Tradeteq, a technology provider for trade finance asset distribution, has completed what it says is the world’s first trade finance-based non-fungible token (NFT) transaction, on Singapore-based eXchange inFinite’s (XinFin) XDC 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.
In this new transaction, which was conducted with Dublin-headquartered invoice finance company Accelerated Payments as the asset originator, trade finance assets were repackaged into NFTs using the XDC network’s blockchain technology. Institutional investors can buy and sell these tokens, which represent the value of an off-chain asset. This gives token holders legal entitlement to an asset or package of assets.
“The collaboration between XinFin, Tradeteq and Accelerated Payments completes the chain from investor right through to the recipient of funding with complete transparency, accountability and liquidity,” says Ian Duffy, founder and CEO of Accelerated Payments. “This important step demonstrates the ability to disaggregate the invoice discounting industry and paves the way to providing access to a much wider range of funders and beneficiaries, providing a platform that can truly scale globally.”
An NFT is a unique unit of data, or token, stored on the blockchain. Unlike cryptocurrency, such as bitcoin, or even traditional money, such as a one dollar note, one NFT can’t be traded or exchanged for another – that is, they are not fungible.
NFTs have gained fame most recently in the digital art world, with virtual collectibles netting multi-million-dollar sums at auction. However, they have also attracted criticism over their energy usage, since NFTs are typically held on the Ethereum blockchain, which is secured using a similar proof-of-work system to bitcoin.
The XDC Network, meanwhile, uses a delegated proof-of-stake system, a much more computationally efficient consensus mechanism. According to XinFin, the annual energy consumption of an XDC block is 7,400kWh, which is approximately 3 million times lower than that of Ethereum mining.
“XDC is a fork of go-ethereum, so we are EVM [the Ethereum Virtual Machine] compatible, and anything you can do on Ethereum, you can do on XDC. Therefore, we maintain an environment that developers in the crypto space are familiar with,” Billy Sebell, XinFin’s head of ecosystem, tells GTR. “However, because we use proof of stake, we are far more energy efficient, confirmation times are nearly instant, and there is never any network congestion, so it is hyper-scalable as a network.”
“We are also very inexpensive to operate on,” he adds. “Ethereum has very high gas fees, whereas XDC transactions are less than 0.0001 of a penny, so it is fast and low cost.”
Another benefit of the XinFin network is that it operates as a hybrid public-private blockchain. This means that transaction details can be held privately, while a limited set of data is relayed to the public network to confirm the immutability of that transaction.
This avoids issues faced by platforms that simply record transactions on Ethereum’s distributed ledger, such as that of Triterras. GTR revealed in March this year that transaction data on the Singapore-based fintech’s Kratos platform could be viewed publicly, with the names of every buyer and seller, the type of cargo being traded, and information on transaction volumes and values being displayed.
“That private-public network is something that we recognised very early on needed to be in place in order for financial institutions to come on board,” says Sebell.
The transaction comes a month after the XDC Network was chosen as the first blockchain company to join the global Trade Finance Distribution (TFD) Initiative, a consortium of trade originators, credit insurers, and institutional funders on a mission to boost automation and transparency in trade asset and risk distribution. Run on Tradeteq’s trade finance platform, its members include financial institutions and service providers such as ABN Amro, Accelerated Payments, ANZ, Commonwealth Bank of Australia, Deutsche Bank, HSBC, ING, Natixis, NN Investment Partners, SMBC, Standard Chartered and Texel Group, as well as the International Chamber of Commerce (ICC). It aims to address the widening trade finance gap by opening up additional sources of funding as well as presenting a compelling opportunity for an investor base that would not usually consider trade finance as an asset class.
“The TFD Initiative is really there to create that secondary liquidity for trade finance in the market, which is still largely lacking,” Christoph Gugelmann, co-founder and CEO of Tradeteq tells GTR. “In order to create liquidity, you need to serve any possible delivery mechanism. Some banks will distribute via assignments, others will want to create notes, and yet others have started to go down the path of creating tokens.”
Tradeteq and XinFin say that this first transaction sets the standard for all future NFT-based and tokenised trade finance transactions, and represents a “major step forward” in the tokenisation of traditional fixed income products and investment notes.
“The plan is now to carry out a number of similar transactions with other originators, and that is something we can do very quickly now as a follow-up,” says Gugelmann. He adds that the companies have already started work on a full retail offering that will be launched in the coming months. “The way forward from there will be to move into a stable coin type of offering. This would create tremendous value for investors.”
Tradeteq says that additional originators are expected to join the platform over the coming weeks.
Source: GT Review