The way companies raise money from investors could be transformed after a UK-based firm helped launch the world’s first automated bond issue in a cryptocurrency on a public blockchain platform.
Nivaura, a UK-based financial technology firm that graduated from Microsoft’s Accelerator programme for start-ups, has developed an Ethereum blockchain-based service that reduces the need for middlemen and costs associated with regulatory clearances. As a result, it can help firms raise money at a much lower cost than current methods; and more investors can take part because it’s public.
Under the oversight of the Financial Conduct Authority (FCA), the solution, which runs on the secure Microsoft cloud platform Azure, was recently used to enable online luxury retailer LuxDeco to issue ether-denominated bonds.
In a world-first, Nivaura’s technology automated the creation of the necessary legal documents, the coordination of covenants, conditions and bookbuilding, the required e-signatures, the creation of the asset and money registers, delivery versus payment of the instrument and the ongoing management of the bonds, all on a public platform.
Nivaura hope their platform can be used by banks and law firms to help small and medium-sized companies access new sources of funding, because it will now be cost-effective for them to do so.
Avtar Sehra, Chief Executive and Chief Product Architect at Nivaura, said: “What we’re showing is you can use open public infrastructure for regulated financial instruments, and this is a very critical step, because from the earliest stages we’ve always believed that public blockchains are the way forward.
“As cryptocurrencies or tokenised fiat-currencies become an accepted form of payment mechanism it won’t be long before automated crypto-denominated deals become standard practice. The fact that we’ve successfully executed a private placement transaction with retail investors puts us in a really good position to help those who follow in LuxDeco’s footsteps.”
Blockchain is a database that can be added to but not modified, making it very secure, while each entry, or block, is linked to the previous one, so they are also quick and easy to use. It is historically known as a core part of the digital currency bitcoin but can be used for any transaction, so has the potential to revolutionise most sectors.
Nivaura chose to run on Azure because Microsoft’s cloud platform complies with guidance released by the UK’s top financial regulator. The FCA released guidance in July aimed at aiding firms from the financial services sector as they move workloads online – from deciding to outsource and selecting a provider, to monitoring how their data is handled.
JPMorgan, Allen & Overy and Moody’s helped with Nivaura’s bond issue, which had a week-long maturity and paid 10% annual interest – a premium was added to manage volatility in the currency.
Allen & Overy partner Phil Smith added: “This is a really exciting development not just for LuxDeco, Nivaura and Allen & Overy, but for the debt capital markets as a whole. The Nivaura platform has the potential to open up the markets to those smaller companies that previously saw cost of execution as a limiting factor. We believe we’re likely to see some really interesting shifts in the funding landscape as a result.”