Conclusion and Future Direction
Demonstrating that this can be done creates real value and raises many possibilities for future work.
To summarise the results of this work:
- We have shown that you can issue bonds as tokens and have described how the blockchain based bond model has many inherent advantages over the traditional one.
- We have used those bond tokens to create a bond backed stablecoin, which gives liquidity and flexibility to bond issuers and investors.
- This stablecoin has utility as an asset to be used in DeFi models.
- The structure and tools used to create the EURxb Token could be used by other entities to issue bonds, including central banks; and could be used by DeFi projects to create links to fiat denominated assets.
In regulated markets, we hope to see businesses and investors meeting directly in regulated tokenised markets in the not-too-distant future. This project, and the EURxb.finance protocol, demonstrate that this is eminently achievable, and the regulations that support it are being created in many jurisdictions. The direct issue of regulated tokenised debt and equity may soon be commonplace.
As described above, the DeFi related benefits would arise from a fairly restricted use case of locking the EURxb tokens into a DeFi vault to use them as collateral. There is a burgeoning body of work in “layer 2” solutions, which create additional functionality by building on top of Ethereum. This may be considered as analogous to building payments services on top of banking rails. The value of a fiat denominated asset to this type of solution is potentially very high, and there are many other ways that innovators could build on the utility of this token. The structure described in this paper for issuing bonds on a blockchain, and then issuing fungible tokens against those bonds, could be used in other contexts. Perhaps the most intriguing of these is in government bonds, where a stablecoin derived from a government bond would effectively be money backed by a government. This could be viewed as a form of central bank digital currency, and the token could be used in a similar way to any other stablecoin, with the additional benefit of state backing. If issued from government bonds, which globally are estimated to have a value of $90 trillion, then this becomes - arguably - public money, privately issued. This type of construct forces us to reconsider our assumptions about different types of money, and to recognise money as just another type of debt obligation.
Enabling government money and private money to exist on an equal footing raises some challenging questions about the nature of money, its issuers, and its use. In the global forum of DeFi, national governments and global corporations would then be evaluated, as competing backers of these tokens, by the utility and fundamentals of their debt.
The remaining question is if and when we get to that point.