Introduction

TradeFinex is a global trade finance system which is run on top of XinFin’s first-of-its-kind public/private hybrid blockchain architecture powered by the XDC01 Protocol with XDC as the native digital asset.

XinFin was founded in 2017. Since then, the organisation has been faithfully walking their strategic journey and achieved almost every significant milestone they had set despite the prolonged crypto bear market that we had experienced since the start of 2018.

XinFin’s initial long-term strategic roadmap

XinFin’s Hybrid Blockchain combines the availability, transparency and decentralisation benefits of a public blockchain along with security, privacy and high transaction speed benefits of a private blockchain. XinFin’s blockchain boasts of a mere 2-second transaction settlement time, negligibly small transaction fees and throughput up to 2000 Transactions Per Second (TPS). These features are in many ways far superior than most of XinFin’s counterparts.

A performance comparison table among XDC and its peers

XinFin has been making great strides in terms of partnerships and alliances which are arguably the most important elements that needs to be looked at when assessing a blockchain project. Such partnerships and alliances include the likes of:

R3 and its Corda ecosystem;

and its ecosystem; Circle , a global digital asset company;

, a global digital asset company; Abu Dhabi Global Market (ADGM) , an international financial centre of UAE;

, an international financial centre of UAE; Official Monetary and Financial Institutions Forum (OMFIF) ;

; BPI France , a $60 Billion EUR Public Investment Bank owner by the French Government;

, a $60 Billion EUR Public Investment Bank owner by the French Government; Ramco Systems , a global enterprise software specialist with more than 1000 financial institutions as customers since inception;

, a global enterprise software specialist with more than 1000 financial institutions as customers since inception; University of California, Berkeley in the form of a blockchain research lab;

in the form of a blockchain research lab; Nanyang Technological University of Singapore ; and,

; and, AiX, a leading AI Trading Platform backed by a FINRA-registered Wall Street Brokerage Firm.

This article will be one of many articles covering the different parts of the XinFin ecosystem with the aim to better educate both the existing as well as prospective retail investors. In this first article, I will be explaining one of the main use cases of the XinFin and the XDC ecosystem: TradeFinex Smart Bonds and the XDC Use Case.

In this article I will cover:

What a bond is in layman’s terms;

Benefits of representing a bond as a smart contract;

How a smart contract for a bond is represented on TradeFinex; and,

Where XDC gets used in this process.

1 — What is a bond is in layman’s terms?

A bond is simply a document that records a loan made by an investor to a borrower.

For example, a construction company called “Borrower A” may have received a grant from the government to build a solar power plant. Borrower A may be interested in borrowing money or often called “raising finance” for the construction of the plant.

In this case, what Borrower A may do is issue a bond document with the following details:

Bond Issuance 1 Borrowing amount: $100m Interest: 10% per annum

Interest Amount: $10m per annum Interest payable: Twice a year — i.e. every 6 months (also called “semi-annual”)

Borrowing term: 5 years

Total number of interest payments = 2 x 5 = 10

An investment company (often called the financier) called “Lender B” agrees to accept the conditions of this bond issuance document. Borrower A and Lender B gets together to sign a contract with the above terms and conditions of the bond issuance. The contract is signed and $100m is transferred from Lender B’s bank account to Borrower A’s bank account.

Borrower A then pays $100m x 5% = $5m every six months to Lender B until the end of the borrowing term. At the end of the borrowing term, Borrower A repays $100m to Lender B. At this time, the bond contract ends which is alternatively called a bond expiry or a bond maturity.

2 — What are the benefits of having a bond as a smart contract?

In traditional financing, a bond issuance such as the above would be a manual process. However, deploying a bond as a smart contract has the following advantages:

Trust: The bond document is stored and encrypted on a shared ledger. This prevents someone from claiming that they have accidentally lost the bond document. Smart contracts allow parties to commit to and be bound by the conditions and the rules written in it.

Transparency: All the contractual obligations of the bond issuance are written inside a smart contract with clear and intricate details so that the parties involved can reach an agreement with a clearly understood set of conditions, thus significantly reducing the likelihood of future disputes.

Autonomy: The lender and borrower are the ones drawing up the bond agreement; there is a significantly reduced reliance on external parties such as brokers, lawyers and other intermediaries. This also prevents the danger of manipulation by a third party since execution is managed automatically by the blockchain.

