8 Decimal Capital Overview:
- In 2016, the Bank for International Settlements estimated that the outstanding global bond debt amounted to $127 trillion and SIFMA estimated the U.S. bond market to be around $39 trillion (according to a study conducted by Federated Investors).
- Vocean is a blockchain company dedicated to building one of the world’s first crypto bond and financial contract marketplaces as a bond management system built on smart contracts instead of traditional intermediaries.
- The platform encompasses a technologically advanced use-case and provides the components necessary for a robust decentralized financial ecosystem as bond trading on Ethereum will begin in December 2018.
Bonds have existed since 2400 BC, with deep roots in our financial system. At a variable or fixed interest rate, bonds are fixed-income investments used by entities (corporations or governments) to raise money and finance a variety of projects for a defined period of time. In 2016, the Bank for International Settlements estimated that the outstanding global bond debt amounted to $127 trillion and SIFMA estimated the U.S. bond market to be around $39 trillion (according to a study conducted by Federated Investors).
Ben Bartlett, Berkeley’s Vice Mayor, believes that blockchain technology and crypto bonds have the potential to ultimately revolutionize public finance.
In December 2017, when the Trump administration implemented a tax decrease for corporations, Ben Bartlett, Berkeley’s Vice Mayor and a strong advocate of the crypto bond, had the idea to use blockchain technology to revolutionize public finance. According to Ben Bartlett:
“Currently, governmental entities sell their bonds to banks who then resell the bonds to numerous intermediaries before reaching an investor. Each intermediary charges fees and markups. The UC Berkeley Haas Institute estimates that bond issuers lose approximately $4 billion annually as a result of this process. Furthermore, the costs of issuing and administering bonds make it impossible for small investors and regular people to purchase them. As a result, the people are losing out on a major form of wealth building.”
In the traditional financial industry, the issuing, trading, book-keeping, and clearing of financial contracts are operated by centralized agencies, such as banks and brokers. Although centralized systems provide trust in the traditional financial ecosystem, their fees remain high with low efficiency. Additionally, there are risks around information asymmetry and leakage, as well as frauds and scams, such as the Enron scandal and Ezubao Ponzi scheme.
With blockchain technology, the bond system can finally transition towards a more decentralized method, transforming the over 4,000-year-old system. Smart contracts allow financial contracts to be coded and transactions to be executed in a secure, traceable, and irreversible way without the need of third parties.
Group Vocean is a blockchain company dedicated to building one of the world’s first crypto bond and financial contract marketplaces. The marketplace is a bond management system built on smart contracts instead of traditional intermediaries such as brokers, underwriters and clearing houses, reducing transaction costs and increasing market transparency. To ensure scalability, contract matching is handled off-chain while only contract details are recorded on the blockchain, preventing congestion on Vocean’s Blockchain.
Bond Issuing and Management on Vocean (Source: Vocean’s deck)
Vocean offers a complete ecosystem to issue and trade bonds and derivatives without centralized agencies. To issue a crypto bond, the steps are as follows:
- The bond issuer submits a Bond Offering Disclosure (BOD) to the Vocean Ecosystem with all the information necessary for investors to assess the project’s financial health. A credit rating system grades each project to help investors evaluate the project.
- The Bond Offering Agreement (BOA) is then submitted to the Vocean Ecosystem with all the investment requirements and terms. Vocean’s off-chain Bond Issuing Network (BIN) broadcasts the BOA to its community, in which private negotiation channels can be created between the issuer and bond investors. Once the terms are finalized, an Escrow Management Contract (EMC) is created for investors to sign the BOA and deposit their tokens.
- Investors can submit their supporting votes by subscribing to certain shares of the bond offering. The voting period ends when the hard cap is reached and all the voting shares are converted to investment shares of the bond. If the voting process fails, the bond issuance is cancelled and the EMC returns all of the voting shares to the voters.
- The crypto bond is finally issued and settled on the Vocean Blockchain. The crypto bond is managed by the Vocean Interchain Protocol (VIP) through a Bond Management Contract (BMC).
