Untangled.Finance was built by the team at Binkabi.io, a blockchain-based supply chain financing platform. Binkabi is a venture funded Fintech focusing on supply chain financing solutions in the food supply chain in emerging markets. The Binkabi platform is used internationally by banks and commodity exchanges.
Whilst Binkabi is focusing on digital lending technology i.e. asset origination, Untangled.Finance focuses on the ‘Distribute’ part of the ‘Originate-and-Distribute’ cycle. The process of distributing assets on the Untangled platform consists of 3 steps:
- Asset tokenization: Assets are imported to the platform via APIs or an electronic file. Here data is standardized according to European Central Bank’s data templates for each type of assets. Once they are approved by a trusted party the assets are tokenized e.g. each loan is represented by an unique token (Non-Fungible Token or NFT) on Ethereum blockchain
- Pool Construction: An asset originator/owner sets up an asset pool according to screening criteria e.g. SME loans under 3 months outstanding. The pool owner can also allocate roles to trusted third parties such as auditors, legal counsel who coordinate their work through a single portal/source of truth.
- Syndication: The pool is sold directly or via an auction through a native marketplace. An investor could buy the pool outright or a group of investors could jointly participate. This scenario is used when investors are interested in direct ownership of the underlying assets e.g. sale/purchase of an NPL portfolio. Settlement takes place directly on the platform via near instant ‘delivery vs. payment’ or via a bank transfer. The title to the pool is then transferred electronically to the buyer.
Where securitisation is involved, an issuer first buys the pool then structures the security and the sale on the platform. Investors buy the security instead of the loans. Unlike the loan token (Loans NFT) the security/Note is a Fungible Token (Notes FT) on Ethereum blockchain.
This solution could bring a number of tangible benefits:
TRANSPARENCY Investors participate in security offerings via a fair and transparent auction They can track underlying asset performance on a loan-level basis anywhere, any time. All transactions are immutably and transparently recorded on the blockchain on a real-time basis allowing investors to accurately price the security.
LOWER COSTS: Early pilots have shown that issuers could save at least 100bps or up to 50% of transaction costs. The efficiency gain makes it possible to securitise smaller asset portfolios.
FASTER EXECUTION: In a fast changing market, speed is important. The solution can cut down the time to get a securitisation ready from months to a couple of weeks, based on standardised structure, automated data processing and updating, streamlined transaction coordination and tokenization.
GREATER SECURITY: The use of Fungible, Non-Fungible Tokens and smart contract technology enables a digital platform to provide a secure end-to-end environment for both originators and investors to transact.
The use of tokens could fundamentally address the challenges of securitisation, making it again an effective way of creating liquidity for originators and new return opportunities for investors.