Concept

A debt-backed token is a token (digital token) that represents ownership in debt instruments, like bonds, notes, and loans. These tokens offer investors partial ownership of debt obligations, providing opportunities for diversification and access to debt markets. In addition to their main purpose, debt-backed tokens are also designed to provide a level of stability, in the sense that such tokens operate within sustainable debt-to-ownership ratios.

Broader category

Debt-backed tokens belong to the broader category “asset-backed tokens (ABTs)”, which consists of all types of cryptographic assets (cryptoassets)- and a specific type of security token– that are pegged to another underlying asset (as a reserve) to maintain its value over time. Asset-backed tokens derive their value from physical assets or other digital assets that have a sort of stable value, whereby supporting such the stability of such a token. The underlying assets may widely vary depending on the scope of tokenization, including real estate properties, precious metals like gold or silver, commodities, or artworks, and collective interests (fanship).

An asset-backed token is created and issued converting ownership of real-world assets (RWAs) like real estate, properties, gold, and the like into digital tokens. The linkage helps reduces the volatility of a token thanks to the direct relation between the value of the cryptocurrency and tangible assets. This instills the aspects of confidence and stability in the tokens as investment compared to highly speculative cryptocurrencies. Furthermore, asset-backed tokens allow investors to have fractional ownership of valuable assets- that is, a portion of the asset without having to purchase the whole of it.

Asset-backed tokens also represent a claim or right as to a certain economic resource. They are stored on a blockchain– being a decentralized digital ledger (DDL). ABTs carry the features of both digital tokens and tangible assets (or certain financial assets), such as instantaneous transferability and accessibility, reflecting the tangible or financial worth of the underlying assets. By tokenizing real-world assets (RWAs), firms and individuals can tap into wider potential of capital and investment opportunities.