To mitigate the investment risks, Vocean also introduces several features such as amortized payment, escrow account, project disclosure, credit rating, fund release based on milestones, etc. Dynamic collateral management is also offered to respond to market price changes with built-in multi-layer safeguards, minimizing counter-party and operational risks. Additionally, Vocean is providing risk hedging tools to help institutional players enter the cryptocurrency system and satisfy their basic needs of risk management and mitigation.
Vocean’s team has a strong financial and tech background comprised of Fortune 500 tech companies, research institutions, and financial banking enterprises.
Vocean is currently incubated by Biboxlab, an incubator launched by the digital asset exchange Bibox, and Node Capital, a venture capital firm focused on blockchain projects. The team is composed of highly qualified members with years of experiences in equity, fixed income, derivatives and risks management from financial companies such as Morgan Stanley, Citi, and GE Capital. The core technology team also hails from a strong Fintech background working for companies including Morgan Stanley, Barclays, and Bloomberg, as well as leading technology companies such as Microsoft, Cisco, Google, and Oracle.
Vocean is ready to disrupt the bond and financial ecosystem with blockchain technology. Overall, the platform encompasses a technologically advanced use-case and provides the components necessary for a robust decentralized financial ecosystem. Voicean’s platform encompass a wide range of features, including bond issuance, trading marketplace, hedging infrastructure, credit rating system, dynamic collateral management to risk management. As for timing, Vocean is solving the current lack of fixed income asset derivatives in the cryptocurrency market. Bond trading on Ethereum will start in December 2018, and we are excited to see the transformational changes Vocean can bring to the bond industry.
Sources:
- Group Vocean whitepaper: https://vocean.io/.
- Group Vocean deck: https://s3.us-east-2.amazonaws.com/vocean.io/docs/voceanpd.pdf.
- Luong Hoang Anh. (Aug. 2018). “Story About Crypto Bonds.” TwoGap. Retrieved November 12, 2018 from the TwoGap Medium Publication: https://medium.com/twogap/story-about-crypto-bonds-68edf4deabf7.
- Investopedia. (2018). “Bond.” INVESTOPEDIA. Retrieved November 12, 2018 from Investopedia: https://www.investopedia.com/terms/b/bond.asp.
- The Motley Fool Knowledge Center. (2018). “5 Bond Market Facts You Need to Know.” The Motley Fool. Retrieved November 12, 2018 from The Motley Fool: https://www.fool.com/knowledge-center/5-bond-market-facts-you-need-to-know.aspx.
- Sarah Brooks. (May 2018). “Ben Bartlett on Tokenizing Municipal Bonds to Fund Community Impact Projects in Berkeley.” Medium. Retrieved November 12, 2018 from Medium: https://medium.com/@sarah_brooks/last-night-ben-bartlett-berkeley-vice-mayor-gave-an-inspiring-talk-at-crypto-underground-on-how-8781792499f8.
- Ben Bartlett. (April 2018). “The Smart Path: Solving for Zero Assets with Blockchain Technology.” Hackernoon. Retrieved November 12, 2018 from Hackernoon: https://hackernoon.com/the-smart-path-solving-for-zero-assets-with-blockchain-technology-566ece753da0.
- Federated Investors. (May 2017). “Infographic: The Bond Market.” Federated. Retrieved November 12, 2018 from Federated Investors: http://www.federatedinvestors.com/FII/daf/pdf/G45692-06_2017.pdf.
8 Decimal Capital: Shape the Blockchain Future
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8 DECIMAL CAPITAL is a multi-strategy investment firm focusing on token and equity investments. 8 Decimal currently has more than 40 portfolio companies with an AUM of 60M USD. The investment team consists of more than 10 venture capital veterans, researchers, and trading professionals. The advisory board comprises Fan Zhang (Former Founding Partner of Sequoia Capital China), Karen Chen (Former CEO of UBS China) and Ben Bartlett (Vice Mayor of Berkeley). Based on the professional fund index ranking agency Token Metrics, 8 Decimal was ranked second out of the 51 active crypto funds. 8 Decimal is also well-received in China, named one of the top 10 funds in the blockchain industry by both 36氪（36Kr.com）, Chain Capture , and Odaily, as well as named one of the top 20 funds by Tsinghua X-Lab and Youth Education Chain League.