards Future Finance, and we believe it will unlock tremendous benefits for investors and issuers alike. Bond tokenization is one of many innovations in the tokenization space, so stay tuned for more to come!

Disclaimer

This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.

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