Singapore-based Depos Technologies issued a token on top of a bond issued by Deutsche Bank. In the interview to Digital Asset Live, Oleg Bakatanov, Depos CEO, disclosed that this effort was a part of a larger plan to create a stablecoin based on a collateralized high-quality corporate bond.
Q1: Currently, fintech is the main area for tokenization and other blockchain adoptions. Why do you think DLTs are so popular in financial services?
A1: Financial services are all about data and value exchange and, as far as the amount of value can be quite big, trust and transparency issues are critically important here.
This is why the financial industry is so highly regulated and many parties are involved to control data flows and their trustworthiness. DLTs are ideally designed to address trust and transparency issues and automate the work in which many people are involved now because they don’t trust each other
Q2: Why do we need to tokenize shares, futures, bonds? What is wrong with the traditional financial instruments that we have used for decades and centuries?
A2: Let’s take an example of a traditional securities trading business (stocks). Currently, this market has many layers (and databases) which are run by centralized and regulated intermediaries. E.g. you trade stocks via your broker on exchange.
In most cases, your ownership of these stocks is reflected only in database of the broker, which, in its turn, has an account with stock exchange where these securities are kept on broker’s name.
Stock exchange, on its turn, can also have an account with securities register which holds information about all shareholders of the corporation which stock you have purchased.
Since all these databases are centralized, they can be manipulated by people who run them. Your broker, technically, can put you stocks balance to 0, change your trade log or money balance.
This is why so many people involved in keeping these databases reliable: accountants, back-officers, compliance officers, internal auditors, external auditors, regulators… Blockchain enables to put all these databases into one trusted and reliable information layer and automate it.
Q3: You have tokenized Deutsche Bank bonds? How did it go? What can one do with them, what one could not do with the non-tokenized bonds?
A3: We purchased Deutsche Bank bond on the market, put it on escrow account in UK-based custody and issued dBond token on the top of it. But this operation on DB bonds tokenization wasn’t not about making blockchain proxy on publicly tradeable bond and bring it to the market.
This operation is a part of a bigger concept of creating a stablecoin collateralized by high-quality corporate debt. Using debt has serious advantages over using cash in the bank: much clearer credit quality, transparency, better interest rates.
First stablecoins (DUSD) collateralized by DB bond are already issued and available on EOS mainnet at https://depos.io.
Other unique feature of our approach is that stablecoin smart-contract holds not only illiquid bonds but also liquid crypto (EOS).
This enables a regular user to mint and redeem stablecoins exchanging them directly to EOS at current market price on-chain. In other words, stablecoin smart-contract also works like DEX and market-maker at the same time, providing liquidity to DUSD stablecoin.
Q4: Why did you choose EOS?
A4: When we selected a blockchain platform to build on (it was around a year ago) EOS was the only one enabling complex high performance smart contracts.
Transactions happen almost instantly, any complex smart-contract logic can be implemented using flexible C++.
And, what is also important, you don’t need to pay per transaction, which gives a lot of flexibility in smart-contract design and functions.
Now we cooperate with Zilliqa blockchain in order to build also here.
Q5: Depos offers a decentralized lending market. Can you please describe what new opportunities it will bring to investors who do not know much about blokchain?
A5: Decentralized lending market is one of the ideas we are working on. In short, it gives an opportunity to borrow one asset providing another asset as a collateral using blockchain smart contract.
All such deals should be truly peer-to-peer, where two market participants agree on all terms, including interest rate, period, type of collateral and other.
Smart contract locks collateral and releases it only when debt has been paid off. No any third party participates or can influence this agreement.
Q6: Besides bonds, what other financial instruments will be tokenized, in your opinion?
A6: Blockchain may have multiple implications inside financial industry. For example, quite large market which can be tokenized is trade finance. We also see large opportunities in foreign exchange where fiat-pegged tokens (stablecoins) can be effectively used to make cheap, fast and reliable currency conversions.
Q7: What are the main challenges in adoption of DLTs in fintech?
A7: Application of DLTs can lead to serious structural changes in financial markets. Functions which were quite important before can become obsolete. For some very powerful market incumbents (such as banks) implementation of DLTs may mean loss of huge businesses which have been profitable for years.
Of course, they can be quite worried about wide spread of DLT technologies. Maybe, such radical changes in the whole industries shouldn’t happen too fast.
Another issue is of course regulations. Money flows is one of the most critical elements governments want to regulate and control.
Until clear regulations are in place, many players (especially large one which have a lot to lose) will be reluctant to even experiment with DLTs.
Q8: Please share your vision of the tokenized financial market, and when do you think we will get there?
A8: If we speak about traditional financial markets (such as stocks and bonds), blockchain technologies can be widely adopted here within next 5-10 years. But, I think, from the end-user experience, nothing will change much. You will see the same trading terminals and stock charts, but most of the things which happen under the hood will be different, much more automated and (I hope) reliable.