Tradeteq, a technology provider for trade finance asset distribution, has launched what it says is the first-ever fully regulated, trade finance-backed fungible security token on the XDC blockchain network.
Originally launched in 2018, Tradeteq’s platform enables originators to package trade finance products into standardised investments that can be bought and sold through private distribution networks and settled like common fixed income products. The fintech’s core business has been the bank to capital market channel, which involves the repackaging of open account instruments into fungible notes that can then be sold to entities such as fund managers, insurers and investors.
Due to its relatively low risk nature, trade finance is – on paper at least – an attractive asset class. However, high barriers to entry, including poor visibility, insufficient levels of collateral and complex regulatory and supply chain procedures mean that few investors have been able to access it.
This lack of a secondary trading market has left many corporates underserved when it comes to funding, contributing to a trade finance gap – the shortfall between supply and demand – of an estimated US$1.7tn.
Tradeteq’s new security token, Trada, aims to overcome these barriers by fractionalising and tokenising pools of repackaged, securitised trade finance assets on the XDC Network and making them available to retail investors with as little as CHF100 (US$104) to invest.
Each Trada token, which is being issued to the public based on a securities prospectus approved by Finanzmarktaufsicht, Liechtenstein’s financial regulator, has a target return of 5% per annum, plus an amount payable in XDC – the XDC Network’s own token – equivalent to US$0.00125 per calendar quarter.
“This launch is an important move in the democratisation of trade finance through XDC’s enterprise-grade blockchain technology,” says Nils Behling, CFO and co-founder of Tradeteq. “By investing in trade finance, which historically has been restricted to banks and larger institutional investors, private investors can now invest in the real economy. The XDC Network is our chosen blockchain to develop this system and XDC is the only crypto asset that can be used to purchase Trada.”
The Trada token marks the latest collaboration between Tradeteq and the XDC Network. In September last year, the two companies completed the world’s first trade finance-based non-fungible token (NFT) transaction, which saw trade finance assets repackaged into NFTs using the XDC Network’s blockchain technology and distributed to investors by Tradeteq.
The difference between a fungible security token like Trada and an NFT lies in the name: while one NFT can’t be traded or exchanged for another – that is, they are not fungible, the Trada tokens are interchangeable, much like other cryptocurrencies or even traditional money, whereby each coin has the same value as any other coin of the same type at any given moment.
By using fungible security tokens with concrete collateral, Tradeteq says it is beginning the process of ramping up on-chain transaction volumes of regulated, real-world assets, extending access to the trade finance market to both retail and institutional investors.
“For the first time, tokenised trade finance will be brought onto a public blockchain network in a widespread and meaningful way. It opens the door for a series of liquidity pools that generate yield from real-world asset origination and multiple real-world markets on the XDC Network,” says Atul Khekade, co-founder of the XDC Network.