Accuracy: Automated bond smart contracts are not only faster and cheaper but also help to avoid errors that could potentially arise from a person drawing up the contract. In a manual contract the contractual conditions may accidentally be omitted, there may be typos and the handwriting may be confusing or may be misinterpreted. However, in a smart contract, the conditions are coded in a logical and detailed form resulting in fewer errors.

Speed: It could take a significant amount of time to interpret, process and execute a bond contract manually. Smart contracts contain computer code that is executed automatically at a fraction of the time taken to process a manual contract.

Savings: Smart contracts can provide significant savings as it removes the need for intermediaries. For instance, you would pay a lawyer for drawing up a contract manually but in smart contracts it’s all in your hand as the code is the law.

Safety: Your data is kept safe by a secure cryptographic encryption. Since this form of encryption boasts the highest level of data security standards, critical data and processes can be safely protected.

3 — How is a smart contract for a bond represented on TradeFinex?

In TradeFinex, a smart contract for a bond is called a Smart Bond. Any existing bond or a new bond issuance can be created and deployed on the TradeFinex platform using the following process.

TradeFinex Smart Bond Issuance Process

Source: https://www.tradefinex.org/

A web-based platform is used to log into the account, create and deploy a bond. Various details of a bond such as the bond start and end dates, interest rates and payment frequency, name of the bond, industry, as well as the creditworthiness of the institution issuing the bond can be entered when creating a bond.

TradeFinex.org — Bond Creation Page that allows smart bonds to be easily created and issued on the blockchain

Once a bond has been deployed onto the TradeFinex platform, the status as well as the summary of the bond can be viewed on the platform.

TradeFinex.org — Discover Bonds Page showing a list of bonds that have been deployed

TradeFinex is a fantastic global platform that will bring many global suppliers, borrowers and financiers from all over the world. Thanks to XinFin’s superior hybrid blockchain technology, the participants are able to engage in international trade finance in a drastically improved way that was previously not possible.

4 — Where does XDC get used in the TradeFinex smart bond process?

There are multiple ways in which XDC can be used in a bond issuance:

4.1. Paying XDC as a processing fee on exchange.tradefinex.org

The TradeFinex platform is powered by the XDC01 Protocol and a small processing fee is charged in XDC to deploy a bond onto the platform.

Where is XDC used? — In order to record and deploy a smart bond on the platform, a small amount of XDC is required to be paid to process the deployment.

4.2. Lending and borrowing in XDC backed stable coin

A stable coin, for example called XSC (XinFin Stable Coin), can be issued at a conversion rate of 1 XSC = 1 XDC. Lender B can purchase $100 million equivalent of XSC and lend that to Borrower A. Borrower A pays the same number of XSC to Lender B when the bond expires.

Such a stable coin would be backed by multiples of XDC as a collateral to protect against the fall in value of XDC. For example, a ratio of 1/5 would imply that 5 XDC will be used to back the 1 XSC. In this case, even though 1 XSC = 1 XDC, additional 4 XDC would be held as collateral to protect against a reduction in the value of XDC. When Lender B receives the total number of XSC back that is equivalent to the total number of XSC borrowed, Lender B can have a peace of mind that the value equivalent to $100 million USD is returned to them.

Where is XDC used? — The 5 XDC in this case would be locked into the XinFin blockchain and only released when the bond expires.

The advantages of using a XDC backed stable coin are as follows:

Settlement on the XinFin/TradeFinex platform is significantly quicker compared to fiat.

XDC backed stable coin is most likely going to be fully regulated and hence will be more transparent than USDT (USD Tether).

Participate and support the growth and stability of the XDC ecosystem.

Increase the value of the XDC digital asset as a result of a reduced supply of XDC.

Potential upside gain from an increase in the value of XDC.

Benefit from the protection against falls in the value of XDC.

Drastically reduced cost of foreign exchange fees if Lender B and Borrower A are in different countries requiring different forms of fiat.

With traditional fiat becoming more and more unstable , stablecoins backed by digital assets may be a better way to hold your value. XDC can serve as a protection against fiat inflation over the longer term as XDC is fixed in supply.

XSC could be represented as an IOU on the globally accepted standard of internet-based value exchange mechanism called the Interledger Protocol (ILP) and the value could be exchanged into other forms of fiat, digital assets or commodities with minimal friction and cost of conversion.

