Alternative Finance: New Opportunities With Tokenisation and Digital Assets

With alternative finance expanding rapidly — thanks to new originators and technologies entering the SME finance space —, there’s bound to be radical transformations in the market. As new SME financing platforms emerge, tokenisation and distributed finance (DeFi) will enable organizations to tap into new and unconventional liquidity sources — top among them, retail investors.

Featured on World of Open Account’s (WOA’s) webcast is an example of a lending platform that can reshape the commercial financing industry. (

 is a learning lab where new originators and inventors can showcase the capabilities of their commercial financing platforms).The webcast was Co-chaired by Andre Casterman and Erik Timmermans. Recently, Casterman joined XinFin Network’s advisory team.

Featuring Tradefinex and XDC, 

 and Ritesh Kakkad, the webcast goes into the nitty-gritty of how the XinFin network will reshape the Tradefinane space and benefit Medium and Small Enterprises(MSMEs).

Top on the 

 were:

• An introduction to tokenisation and digital assets with regards to the XinFin platform.
• Xinfin tokenization for alternative or unconventional lenders
• Demos on the XinFin platform — invoice factoring using QuickBooks and Xinfin’s liquidity aggregator.
• A brief Q&A session to explain further workings of the alternative financing platform.

Tokenisation, Digital Assets, and XinFin Network

On the webcast, XinFin’s co-founder explains that the Xinfin is a liquidity network that allows MSMEs and financial originators to access decentralized liquidity pools.

At the same time, 

 in the trade finance market. Invoices play an important role in driving liquidity in the supply chain. With more than 36 billion invoices sent between MSMEs and other corporations, invoices play an important role in the transfer of liquidity within the trade finance space. What’s more, the webcast highlights the role of bills of exchange or drafts and letters of credit in driving liquidity within the global supply chain. Notably, letters of credit account for more than USD 17billion of the global trade value. (The total value of global trade is roughly USD 17 trillion, much of which comes from the global banking market).

Whilst banks have attempted to meet the demand for liquidity in the global trade finance market, 

 that there’s still a need to fill the gaps therein via alternative financing. As more jurisdictions implement regulations that guide and categorize alternative investment, the alternative asset investor category is growing by the day.

With XinFin’s network, alternative investors in the global supply chain can prove that they are accredited Know Your Customer (KYC) investors. (The objective of KYC checks and guidelines is to prevent the misuse of financial organizations by criminal elements involved in money laundering activities). 

, proving that investors are KYC accredited happens by verifying an investor’s XDC net worth via a KYC regulated custodian on the XinFin Network. Once verified, alternative asset investors can seamlessly declare their net worth, regardless of jurisdiction.

Here’s a snapshot of a KYC accredited investor’s net worth on the XinFin network

The benefits that XDC’s asset verification process avails are: a seamless verification of an alternative investor’s net worth; increased liquidity within the global trade finance market — since virtual assets are easily converted into cash as compared to assets in markets like real estate.

Tokenization

As explained in the 

, tokenization is the process of converting an offline obligation into an online digital contract that’s transferrable digitally. On the XDC protocol, tokenization follows the English common law standard framework.

Backed up by a comprehensive framework, the XDC system allows offline signing of the documents by counterparties, who record an obligation for legal purposes. To clarify, counterparties can contest the obligations therein, in jurisdictions like Abu Dhabi and Singapore.

To understand the process of tokenization, the presenters highlighted 

 to show how invoices can be added to smart contracts on the TradeFinex platform. For a more detailed guide on invoice factoring using QuickBooks, here’s a short video.

With invoices and other trade instruments playing a role in the transfer of 17 trillion in the global finance trade, the digitization of offline obligations permits access to a variety of alternative asset investors. Thanks to a decentralized platform, the XDC protocol will avail the largest market infrastructure and liquidity source for enterprises in the global trade finance platform.

As the XDC protocol is accepted as a standard in the global trade space, more liquidity will be unlocked to maximize benefits accrued by MSMEs.

Unlocking Liquidity from Alternative Pools — Liquidity Market Aggregator

To enable originators/platforms to attract liquidity from a variety of asset investors, Tradefinex offers a liquidity market aggregator. The liquidity aggregator can connect with any Distributed Ledger or non-distributed ledger tech platform through a middleware.

 is one platform that connects with Tradefinex’s liquidity market aggregator. The platform offers a platform where originators can attract liquidity from alternative asset investors. Leveraging technology to cut costs of financial intermediation, Validus allows SMEs to reap the benefits associated with short and medium-term financing from alternate asset investors.

To highlight the potential of alternative asset investments to SMEs, Validus’ lending exceeds SGD$532,008,755, as of writing.

Interest Payment Via Tokens

On the Tradefinex platform, alternative investors have the option of receiving interest payments in 

. Thanks to Tradefinex’s hybrid system, asset investors can receive payments directly into their wallets. Payments can be liquidated in any regulated exchange market, around the world.

Leveraging the versatility of the alternative investment markets and the ease of payment, the XDC network has 108 (+6 backup) XDC master nodes. Note; Master nodes are decentralized participants in the network. Large alternative investors like pension funds can run a master node, allowing them to unlock liquidity for the market.

Currently, the volume liquidated ranges between two and five million USD, daily.

Further Workings of Tradefinex’s Alternative Financing Platform (Q&A)

To ensure easy integration between legacy systems, the Xinfin network offers a robust middleware that allows organizations to connect with peer-to-peer lending platforms. Leveraging the versatility of middleware in the XDC platform, a wide array of origination mechanisms can plug into the XDC framework and participate in unlocking liquidity.

In regards to bearing risks — fraud, and insolvency — , the XDC framework permits originators to work with their desired risk profiles. What’s more, through credit delegation, third parties can lock an originator’s tokens to safeguard small scale alternative asset investors. For larger organizations, proper insurance mechanisms can be established to shield such entities from risks inherent to invoices.

Working with regulated global markets, investors can participate from different jurisdictions, seamlessly. With provisions like digital dispute resolutions at Abu Dhabi Global Market (ADGM), investors from all over the world can mitigate risks, safeguarding their investments in the alternative asset market.

For more insights,

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