Obligate has embarked on a quiet transformation of the capital markets

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Obligate, the Zurich-based blockchain platform for the issuance of corporate bonds and structured products has a simple ambition. It is to enable issuers to recruit digital asset investors at a fraction of the cost and time it would take to complete the same transaction with a bank as counterparty or in the conventional capital markets – in part by replacing issuing and paying agency intermediaries with smart contracts. Already, Obligate has facilitated  dozens of on-chain issuances, including several USD Coin (USDC)-denominated bond issuances by TradeFlow Capital management, a Singapore-based fund, a EUROe-denominated bond for Lamar Olive Oil, and USDC-denominated bonds for Bitcoin Suisse and Polytrade. Technically, the debt takes the form of eNotes ™, which are ERC-20 tokens issued on to the Polygon blockchain. But if blockchain is enabling Obligate to cut costs, nobody could accuse the platform of cutting corners. In legal and regulatory terms, the eNotes are governed explicitly by the Swiss law of contract. And, although eNotes rank as bearer instruments, distribution is limited to “qualified” institutional investors, who are subject to full Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and sanctions screening checks. Future of Finance Co-founder Dominic Hobson spoke to Benedikt Schuppli, co-founder and Chief Business Development Officer (CBDO) of Obligate, about how the platform works and how he plans to grow the business. 

Hobson: Who owns your organisation, what are their expectations and how do they support your strategy?

Schuppli: Obligate is owned by a combination of its founding team (Benedikt Schuppli, Stephan D. Meyer) and investors (Circle, Earlybird, SIX, Blockchange). Their expectations include driving innovation in blockchain-based financial markets, supporting the strategy through funding and providing industry expertise.

Hobson: Is it accurate to describe your organisation as an “exchange” where buyers meet sellers on your platform, as opposed to, say, investors meeting issuers as principal?

Schuppli: No, Obligate is not an exchange. It’s a capital markets platform facilitating capital-raising activities between investors and issuers.

Hobson: You have explained that your focus is on primary market capital-raising. What are the reasons for this?

Schuppli: The focus on primary market capital-raising is due to the opportunity to innovate and streamline the issuance process using blockchain technology. Due to the lack of standardisation in private markets, the potential for disruption and lowering transaction cost is massive.

Hobson: You have described your operating licences as “brokerage,” “capital markets” and “financial market infrastructure.” Exactly what do these licences entitle you to do in terms of both instruments and activities and accredited investors?

Schuppli: We are regulated as a financial intermediary subject to Anti Money Laundering (AML) regulation in Switzerland and have an umbrella set-up with a licensed investment broker in Germany.

Hobson: Are you seeking additional operating licences?

Schuppli: Currently nothing in particular.

Hobson: Your blockchain network is “public” rather than “private” or “public permissioned.” What explains your choice?

Schuppli: In our vision, financial markets should be truly efficient, secure and accessible. We believe public blockchain is the best existing technology to achieve that. Any other option lacks at least one of the properties we are not ready to compromise on.

Hobson: Which blockchain protocol do you use?

Schuppli: We use multiple blockchain protocols to meet our customers’ demands. Polygon Proof-of-Stake (PoS), an Ethereum Virtual Machine (EVM)-compatible, Proof-of-Stake sidechain for Ethereum and Base, a Coinbase-incubated Layer Two of the Ethereum network, are the most popular among our customers. Soon, we will deploy on Lisk (an Optimism Superchain Layer Two). We also experiment with Solana and other networks to ensure our customers have access to the most efficient technologies on the market.

Hobson: Do you work with a particular technology vendor?

Schuppli: While we work with external partners to increase scalability, we primarily incubate and develop the core expertise in-house.

Hobson: In terms of the services Obligate provides, issuance, trading, settlement and registration are all provided on the public blockchain but custody is provided on another technology. Is this division simply because you do not provide custody? And what are the advantages and disadvantages of providing all the other services on a public blockchain?

Schuppli: Obligate does not provide custody directly. The public blockchain enhances transparency and security, while third-party custody ensures specialised asset handling which is needed for institutional-grade customers.

Hobson: How do transactions settle? Is it “atomically”? And how do you deal with the cash leg of settlement? Is it off-chain via the conventional banking system, cash on-chain in tokenised form, or by direct or indirect connections to central bank Real Time Gross Settlement systems (RTGSs)?

