Tokenized Debt For El Salvador Hotel: It Is Beginning
We are starting to see things starting to change around the world regarding cryptocurrency. This is happening in spite of the United States government and the SEC operating using laws that are roughly 100 years old.
To say that country is screwing up in a major way is an understatement. There is a reason why London is the FOREX capital of the world. The US totally botched that one up.
It appears it is making the same mistake with crypto.
We are starting to see the tokenization of real world assets going into effect. Of course, those in the US are excluded from participating. That isn't going to stop the process from happening.
We must point out this is not exactly Web 3.0. While blockchain is being used, there are some caveats to it.
Image by Ideogram
Hotel Debt On Blockchain
Bitfinex is conducting an offering to fund the building of a hotel in El Salvador. The goal is to raise $6.25 million. It is doing this through the selling of a token.
The minimum investment is $1,000 and is a 5 year bond, paying 10%. Source
It is a Hampton by Hilton hotel that is going in at the El Salvador International airport.
Here is where things are a bit interesting.
This is an American company doing this offering. It falls under the digital asset laws of El Salvador since it is conducting the business in that country. We also see it rejecting traditional debt markets.
It is a deal being done outside Wall Street.
The caveat is we are seeing it through a centralized entity. We are not dealing with decentralized finance although some might try to spin it that way.
That said, it does open up some interesting prospects. The token will trade on Bitfinex's platform. It is closed to those in the United States but open to anyone where it is legal to trade in these types of assets.
Hence, for $1,000 in USDT, one can hold debt from a US hotel chain that pays 10% annually. Over the 5 years, the $1,000 will turn into $1,500.
This might not seem like much in the world of crypto yet, when we look at the majority of the investing world, yield is a much larger segment. A steady return is what most entities are after.
None of this is financial advice or support for the project itself. This is solely for informational purposes.
A New Debt market
Funding is one of the key factors in the success of a currency. We discussed this in the past regarding the Hive Backed Dollar (HBD).
Here is where Bitfinex is starting the process of creating a brand new debt market. This is outside the traditional one controlled by Wall Street.
At present, large debt offerings have to go through the banking system. Major investment firms tend to be involved, charging large fees for the service.
While we do not know what the payment structure is for Hilton, we can start to consider the potential of this type of market.
The entry is $1,000. This is a level that many in the world can handle. Of course, this still excludes a significant portion of the global population. That said, we are looking at a beginning.
We also should look beyond the centralized aspect to this. Here is where the major corporations will naturally reside. They are going to have to adhere to regulations. However, we could see this easily morphing into decentralized finance.
What happens if platforms start appearing that offer similar features yet without the requirements? To start, we might be looking at smaller numbers. Over time, this could grow as the market enjoys greater liquidity.
At that point, the potential to get involved for a few dollars might be possible. It also opens up the door for a Kiva type service, where microloans are tokenized and offered out.
This could be a complete service built under a financial network using smart contracts.
Micro-investing
Cryptocurrency is allowing the world to go micro.
We already discussed the idea of micro-earning. A network like Hive allows for people to receive payments of a few cents for their online social media activity. This means that small payments can enter a wallet repeatedly throughout the day.
The same thing can happen with infrastructure. Crypto networks are being designed so more than just the most technical can offer up support. These are often incentivized with payments happening on a hourly (or more frequently) basis.
What happens to this money?
The first thing people do is spend it. People in many parts of the world are impacted a great deal by a few dollars a week.
For those who can, investing is an option. Here is where tokenization can get exciting. With the development of projects such as the Hilton Hotel, people could put money into many different venture. Most anything can be tokenized.
That means people could spread their investing around. Want to invest a few dollars in a robotaxi? What about doing that 100 times, each in a different market? How about funding 25 different farmers in a developing nation, to help pay for the planting of crops? Or maybe an apartment complex is broken up into 5 million different tokens, at $1 each.
When the financial intermediaries are removed, the ability to micro-invest becomes possible.
This could be taken to another level by establishing funds that do this. For example, a platform could tokenize a fund that raises money. The fund is the one that invests in the different projects. This could be driven by votes from the community, deciding what gets approved.
