On January 3, 2019, an AI-enhanced encrypted digital asset exchange, Bibox, opened its token bonds trading section – Bibox Bond (denoted by “BIX1901”). Since launch each contract’s price has gone up 185USD. The price has increased 18.95%, compared to its issue price. Bibox will release the other nine rounds of BIX Bonds, according to its official statement.
The price of the Bibox Bond has gone up, though the market remains bearish. This might suggest both a demand in the market and that BIX1901 issued by Vocean is recognized and accepted by buyers.
Why are the bonds rising in price?
Bibox’s token bonds opened to primary market participants on November 22, 2108, and were sold out within 12 hours. The buyers are mostly qualified institutional investors. This time, however, retail investors are able to access to BIX1901 after completing KYC verification. The fundamental reason for BIX1901 prices going up is that the supply is less than the demand, namely, the demand for BIX 1901 surpasses its circulation. So why is this happening? This could be explained from two angles: product and market.
Bibox Bond is a token bond contract denominated in Bibox token (BIX). There were a total of 4030 bond units issued in the first round, each with a face value of 1000BIX. The Bibox Bonds are priced in GUSD. The coupon payment is fixed at 48 BIX, and the mature period of each unit will be 6 months.
Let’ take BIX1901 as an example. The face value of each BIX1901 equals 1000BIX. If we calculate the issue price on January 2, the price of BIX1901 is around 150GUSD. Upon maturity, if the BIX price drops, buyers can get 150GUSD (in the equivalent value of BIX) and a coupon payment of 48BIX; if the BIX price goes up, buyers can get 1000BIX (principal)+48BIX (coupon payment).
As we can see on the above poster, buying BIX1901 is similar to buying a free six-month call option. The value of BIX1901 is its face value plus BIX call option, which means buyers can get convertible bonds in bearish market. When the market turns bright, buyers may be able to profit from it.
From the perspective of buyers, buying BIX190 may bring stable earnings. Those holding Bibox Bons (BIX1901) are able to enjoy BIX incentive dividends as they normally do in BIX trading.
According to Aries Wang, Co-founder of Bibox, the company found that the demand for low-risk products is growing gradually in bearish market. Institutional investors with the needs of assets allocation and risk hedging are increasing gradually.
From the perspective of the market, the scale of the traditional bond market is nearly tens of billions, way higher than traditional stock market.
Let’s take a look at the crypto industry. Before BIX1901, there was no real token bond and fixed income instrument. BIX1901 not only brings a new investment channel but also perfects the market structure for cryptocurrency. For professional institutional investors, BIX1901 provides a basic instrument to offset risk and allocate their assets.
From the perspective of project owners, a token bond satisfies their diversified financing needs. Vocean, as a token bond issuing institution, will disclose project owners’ information, such as their operation performances, etc., and establishes credit rating, bringing a transparent mechanism to bond trading.
How to control risk
Risk control is always necessary whether in traditional financial markets or in the crypto space. Particularly for companies in the early development stages, when their management systems are not mature enough, risk control is important. Moreover, the essence of investment is that buyers feel confidence that the product is reasonably safe. BIX1901 is of no exception in this regard.
In terms of risk control, not only does Vocean execute strict risk control processes, the issuing body – Bibox Limited – has also built a thorough system (including double collaterals, dynamic collaterals and default deposit systems) to ensure the principal and interest will be paid to buyers upon maturity.
First, it includes double collaterals. The number of bond contracts Bibox Limited issued in total was 4030, the equivalent of 4.03 million BIX, which means Bibox Limited has to pledge 8.06 million BIX. Paying double collateral fully shows that the Bibox Limited is capable of repaying.
Second is dynamic collateral management. When the collateral ratio is lower than 150%, that is around 6 million BIX, Vocean will issue a margin call to demand additional collaterals; if Bibox Limited fails to do so, and the collateral drops down to 125%, that is around 5 million BIX, Vocean will distribute all the existing collateral to bond buyers.
Lastly, is the default deposit system, Bibox Limited also deposits 1% of the total principal value to Vocean. The deposit will be paid in GUSD. In case of a default resulting from Bibox Limited, Vocean will pay 10% of the bond principal value (at most 20% of insurance pool) to those holding BIX1901.
When it comes to financing, token bonds show an obvious advantage in this regard. It is more transparent as it discloses more information, which is also a good investment sign for crypto enthusiasts. Products like token bonds are able to attract funds to advantaged enterprises, which is good for optimizing the allocation of market resources. For instance, projects with good benefits, like token bonds, are well received by investors compared to those with bad benefits, so is the same with its issuing cost, which will be relatively lower for projects with good benefits, and vice versa.
Once the token bonds market system grows mature, bond trading will be driven by the market. Those issuing token bonds will be moved out by buyers if they don’t honor the agreement.
Important information – please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice. Tax rules can change and the value of any benefits depends on individual circumstances.