Bitfinex Securities, sister firm of stablecoin issuer Tether, is to host the issuance of its first tokenized bond. ‘Alternative’, a Luxembourg micro finance fund, will issue the bond. The Alternative fund is active in Italy and Eastern Europe and is managed by Mikro Kapital.
The most novel aspect of the three year bond isn’t the 10% yield. It that it’s denominated in the Tether stablecoin. That could be viewed as risky for investors. You’re not only betting that Mikro Kapital can pay you back in three years, you are also hoping that the Tether stablecoin is still worth one dollar in 2026.
For Mikro Kapital it’s a brilliant idea. In three years, if Tether is still worth a dollar, it has to pay back what it owes. But if it turns out that Tether is worth less, then it effectively received some free money. That looks like a smart deal for Mikro Kapital.
For those not in the know, the Tether stablecoin hasn’t always been fully backed. That’s not a libellous allegation. The New York Attorney General stated that was the case in a settlement with Tether and the Bitfinex crypto exchange. Additionally, not all of the Tether backing assets are currently in Treasuries. For example, it includes some Bitcoin and gold.
With Tether’s stablecoin market capitalization standing at $84 billion, clearly there’s a few people who don’t have reservations. Supporting their view, Tether is a massively profitable business now earning around $4 billion a year in interest.
On the other hand, the Bitfinex crypto exchange has been accident prone. Tether wasn’t fully backed in 2018 because it lent money to Bitfinex to cover a $850 million balance sheet hole. That was because a crypto onramp company ran off with its money. According to the NY Attorney General, Tether had its proof of assets certified at the start of the month and the next day transferred a large chunk of its stablecoin reserves to Bitfinex.
Unsurprisingly, the bond is not available to U.S. citizens and it only targets accredited investors. Bitfinex Securities’ regulator is the Astana International Financial Centre (AIFC).
To date, Bitfinex Securities has issued two other tokenized securities, one in 2021, and another in 2022. It uses Blockstream’s Liquid Network, a layer 2 for the Bitcoin network. Both Baillie Gifford and Daiwa Securities expressed interest in the Liquid Network. In 2021, Baillie Gifford co-led Blockstream’s Series B funding with iFinex, Bitfinex’s parent.