Brad Chillum
According to coindesk, blockchain startup Nivaura has today initiated its first bond denominated exclusively in ether.
Built under the regulatory oversight of Britain’s Financial Conduct Authority (FCA), the first-of-its-kind instrument was issued by London-based luxury retail startup LuxDeco and created with the help of industry leaders to give the company a new way to raise capital for short-term seasonal demand.
But what’s truly disruptive about the issuance isn’t the use of cryptocurrency, rather it’s that the bond will be cleared, settled and registered on the public ethereum blockchain. With a relatively short lifecycle of only one week, the bond is also part of a larger experiment to see if removing financial middlemen can make such investment vehicles more accessible to small businesses on a massive scale.
And while private blockchains have largely been the purvey of CSDs and other legacy infrastructure providers, the founder and CEO of venture-backed Nivaura, Avtar Sehra, argued that the new bond shows the potential of public blockchains when applied to enterprise business models.
Sehra said:
“What we’re showing is you can use open public infrastructure for regulated financial instruments, and this is a very critical step, because from the earliest stages we’ve always believed that public blockchains are the way forward.”
To ensure the ethereum bond aligned with existing workflows, a number of counterparties were involved in its creation.
In preparation for the project JPMorgan helped build a bond that could be used for a wide range of asset classes and aligned with their own internal processes. With the help of law firm Allen & Overy Nivaura then used that structure to construct legally compliant documentation that automated the work using ethereum smart contracts.
In turn, credit rating firm Moody’s priced the instrument by providing data to generate yield curves, factoring the volatility of ethereum into the structure of the bond itself.
Specifically, while a control experiment (discussed in greater detail below) paid 2.5 percent annual interest, the ethereum bond is expected to offer annual interest of about 10 percent to help offset the perceived risk of using a cryptocurrency prone to rapid price fluctuations.
Ether used to purchase the bond was be deposited to a public address called the Nivaura Client ETH Account. To help conclude the process, investors, in turn, must confirm the account in which they’d like to receive principal and interest when the bond reaches maturity on Nov. 29.
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