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Solidum Partners AG, a Swiss cat bond and ILS fund manager, was, in August, one of the initial subscribers of the first securities to be issued and settled on a private blockchain called the ILSBlockchain: Dom Re IC Limited $14,800,000 Principal-at-Risk, Participating Notes, due 2023 with the ISIN GG00BYP34764. The securities are asset-backed securities of a reinsurance agreement providing the reinsured protection against hurricane losses and were issued by Dom Re IC Limited, a Guernsey incorporated cell company. They were created on the ILSBlockchain and purchased, delivery-vs-payment, by 6 investors on the ILSBlockchain.
Recently a new participant joined the blockchain, passing KYC/AML with the trustee and paying USD into a trust account, those funds then being credited as USD in their ILSBlockchain wallet.
Solidum Partners AG, on behalf of one of its funds, entered an offer of securities held by the fund on the ILSBlockchain. The blockchain software produced a cryptographic key which, together with the details of the trade, were entered into a separate ‘advertising’ platform set up and run by the ‘permissions grantor’ of the ILSBlockchain.
Upon entry of the advertisement all participants received notification of the desired trade. One participant copied the key and, on their own node on the ILSBlockchain, ‘decoded’ the offer. With sufficient USD in place, they were then directly able to execute the trade on the ILSBlockchain which, within a single ‘Atomic’ transaction, debited their wallet with the required USD assets and credited their wallet with the notes. Conversely, within the same transaction, the ILSBlockchain debited the Solidum fund’s wallet of the offered notes and credited the wallet with the USD.
The trade was created, executed and confirmed on the ILSBlockchain in a matter of minutes.
Solidum can now, via the trustee, arrange for the USD assets its fund now holds on the ILSBlockchain to be wired to its fund’s ‘real-world’ custody account.
The trade was done without the use of a bank or a broker-dealer and no fees were involved. It was also performed perfectly anonymously without direct contact between the buyer and seller, but safe in the knowledge that all participants have been through the required KYC/AML performed by a regulated entity.
Trades on the ILSBlockchain can equally be performed using a broker-dealer if desired and nodes on the ILSBlockchain could equally be held by custody banks to hold securities on the ILSBlockchain in custody for their clients.
Solidum Partners AG is a highly innovative cat bond and ILS manager, having been the first to issue ‘private’ cat bonds, now more widely known as ‘cat bond lite’ transactions through its Guernsey ICC company and is now the first, with its counterparty, to do a secondary market trade of securities on a blockchain.
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