There are major obstacles to tokenization of the private lending sector


The tokenization of global bond markets is evolving rapidly, but the private lending industry still has a ways to go before blockchain technology can bring the industry to retail investors.

In 2018, the World Bank launched bond-i, the first fixed income security to be based solely on blockchain technology, raising A $ 110 million ($ 77.1 million at today’s exchange rate) of funds in the Australian market.

This was followed by a number of private sector initiatives, such as the Singapore-based platform ADDX which reduced the minimum ticket size to SGD 20,000 (USD 14,500).

Private debt is still exchanged bilaterally

According to Bertrand Billon, founder and CEO of Singapore-based exchange iLex, the growing private lending industry still has a number of hurdles to overcome before blockchain technology can be applied to the market.

In an interview with Capital.com, he said that despite more than $ 4 trillion in syndicated loans – a significant portion of private debt – issued each year, these were still negotiated bilaterally via voice, email. and even the fax.

According to Billon, even before tokenization can be considered, these bilateral markets must be centralized and standardized.

“What is needed is a market infrastructure, like a stock exchange or private markets, a place where supply and demand can be matched … For a market to be created, it must first be centralized. Once the players are aggregated, you can decentralize it. “

Regulatory clarity needed

Once this is achieved, Billon says there are still a number of barriers to tokenization, such as a lack of regulatory clarity on the status of loans, the lack of a central property registry, and the problem interoperability between traditional and digital private loan issuance channels.

Once these issues are resolved, however, Billon sees strong potential for tokenization of an industry where banknotes typically have a minimum size of $ 20 million in the United States and $ 10 million in Asia-Pacific.

“But is it possible to tokenize the credit market and once this is done, it will offer many more opportunities to investors because it will allow them to access the private debt of many companies in small tickets,” he said. he told Capital.com.

An in-depth interview with Billion on iLEX’s plans to electronize the private lending market is available here.

Read more: Token technology to disrupt the $ 128 billion global bond market

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