One exchange is trying to make debt tokenization a thing in crypto

An increasing number of mainstream financial activities have become blockchain integrated in line with the growing crypto segment. Now tokenized debt markets are entering the space as well.

“CoinFLEX has created a new market for short-term commercial paper, enabling private companies to borrow USD and BTC unsecured for crypto trading purposes,” the company said in a public statement on Thursday.

In traditional finance, corporate bonds act as a way for participants to give businesses funds in exchange for interest, as described on Investopedia. Investors receive their initial capital back at the expiration of the bond.

The new offering from CoinFLEX essentially transforms this process by selling participants a blockchain-based form of short-term corporate debt bonds. Operating on the Bitcoin Cash blockchain, the system currently has several million dollars in play, based on loans dished out to a number of trading entities, including Akuna Capital.

“Banks currently lend prop trading firms capital for FX, equities and all kinds of traditional asset trading but no bank will lend capital for crypto trading,” CoinFLEX CEO Mark Lamb said in the statement.

“We think this gives an opportunity for CoinFLEX to meet this enormous need and scale this product to hundreds of firms borrowing tens of billions of dollars without the need for banks,” he added. Exchange customers can also trade these debt tokens.

Regulation has become increasingly relevant in crypto in recent years, so one might wonder what kind of legal processes are involved in launching such a product. “Debt markets and lending markets are highly regulated industries and to create tradable, tokenised markets for private company debt required an enormous amount of legal and compliance work,” Lamb told Cointelegraph. “The end outcome is a Trust company that can facilitate the needs of crypto borrowers and lenders worldwide for a wide range of transactions.”

As far as availability goes, CoinFLEX excludes participation from companies based in a number of regions, including the United States. 

Decentralized finance, or DeFi, is another example of traditional finance coming to the blockchain, providing the markets with trustless lending and borrowing.

UPDATE Dec. 17, 19:33 UTC: This article has been updated.