Ethereum as a settlement layer: Cadence case study
Recently, alternative investment company Cadence facilitated the issuance of a US$40 million bond using the Ethereum network.
The key financial information about the bond is stored on the Ethereum blockchain, including the ETH address of FAT Brands LLC the bond issuer, the $39.3m of bond cash on ETH (purchase price less principal reserves), as well as details of tranche A and tranche B2.
Because Cadence is integrated with Bloomberg terminals, the bond is reflected in the Bloomberg terminal for the security below as well:
In practice, each investor using Cadence gets their own Ethereum address with ERC-20 tokens that represent their allocation of the specific investment. Like any other ERC-20 token, they can be viewed on etherscan and other Ethereum compatible blockchain explorers.
The term sheet of the deal points to the particular contract on Ethereum representing all owners (pseudonymously) and their allocations, example shown below:
Cadence is the first to acknowledge that blockchain is only one portion of its overall product, with its founder Nelson Chu explaining that:
It’s a long game we’re playing. We just got the trustee comfortable with the fact that we’re even issuing a digital security to begin with! As long as we can prove we make their lives easier and they make more margin, the chance of adoption is higher.
While this type of transaction might not be the industry-disrupting, bank destroying revelation that some in the blockchain community define as the only acceptable progress, it is remarkable in and of itself that Ethereum is being used as a run of the mill part of a bond issuance right now, and to structure and facilitate ownership records of (relatively) high value financial instruments.
We expect this kind of use of smart contracts to continue to creep into the existing financial sector, helping blockchain innovation spread.