Built on XDC network
XDC Network hosts first-ever trade finance NFT
History of XDC Network and Trade Finance
The XDC Network launched in 2019 as a Layer 1 blockchain network built with the specific focus of being a breeding ground for smart contract tokenization and decentralized trade finance solutions. Providing top-level security, low cost transactions, and an ESG-focused consensus mechanism the network serves as an ideal blockchain network for enterprises and the trade finance industry.
Trade finance represents an estimated 80-90% of global trade volumes and exceeds $25 trillion. It is a low-risk source of funding, yet a large portion of small-to-medium-sized businesses (SMEs) do not have access to it. Several factors contribute to these rejections — including SMEs lacking collateral requirements, creditworthiness, and knowledge about trade finance. Yet, one of the biggest challenges lies with the banks themselves and their lack of resources to extend credit to and audit solvent and viable SMEs.
This demand for capital that exceeds available capital is known as the trade finance gap. An ever-growing figure, the trade finance gap currently stands at $1.7 trillion.
Trade Finance NFT Created on XDC Network
In a major development to address the liquidity concerns created by the trade finance gap, the XDC Network hosted the first trade finance-based non-fungible token (NFT) transaction in September 2021. Tradeteq, a London and Singapore based trade finance asset distributor, packaged trade finance assets and issued an NFT to represent their value on the XDC Network. An investor could buy and sell the token that represented the value of the off-chain pool of trade finance assets. The owner of the NFT held the legal entitlement to the pool of repackaged underlying trade finance assets. This novel solution achieved two things:
1. It proved the utility of an NFT would work in addressing the trade finance gap liquidity problem.
2. It established the XDC Network as a premier blockchain within the trade finance industry.
The NFT launch on the XDC Network was seamless. The network is an enterprise-grade, EVM-compatible blockchain. A highly optimized, bespoke fork of Ethereum, the network reaches consensus through a delegated proof-of-stake (XDPoS) mechanism.
Tradeteq is a technology provider for trade finance asset distribution. Based in London and Singapore, their core business focuses on the secondary market - from originators to institutional investors. Founded in 2016, and using advanced technology and automation, Tradeteq seeks to reduce transaction costs in commercial credit and trade finance, thereby expanding opportunities for more to participate.
Tradeteq saw a way to incorporate blockchain’s distributed ledger technology into its tech stack and explore innovative solutions for trade finance asset distribution. In doing so, a broader secondary market would be given access to this asset class. As a result of that, more capital would become available for SMEs and others left out of traditional trade finance offerings.
The successful packaging of trade finance assets, deployed as an NFT on the XDC Network, heralds a new era in international trade and TradeFi, in general. It is a giant step towards shrinking the trade finance gap and making capital available to businesses of all sizes around the globe as brand new investor groups now have access to low-risk assets.
The standard has been set for the tokenization of fixed assets, whether from trade finance or some other financial asset class. If these transactions become mainstream in the coming months and years, other innovative TradeFi concepts may emerge and broaden the reach that blockchain technology brings to enterprise applications. In the process, SMEs should see improved access to trade finance opportunities, thus shrinking the trade finance gap.
The XDC Network has unique affiliations with the following global trade organizations:
The International Trade and Forfaiting Association (ITFA) was founded in 1999 as a worldwide trade association for companies, financial institutions and intermediaries engaged in global trade, forfaiting, supply chain and receivables financing. Its members work together to originate and distribute trade-related risks. XDC Network was invited to become the first and, at the time of writing, only Layer 1 blockchain ecosystem member.
DNI Initiative Membership. XDC Network joined the DNI Initiative in November 2021 and provides the needed blockchain structure and interoperability for financial institutions to communicate across various platforms and ecosystems. The association was formed by the ITFA, and it aims to fully digitize trade documents and negotiable instruments as well as integrate them into existing processes.
Trade Finance Distribution Initiative (TFDi), a consortium of the world’s leading banks and non-bank financial institutions established by the ITFA for the purpose of liquifying trade finance. XDC Network was selected in 2021 as the first and, at the time of writing, the only blockchain ecosystem member.