Blockchain-based debt protocol obliges registers first tokenized bond issue on Polygon Network

Obligate, a blockchain-based debt protocol, has conducted the first bond issuance without the involvement of any banks using the Polygon blockchain, the protocol announced Wednesday in a statement.

The issuer was Muff Trading AG, a Swiss physical commodities trading shop specializing in sourcing precious metals and commodities from South America. Muff sold tokenized corporate bonds using Obligate’s marketplace. The companies did not disclose the size and terms of the debt issue.

The development comes before Obligate opens its platform to a wider audience on March 27.

Obligate, which is regulated as a financial intermediary in Switzerland, allows companies to issue bonds and certificates using blockchain technology without relying on banks. It combines the efficiency of smart contracts and traditional financial regulations. Issuers must go through know-your-customer (KYC) checks before onboarding to comply with regulations. Investors receive ERC-20 tokens in the crypto wallets that represent the bond, and are entitled to receive payment at maturity or security in the event of default.

The development highlights the proliferation of on-chain debt markets in decentralized finance (DeFi) and is the latest example of crypto markets offering real-world financial services for businesses and sophisticated investors. Last month, German industrial giant Siemens issued $64 million in one-year bonds on Polygon.

“The bond market is the largest financial market, but it only works well for large companies,” Benedikt Schuppli, Obligate’s CEO, told CoinDesk.

The most prominent advantage of issuing debt via blockchain-based protocols is that it connects bond issuers with investors without intermediaries, which reduces costs and administrative fees, Shuppli explained. This gives smaller firms access to financing through bond markets.

Luca Muff, founder and CEO of Muff Trading, told CoinDesk that this was the first time his company issued bonds and chose Obligate to access markets. “As a mid-sized commodity trader, it’s a very tough environment these days with traditional banks,” he said.

Obligate charges a 0.5% issuance fee based on the size of the debt paid by the issuer.

Unlike Siemens’ on-chain bonds, Muff’s issuance bypassed banks’ traditional payment rails for fiat money and was funded using Circle’s USDC stablecoin. The debt was secured by receivables held at Apex Group, a financial firm with about $200 billion in assets under custody and a partner of Obligate.

“With traditional sources of lending constrained by current market conditions, this issuance gives investors access to chain bonds and certificates at a fraction of the cost and time, within the same secure and regulated framework they are familiar with from the traditional financial markets,” said Bruce Jackson, Apex’s Head of digital asset funds and business.

Obligate’s choice to use Polygon, an Ethereum sidechain, demonstrates blockchain’s growing allure for institutional capital. Investment management firm Hamilton Lane opened tokenized funds on Polygon earlier this year, while Clearpool, a DeFi debt protocol, is set to open its institutional platform Prime exclusively on Polygon in the coming months.

Obligate raised $4 million from Circle Ventures earlier this year, after securing a $4.5 million investment from Blockchange Ventures, Earlybird Venture Capital and SIX Fintech Ventures.