A crypto brokerage founder says he has a new way to revolutionize the world of high finance: selling government and corporate bonds to investors online, using digital currency technology to track transactions.
(Bloomberg) — A crypto brokerage founder says he has a new way to revolutionize the world of high finance: selling government and corporate bonds to investors online, using digital currency technology to track transactions.
Max Boonen, founder of crypto brokerage B2C2 and a former interest-rate trader at Goldman Sachs Group Inc., said his latest venture will make it easier for retail and smaller institutional investors to see which bonds are for sale and at what price.
Boonen’s firm plans to use blockchain technology — a shared and public record of transactions on the Internet. Called PV01, the Brussels-headquartered business launches Wednesday.
“The bond market has a real accessibility problem,” Boonen said. PV01 will begin by looking to sell government securities on-chain before applying for a regulatory license to sell corporate debt. He said he anticipates it will take four months to get approval for government securities, and then another six months for corporate ones.
To be sure, retail traders already have access to corporate bonds, in the form of digital bond trading platforms such as Tradeweb, and brokerages like Charles Schwab Corp. that buy and sell bonds. Individual investors can also buy the securities indirectly, through exchange traded funds and mutual funds.
But retail clients can be blocked from buying many individual bonds directly due to regulations such as the Securities and Exchange Commission’s 144A rule which allows sales only to qualified institutional investors.
The launch of PV01 — named after an acronym used in finance that describes how much a bond price changes when yields go up or down — comes after years of criticism of the opaque process of selling bonds, which contrasts with the ease with which retail investors can buy stocks, including through Robinhood and other trading apps.
It also coincides with a prolonged slump in crypto prices that has wiped $2 trillion off the value of the digital asset market. Despite the protracted crypto winter, several large financial institutions continue to advance projects aimed at finding ways to use blockchain to issue, trade and settle traditional assets.
“Blockchain technology will be transformative for the financial sector,” said David Knutson, chair of the Credit Roundtable and head of US fixed income product management at Schroders. “In many ways, bond trading is archaic with uneven treatment for institutions compared to individuals.”
Blockchain technology should increase transparency and efficiency, which should ultimately lower costs for big and small investors, he added.
However, there have been few applications at a large scale and many abandoned efforts. This has led critics to debate the usefulness of the technology for traditional markets.
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PV01 believes that using public blockchains will provide more information on who owns which bonds and facilitate the sale of both corporate and government debt to a wider audience. This would ultimately help to free the market from the “big boys club” of large banks and investors, Boonen said.
Investors’ ability to easily shift into cash-like securities, such as short-term government bonds and money market funds, has become a hot button topic amid worries over banks’ abilities to withstand deposit outflows and the highest inflation in decades.
The average rate paid on US savings accounts at banks is just 0.33%, according to DepositAccounts, but many depositors have yet to shift money into higher-yielding securities.
PV01 plans to underwrite as well as invest in new bond deals. That means that while it intends to offload risks to investors like a bank does, it will also be one of the entities buying the securities.
“I like to get my hands dirty — that is how you build credibility,” Boonen said.
Investors in the new venture include crypto hedge fund BlockTower, Tioga Capital and Sino Global Capital.
“The PV01 platform is designed to spread risk across a broader spectrum of market participants and serve as a much-needed foundation to upgrade the digital bond market,” said Nicolas Priem, chief investment officer for Tioga.
Michael Bucella, longtime investor and former general partner at BlockTower says the technology has room to run.
“The traditional capital market is moving on chain, bit by bit,” he said. “This will continue to evolve over the coming years.”
Sino didn’t immediately respond to a request for comment.
PV01, founded in January, raised about $9 million in pre-seed funding. There are plans for additional fundraising to shore up more capital for underwriting and trading, Boonen said.
(Adds company comment.)
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