Schuppli: eNotes are denominated in Stablecoins (i.e., USD Coin (USDC) and the EUROe Stablecoin issued by Membrane Finance) which allows immediate on-chain settlement both at the issuance and at repayment. Borrowers usually “off-ramp” the Stablecoins to their preferred operational fiat currency. Investors tend to keep Stablecoins after the repayment and deploy into the next opportunity.

Hobson: Do your issuance services include offering or writing smart contracts?

Schuppli: Yes, Obligate provides its smart contracts which are used in the issuance and settlement processes and to support corporate actions in the asset lifecycle.

Hobson: Do you provide financial advisory services to issuers?

Schuppli: No.

Hobson: You have described the type of issuers you seek as “global.” How are you reaching a global audience?

Schuppli: Obligate reaches global issuers through strategic partnerships, industry networks, sales efforts and digital marketing.

Hobson: The types of issuers you seek includes public companies, private companies, mutual funds and private equity funds. What explains your choice of targets?

Schuppli: We want to enable every potential issuer to issue a financial instrument at low cost, fast time to market and maximum flexibility. Furthermore, targeting diverse issuer types ensures a broad market appeal and leverages the strengths of the blockchain for various financial instruments.

Hobson: You have described liquidity as “very important” but are focused on the primary markets. How will secondary market liquidity develop and how might it help your primary market activities?

Schuppli: While secondary market liquidity enhances the attractiveness of primary market offerings by ensuring investors can easily exit their positions, it is not directly offered by Obligate, as our focus is on the primary market.

Hobson: Your target clients include market-makers and liquidity providers. Do you view these as the principal sources of liquidity or are automated market-makers (AMMs) part of your strategy?

Schuppli: We are focused on qualified investors, which can access our platform also through brokers. AMMs are not part of our strategy yet.

Hobson: The types of investors you are seeking include asset owners such as pension funds and sovereign wealth funds, insurers, wealth managers and private banks, brokers, family offices, and accredited retail investors. Which type of investors are finding your services most attractive at the moment?

Schuppli: Our products are attracting significant interest from wealth and asset managers seeking new investment opportunities and diversification. We also observe strong demand from family offices and High Net Worth Investor (HNWIs) and Ultra High Net Worth Investor (UHNWIs) clients, who can access our platform directly or through brokers.

Hobson: You have described the investors you seek as “global.” How are you reaching them?

Schuppli: Strategic partnerships, distribution partners, sales efforts and public relations (PR), within the select jurisdictions we are active in.

Hobson: Are the additional services you provide – such as fractionalisation of assets, lowering minimum subscriptions to funds, peer-to-peer trading, and direct market access (DMA) - designed to appeal to a particular type of investor, such as accredited retail investors?

Schuppli: Although we’re not targeting retail investors, services like asset fractionalisation and direct market access attract a broad range of investors.

Hobson: Your choice of target asset classes (equities, bonds, funds, real estate, commodities such as gold, other real-world assets such as collectibles, and structured products such as Exchange Traded Products (ETPs) and structured derivatives for both retail and institutional investors, is both global and comprehensive. What explains your focus on these asset classes?

Schuppli: Currently we are focused mainly on bonds and structured products which can be linked to a variety of assets (i.e. equities, funds, digital assets) due to high demand and blockchain compatibility.

Hobson:  You have chosen not to provide custody services directly on the blockchain or to work with a particular third-party custodian. How are your customers custodying assets they acquire through you?

Schuppli: Clients have the choice to either self-custody their assets through their own wallet or work with one of our custody partners to ensure secure custody solutions for assets acquired through Obligate.

Hobson: How is customer cash handled by your platform?

Schuppli: Customer cash never touches our platform. For each issuance an escrow smart contract is automatically created to securely handle the flows of cash and tokens between issuers and investors. Wallets of our customers interact directly with that smart contract.

Hobson: What industry accreditations - such as International Standard on Assurance Engagements (ISAE) certificates- has your organisation secured?

Schuppli: Obligate is a member of the Financial Services Standards Association (VQF), an Anti-Money Laundering Self-Regulatory Organisation (SRO) supervised by the Swiss Financial Market Supervisory Authority (FINMA) that ensures compliance with Anti-Money Laundering (AML) regulations and ensures the provision of a secure, transparent platform for financial operations.

Hobson: You have explained that you are already enjoying profitable revenues, which is also unusual. What is the secret of your success?

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