This is an interesting concept to preserve investors fund. But my questions are:
1. How do you preserve investors fund peradventure the ICO is a scam?
2. What yardstick do you use in vetting the legitimacy of the ICO you stand in for?
Cryptobonds issuers are subject to detailed scrutiny. Due diligence is carried out as in fiat bond issuance process. Also, we may act as trustees for the bond, that is, we guarantee repayment in the case of default. For that purpose we set aside the full amount of the issue; it is on blockchain so visible to anyone. We charge premium to the issuer for taking that risk.
There is no rating agency in place as of yet, so the underwriting syndicate will carefully examine the issuer. This is similar to ICO pre sales. Imagine you are a member of the syndicate, asked to commit yourself to purchase a large block of bonds. You want to be sure they are redeemable or resaleable so you will ask the issuer important questions. Bondholders will be able to hedge their positions by purchasing cryptoswaps, i.e. insurance on default of the bonds.
The FCA's position on crypto derivatives is at
https://www.fca.org.uk/news/statements/cryptocurrency-derivatives and bonds particularly are mentioned in
https://www.fca.org.uk/publication/feedback/fs17-04.pdf .
We will follow the issuance process as specified by the
https://www.fca.org.uk/markets/ukla wherever applicable. Examples of a substantial fiat bond documentation are available at
https://marketsecurities.fca.org.uk/ and for an informative overview of UK bonds, an excellent resource is
https://www.wildy.com/isbn/9781912363100/clp-legal-practice-guides-banking-and-capital-markets-2018-paperback-a4-college-of-law-publishing .
I propose to issue bonds on
https://counterparty.io/ like e.g.
https://xchain.io/address/1Pg37Kbjfs7uw4ifZtU7rbHNPWFjMhYowk or other platform if more suitable.
Bond terms will need to be decided:
- how to supplement for a credit rating (no rating agency in place as of yet)
- the amount
- return on investment
- when redeemable
- bondholders' rights in the case of default
We are happy to help issuers with the specification of their requirements. As to our remuneration, it will be in principle based on a combination of fees and commissions and I propose to finalise it together with the issuers.
