The world’s first fully automated cryptocurrency-denominated bond issuance that is also cleared, settled and registered on a public blockchain infrastructure has been completed by Nivaura, a fintech company that developed a cloud-based service for the issuance and administration of financial instruments by small and medium-sized issuers.
The Nivaura platform enables the issuance and administration of legally enforceable financial instruments at significantly lower cost than current channels.
LuxDeco, an online retailer of luxury furniture and home decor accessories, issued ether-denominated bonds which were structured, executed and will be administered through the Nivaura platform.
The transaction took place in Fuse — a tech innovation space based in Allen & Overy’s London offices — and was part of the Financial Conduct Authority’s regulatory sandbox, which allows businesses to test innovative products, services, business models and delivery mechanisms in the real market, with real consumers.
A key element of the Nivaura platform and this transaction is the Legal Mark-up Language (LML) component, which enables the conversion of standard legal contracts into machine-readable formats to enable the automated formation, performance and enforcement of financial instruments.
The LML-based legal contracts governing LuxDeco’s cryptocurrency-denominated bonds were automatically structured on Nivaura’s platform based on issuer and investor requirements, and then seamlessly cleared, settled and registered on the open public Ethereum blockchain network. The purpose of this execution was to demonstrate the benefits of Nivaura’s capital markets solution.
Dr Avtar Sehra, CEO and chief product architect at Nivaura, comments: “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, so 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.”
Allen & Overy partner Phil Smith, who leads the relationship with Nivaura, adds: “This is a really exciting development not just for LuxDeco, Nivaura and A&O, 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.”
LuxDeco CEO Jonathan Holmes comments: “We’re a fast growing SME with a global client base, operating in the luxury retail space. In some jurisdictions our clients have already expressed interest in paying in bitcoin or ether. After we executed our first GBP bond issuance with Nivaura for short term financing of seasonal inventory, a cryptocurrency based test case made sense. If we start accepting payments in cryptocurrency there is potentially a natural case for funding our working capital cycles through this means too.”
Allen & Overy has assisted Nivaura commercially in a variety of ways, including providing support in developing all bond document templates in the Nivaura platform for use in the Financial Conduct Authority’s regulatory sandbox environment.
This test consisted of a fully automated crypto-denominated bond issuance, completely cleared, settled and registered on a public blockchain infrastructure. However, Nivaura has previously executed two successful automated GBP-denominated bond issuances using the platform. These were cleared and settled using a traditional post-trade set-up and mirrored on an open public blockchain network.
The GBP funds, held in a client money account, were tokenised for on-chain clearing, settlement and registration of the issued assets. Nivaura has executed its three issuances in the Financial Conduct Authority sandbox as a participant in both Cohort 1 and Cohort 2 of the programme, the only company to be involved in both cohorts.
Nivaura was the first company invited to work in Fuse. As entrepreneurs-in-residence, Nivaura team members are helping to guide the other tech companies working in the space by sharing advice and business experiences while continuing to develop their own business.