The disadvantages are as follows:

An opportunity cost may exist as a significant amount of additional XDC would need to be sourced as collateral and locked-in XDC cannot be used for another purpose until bond expiry.

The holder of the collateral would incur the loss should the value of XDC fall.

4.3. Lending and borrowing in fiat backed stable coin deployed on XinFin

A USD backed stable coin, for example called UBSC (USD Backed Stable Coin), can be issued at a conversion rate of 1 UBSC = 1 USD. Lender B can purchase 100 million UBSC and lend that to Borrower A. Borrower A pays back 100 million UBSC to Lender B when the bond expires.

Where is XDC used? — In this case, no XDC would need to be locked-in as a collateral. A smart contract processing fee in XDC analogous to ETH gas would be paid in XDC to execute the smart contract.

The advantages of using a USD backed stable coin are as follows:

Settlement on the XinFin/TradeFinex platform is significantly quicker compared to fiat

UBSC could be represented as an IOU and the value could be exchanged to other forms of fiat, digital assets or commodities using the Interledger Protocol (ILP) with minimal friction and cost of conversion.

The disadvantages are as follows:

UBSC would lose value over time equivalent to the loss of value of USD over time due to inflation. Such a risk can be mitigated by increasing the bond interest receivable to include the anticipated level of inflation over the 5 years.

4.4. Lending and borrowing directly against XDC

Lender B would purchase $100 million USD equivalent of XDC from the open market and lend that to Borrower A. Borrower A pays back the same number of XDC to Lender B when the bond expires.

Where is XDC used? — XDC will need to be purchased from the open market.

The advantages of using XDC directly are as follows:

Participate and support the growth and stability of the XDC ecosystem.

Increase the value of the XDC digital asset as a result of increased demand for XDC.

The disadvantages are as follows:

Lender B holds a significant risk due to the fluctuation in the price of XDC over the longer term should the value of XDC decrease significantly over the 5 years.

Borrower A holds a significant risk of not being able to pay back the same number of XDC should the value of XDC increases significantly over the 5 years

The above risks are likely to reduce significantly over the longer term as the XDC ecosystem matures and the increased liquidity of XDC results in lower price volatility until such time that the volatility becomes comparable to the fiat market FX fluctuations.

5. Conclusion

In this article, I briefly introduced the XinFin hybrid blockchain and the native digital asset XDC. Furthermore, we looked at the TradeFinex platform that runs on top of the XinFin blockchain and looked at how a smart bond operates and the use case for XDC in smart bonds.

The XinFin blockchain and the XDC digital asset is superior to other blockchains and digital assets in many ways and the partnerships that have been formed thus far shows the great progress the project has made since 2017.

Given the wide variety of the use-cases of the blockchain, consistent effort by the founders and the developers to develop the ecosystem, increasing number of partnerships and existence of a clear strategic roadmap, XinFin and the XDC digital asset is likely to be a golden nugget that is not to be missed.

For the TradeFinex Smart Bond, the following XDC use-cases are likely to have the most profound impact on the price of XDC:

Lending and borrowing in XDC backed stable coin; as well as,

Lending and borrowing directly against XDC are likely to have the most profound impact on the price of XDC.

The founders of XinFin are working hard to make these XDC use-cases a reality. If you have any great ideas around how the above two objectives can be achieved, please feel free to share your ideas in the TradeFinex section of the XDC Talk Forum at https://www.xdctalk.org.

If you have stuck with me and have read this article thus far, I would just like to say thank you. I hope that this article gives you some additional perspective on how huge the XinFin ecosystem can become in the future and the XDC digital asset to be at the centre of it all.

Hope to provide you with Part 2 soon!

About the author:

Charles Lee was previously a consulting actuary at Deloitte, KPMG and Aon with keen interest in technology shown in extensive programming experience in NodeJS, ReactJS, Python and R, as well as cloud certifications in AWS Solutions Architect, Developer and System Administrator courses. Charles has completed further 30+ online courses in data science, machine learning, data engineering and currently works as a Senior Cloud and Data Engineer at AMP in Sydney Australia.

Charles is a keen enthusiast in blockchain having been part of the XRP community for well over 2 years. He recently encountered XinFin and became a huge follower and supporter of the project.

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