California City Set to Revolutionize Bond Market With Blockchain Issuance Layer
Berkeley, California, is planning to raise $3-5 million via “micro bonds” using a blockchain settlement layer to bypass the ailments caused by middlemen. This could be the start of a new trend where residents are able to contribute to the improvement of their locality through interest-bearing financial instruments rather than charitable donations, reported by Forbes, December 20, 2019.
For the People, By the People
The goal of Bitcoin was to cut eradicate the inefficiencies and wealth erosion caused by middlemen, and the use of a distributed trust layer – called a blockchain – was the main reason that this was possible. Taking this into account, it only seems right that blockchain is seen as a tool for removing intermediaries and allowing ordinary people to interact directly with larger entities.
Berkeley’s municipal bond raise is being used to purchase fire and garbage trucks for the city. Usually, muni bonds are traded in minimum bands of $5,000, which served as an entry barrier for most retail investors. Micro bonds are being sold at minimum allocations of $100, which makes the use of blockchain legitimately useful in this project.
Municipal bonds have always been seen as a good investment for the risk-averse household sector. While capital appreciation may be limited, they offer a healthy coupon to earn a small amount of passive income on the side. Opening up this market to direct investment from retail is a positive sign of the impact blockchain can make on the lives of regular people.
Of Bonds and Blockchain
Blockchains can simply be described as settlement layers that replace trust in an intermediary with verification through real-time data. This core tenet makes it a favorite to disrupt the global bond market, where a majority of the world’s money and wealth is created.
Colossal entities like SocGen and the World Bank are already experimenting by using a blockchain to settle loans. It is believed that this technology can truly be a breath of fresh air to the opaque bond market.
The crypto space has a visible aversion to debt, but nobody can deny that loans and bond offerings are the backbones of modern society, giving those with great ideas but insufficient capital the ability to bootstrap their operation without selling the soul of their company.