Over time, we could see the funding of tens of billions of dollars. At present, the debt and venture capital markets only deal in larger amounts. Neither is going to deal with a start up looking for $5K. In fact, even $100K is likely beneath their threshold.
Micro-investing (micro-lending) changes all this.
Bitfinex is taking a hybrid approach. The loan amount is small for Wall Street. It is, however, generating a proof-of-concept. We cannot ignore the fact that this is centralized, so the counterparty risk is there.
It does pave the way for more innovation. At some point, this could be a standard for Web 3.0. Funding is going to be a huge part of DeFi.
Tokenization offers more potential that the average person realizes.
Posted Using InLeo Alpha
guau this is new for me, i do not have idea about it a need to investigate, this,
by the way El Salvador are in the word of a lot of people, specially for beeing the first country in have legal currency as btc.
best regard.
here go to the moon
I can only imagine how the governments of the world are going to react to this. Wall Street, the legacy banking systems, and their lobbyists are not going to take this sitting down. Neither will their cronies in the media. It won't be long until we start hearing about all the scams that are taking grandma and grandpa's life savings. You're basically talking about the natural evolution of Kickstarter and GoFundMe campaigns and the tax implications are going to be scary to the people in power. Interesting times...
The US military is probably going to have to invade El Salvador in the name of Democracy or something.
That is true although they tend to shoot themselves in the foot over time.
They can fret all they want. This is only the start. Wait until DeFi gets into the game.
Tokenization seems like an interesting concept to me, especially for debts or fractional assets.
As an investment it doesn't seem too good to me, I also wonder where this tokenized bond will be listed on Bitfinex. If it is not a free circulation token then it has no value to me.
Bold step by Bitfinex, I see web3 taking advantage of this soon. It has always been something I always though of when looking at 'the borderless transaction' advantage of crypto and blockchain. Opportunities will sprout up and micro- investing will help thrive global economy. Thanks for the article, very insightful and encouraging
That is a fascinating concept. Assuming the hotel is profitable now they could reasonably provided the ten percent per year and use the $6.25 million for improvements attracting more customers. I love the idea especially since El Salvador is on the rise economically because the president has basically locked up gang members making the country much safer.
In a country friendly toward crypto there is so much potential. Of course the US still sticks with archaic 100 year old laws making it extremely difficult here. Thank you for the post, there is so much potential for tokenization worldwide.
Yep.
We know how financial markets can move elsewhere. FOREX is a prime example.
These developed countries best get their heads out of their asses or risk seeing a huge shift.
Bold step forward but they are still some consideration to be done to make it perfect
This is an interesting news. In fact, it is a welcome development. Crypto era is here, let the government of the world accept it before it is late.
This is very exciting news. I actually like that a big centralized entity partnered with an established company [Hilton hotel] is the one experimenting with this. We want this to succeed as a proof of concept. Since it is done by known companies, there is sure to be a lot of supporters, and the chance of success is high. This can inspire others to do something similar.
If this was done by some shady company, there were a lot of risks involved, and it could easily fail. I've seen a lot of condos started by unknown builders fail, and it burned a lot of people off investing in those types of assets.
They want their piece of the pie. It is the phase we are in. The next few years, in my opinion, will be the hybrid period.
This is exciting! I deployed to El Salvador in the Army and worked with El Salvador's soldiers. I really want that country to do well. When I was there in 2007 things were very bleak. It seems like Bukele is really turning things around.
We will see. He is certainly on the wrong side of entities like the IMF, which is a good thing in my view.
Small amounts entered the wallet consistently and one day will make a big one 😍😜
With web3 the idea of tokenization would reach a long way and whats my sole idea that one day people would be more fond of holding and conducting their financial transactions using the tokens available on store or personal possession.
Profit -debt in the past, we were used to look at it from a conservative money angles. Now as the flow of tokens are moving on more rapidly than the past - it is certainly that for tokenized financial sectors, more of the propagation of the economic variables would be there for the people.
I hope we here the leo users do get there too !
It is akin to the Internet accelerate the flow of information.
Web 3.0/Crypto can do the same for money. We were stuck with a system that stifles the flow as the intermediates/gatekeepers slow things down.
A debt market outside of Wall Street. I love to see more of these.