The EURxb Token
The EURxb token is a real-world implementation of a bond on a blockchain, providing tangible benefits to the issuer and buyers.
The EURxb structure, described below, allows any issuer of corporate bonds to tokenise that debt, and then to benefit from the features of those tokens. These benefits relate both to the issue and trading of the bond tokens, and also to the use of derivatives of the tokenised bonds in Decentralised Finance.
The first issuer of a corporate bond using this approach is MIRIS AS, a Norwegian domiciled sustainable property developer. MIRIS uses technology to turn buildings into net producers (rather than users) of energy. Established in 2003, MIRIS has evolved from a traditional real estate company to a sustainable technology incubator, and has a AA rating from Dun & Bradstreet. MIRIS operates in Norway and both their sustainability rating and financial status are published online and objectively measured by 3rd parties. Some MIRIS projects have been funded by Green Bonds listed on the MirisX platform. The green finance framework used by MIRIS is verified by Cicero, an independent third-party which is Norway’s leading climate research body. Cicero certifies that all funds will be used in ways that benefit the environment. These Green Bonds laid the foundation for the Senior Secured Green Bond that is now being tokenised with EURxb, and describes the assets pledged by MIRIS as well as the ISIN registered bonds issued and taken up by the market.
Structure & Issue Process
The EURxb.finance protocol is the means by which existing securities are used to create blockchain based tokens with greater utility. The core focus of the protocol is to ensure a safe, regulated, and auditable path for institutional funds to gain exposure to Decentralised Finance (DeFi) and blockchain based financial instruments through ISIN registered securities. The objective was to change as little as possible of the current legacy issuance process to ensure compliance. EURxb.finance therefore ensures full accountability and recourse through the conventional legacy issuance systems, by only making simple modifications to the core traditional agreements, which allow for fully compliant tokenisation of the underlying instruments. There is chain of assurance that runs from the audit of the underlying securities for the bond (by global professional services firm BDO in this case), through the certification and tokenisation process (Nordic Trustee and Euronext VPS), to the smart contracts (audited by respected blockchain specialists SFXDX). Through this protocol the holders of the tokens have well documented and enforceable rights, as in any regulated financial system.
The implementation of this process follows four steps. The first three steps mirror the traditional process: the issue of an ISIN registered bond based on an extensive due diligence process on the underlying security, the grading of the bond, and the issue of an ISIN number by the National Numbering Agency, which is Euronext VPS in Norway. The bond’s security is in the form of cash, cash equivalents, and other balance sheet assets. These assets are then tokenised, those tokens are collateralised to create bond tokens, and those bond tokens are made fungible to create a stablecoin. These steps are described below.
The bond contractual documents allow for the tokenisation of the bond and the trade of the tokens in a secondary market. Additionally, the principal and interest is firstly payable to any debts incurred in the secondary market before it is paid to the bondholder. The implication of this is that whoever has claim to the bond token, or subsequent tokens issued against the bond token, has primary claim on all pay-outs from the issuer to the bondholder, so the rights associated with the bond pass to the token holder. The assets are tokenised in the form of an ERC721 non-fungible token (NFT) on Ethereum mainnet. These NFTs are referred to as EURxb Security Asset Tokens (ESAT) and are issued at a par value with the securities, i.e., in this case there are 133.33 million Euros of ESAT tokens matching the 133.33 million Euros of assets backing the tokens.
The next step is to collateralise the ESAT tokens to create bond tokens. The EURxb.finance protocol applies debt management principles that mirror the over collateralisation principles typically used in DeFi, which in turn are similar to those of the ISIN Secured Registered bond classification. The bond is issued at 75% of the value of the underlying securities. Thus, in this case, for the 133.33 million Euros of ESAT tokens, 100 million Euros of EURxb bond tokens are issued (EBND). These are also NFTs, issued on the Ethereum Mainnet, and are issued from a smart contract by locking the EURxb Security tokens (ESAT) and minting the EURxb Bond Tokens (EBND) in a 4:3 ratio. These EBND NFTs contain all the necessary information pertaining to the underlying bond, including ISIN number, bond grading, bond agreements, and proof of issuance. This information can be verified by any ISIN agent worldwide, ensuring maximum transparency.
The final step in the process, which goes beyond the tokenisation of the bond, is to use the EURxb bond NFT (EBND) as collateral in the Delegated Bond Position Module in the EURxb.finance protocol. This allows for the creation of fungible debt instruments on a public blockchain, minted in the form of a fractionalised interest bearing Euro stablecoin, the EURxb. These tokens are issued as fungible ERC20 tokens, also on the Ethereum Mainnet. Due to the fact that the underlying bond yields 7% per annum interest (for the duration of the underlying securities term), we are able to credit this value to the EURxb stablecoin as every 1,000,000 EURxb in circulation is backed by a single EBND (EURxb bond NFT) of 1,000,000 euros value. That makes the EURxb a fully backed Euro based stable token, over collateralised by an ISIN registered security and its pledged assets, yielding 7% interest per annum for the duration of the underlying securities term.
Although the total launch bond issued is valued at 500 million Euros, the debt will be introduced into the DeFi market through 5 tranches. Each tranche will be the issuance of 100 million Euro worth of Bonds, and consequently 100 million EURxb interest bearing stablecoins. Furthermore, each tranche is overcollateralised by 133.33 million EURO of security. Thus, upon completion of this issuance, the EURxb protocol will have issued 666.67 million Euros of EURxb Security Asset Tokens (ESAT), 500 Million Euros of EURxb Bond Tokens (EBND), and 500 Million EURxb Euro stablecoins bearing interest at 7% p.a. for the duration of the underlying bond.
Integration and Utility
The creation of the EURxb tokens creates two chief advantages. First is the flexibility and liquidity it enables. The debt issuer (MIRIS in this case) is now able to manage their debt position more accurately by buying back EURxb Tokens in increments of as little as one Euro. In this case, the debt issuer becomes the registered owner of the Bond Token (EBND) NFT and reduces its debt obligation by the number of tokens it has bought. Investors can, in turn, reduce their debt holdings by selling their EURxb tokens back to the debt issuer.
The second main benefit enabled by the EURxb token is its value as an asset in DeFi. The EURxb Tokens exist as ERC20 tokens on the Ethereum blockchain, and are over-collateralised by Euro denominated assets, giving them an audited value of one Euro each. These tokens are therefore Euro denominated stablecoins that have a utility in DeFi. This is discussed below.