Last month, IBM announced a groundbreaking deal.
The tech giant said it will partner with digital security platform leader Securitize to create the world’s first debt issuance platform using blockchain technology.
This initiative will not only disrupt the corporate bond market… it will bring one of the greatest assets in the world to the doorstep of individual investors.
Let me explain…
On January 22, IBM and Securitize announced a partnership to help “tokenize” the $82 trillion corporate bond industry. Tokenization is simply selling off a piece of an asset to individual investors.
For example, investing in real estate usually costs a lot of money. You have to pay thousands in closing costs… insurance… inspections… and most people are required to put down at least 20% of the home’s value to get a mortgage.
Once you own a home… it’s an illiquid asset. That means you can’t sell it right away… or easily access the equity to pay for upgrades, your child’s tuition, or other investments.
Today, some real estate companies are selling off a portion of their properties to individual investors. The real estate asset will then be tokenized and trade on digital securities exchanges… similar to how shares of a company trade on a stock exchange.
Tokenization allows the real estate owner to tap the cash from their “illiquid” asset… and individual investors get the opportunity to purchase a portion of a fantastic piece of property they’d otherwise have no access to.
As I mentioned, corporate bonds are an $82 trillion market. And outside of buying expensive mutual funds or ETFs… most individual investors have little access to this incredible market. In fact, I’d bet most of you reading this right now have never owned a corporate bond.
Why don’t more individual owners buy corporate bonds? They aren’t sexy. They’re boring… and difficult to buy.
You have to actually pick up a phone and call a broker. And it can take several days to get a quote.
But Securitize aims to create private shares of corporate debt, which can be traded by individual investors. Right now, companies that issue debt have to go through investment banks, which charge high fees. But this new initiative will allow companies to issue debt directly to individuals (cutting out the middleman), saving time and money in the process.
Securitize will do this using blockchain technology and its digital securities (DS) protocol, an application enabling the complete lifecycle management of digital securities. This architecture ensures issuers, investors, exchanges, and all regulatory approvals are on the same page.
The DS protocol provides instant settlement when investors purchase fractions of securities.
Digital securities are also providing liquidity in commercial real estate (The St. Regis Aspen Luxury Hotel) and fine art (Andy Warhol’s “14 Small Electric Chairs”), expanding the investor base for such assets.
It’s only a matter of time until the massive corporate debt market will be tokenized. Giving more investors the opportunity to invest in corporate debt will provide liquidity… reducing costs for both issuers and investors.
Digital securities can make buying and selling corporate bonds as easy as buying and selling stocks through your online brokerage.
But the biggest takeaway is the enormous opportunity digital securities will provide over the next several years…
By cutting out third parties or gatekeepers, the individual investor will have access to many more incredible opportunities… not only in real estate, art, and corporate debt, but in equities and collectibles (imagine owning part of a Babe Ruth rookie card). I’m talking about more than $300 trillion in global assets.
|Frank Curzio with Daniel Creech|
Note: A couple weeks ago on my Frankly Speaking podcast, I deep-dove into this game-changing deal between blockchain giant IBM and the compliance platform Securitize. If you didn’t catch it then, click here to listen.