BermudAir issues $1 million bond on Obligate with crypto firm XBTO | Image by XBTO
Innovative funding approach aligned with BermudAir’s focus on growth
BermudAir, Bermuda's premier boutique airline, today announced it has completed a $1 million USD tokenised bond issuance, executed via Obligate, the leading on-chain capital markets platform, in partnership with global digital assets and cryptofinance firm XBTO Group (“XBTO”).
This innovative tokenised transaction is issued on the public blockchain Polygon, with all payments in the stablecoin USDC, offering a 15-month, 15% p.a. return for investors. BermudAir is the first airline to leverage cryptofinance capabilities with XBTO and Obligate to raise capital in the new tokenised credit markets, with XBTO acting as lead arranger and bookrunner.
This debt financing was identified as an opportunity to diversify BermudAir's capital management strategy. It will fund operational and resource enhancements for the airline, particularly related to route expansion, to cater to growing demand and consolidate its position in new markets.
“Even as a young airline, the funding needs of our business are rapidly evolving," said Adam Scott, Founder and CEO of BermudAir. “Having this kind of innovative financing in the range of available options works for us. The efficiencies of using fintech to raise capital in this way are self-evident, and we're pleased to be the first airline to do so with another Bermuda-based company that's already so well-established in the market.”
“This milestone represents a significant first step towards enabling democratized access to funding and investment opportunities for both companies and investors alike,” said Philippe Bekhazi, CEO of XBTO.
“The tokenised transaction showcases the forward-thinking approach taken by BermudAir and XBTO and sets the stage for similar future issuances. By leveraging the benefits of blockchain technology, this financing method offers increased speed, transparency, security, and efficiency.”
“Our collaboration with BermudAir and XBTO highlights Obligate's strategic focus in enabling blockchain-based debt issuances,” said Tobias Wohlfarth, Head of Origination at Obligate. “This issuance demonstrates our platform’s capability to efficiently and securely connect issuers with investors in a regulated environment, reflecting our commitment to innovating the private debt market and expediting investment opportunities.”
The bond is issued in USDC, a stablecoin pegged to the U.S. dollar and backed by U.S. dollar reserves such as cash and U.S. treasuries. USDC reserves are held in the custody and management of leading U.S. financial institutions, including BlackRock and BNY Mellon.
Launched last year, BermudAir has quickly expanded operations beyond three U.S. routes to include seven routes across the U.S. and Canada, including its latest additions Toronto, and Halifax. The airline operates over 50 flights per week on Embraer E175 aircraft featuring a dual-class cabin, with 14 seats in its business cabin and 52 seats in the economy cabin, and a focus on convenience, comfort, and exceptional service for all guests.
Since launch, BermudAir has increased flight capacity between Bermuda and North America, underscoring its commitment to supporting growth and year-round travel to Bermuda for both leisure and business travellers.
About BermudAir
BermudAir is Bermuda's boutique airline, committed to redefining the travel experience. With a fleet of Embraer E175 aircraft renowned for exceptional performance and passenger comfort, BermudAir exemplifies its commitment to excellence. Operating convenient flights to and from Baltimore/Washington International Thurgood Marshall Airport, Boston Logan International Airport, Fort Lauderdale-Hollywood International Airport, Halifax Stanfield International Airport, Orlando International Airport, Toronto Pearson International Airport, and Westchester County Airport, BermudAir enhances connectivity to the U.S. East Coast, South Florida and Canada, contributing to the growth and prosperity of Bermuda. With a dedication to exceptional service, and curated onboard offerings that showcase the island’s renowned hospitality and varied locally available food and beverages, BermudAir provides an unparalleled travel experience. For more information, and to book flights, download the BermudAir app or visit www.flybermudair.com.
About XBTO
Founded in 2015, XBTO stands as a prominent platform in the world of digital assets, specialising in tailored investment solutions for sophisticated non-US investors and institutions. With its team boasting over 9 years of expertise in digital assets and an impressive twenty-year track record in traditional finance, XBTO occupies a unique position at the crossroads of these two financial realms. This experience equips XBTO to provide expert insights and innovative solutions, enabling clients to navigate the ever-evolving landscape of digital assets with confidence and precision.
About Obligate
Obligate AG is a member of VQF, a Swiss FINMA regulated AML SRO, and a financial intermediary. Standing at the forefront of institutional adoption in on-chain capital markets, Obligate is providing a secure, transparent, and regulatory compliant platform for the issuance, trading, and lifecycle management of debt instruments natively issued on the blockchain. The platform's unique architecture caters to the complex needs of institutional investors whilst lowering the barriers of entry for issuers by providing efficient access to multilateral financing. Featuring their proprietary eNotesTM, ledger-based securities based on the most advanced DLT-legislation, a comprehensive dispute resolution framework, and global enforceability of the debt securities, Obligate demonstrates its commitment to meeting institutional standards.
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The full breakdown
In our first article, "Navigating Crypto Volatility: The Advantages of Active Management," we explored how the high volatility and low correlation of digital assets with traditional asset classes create unique opportunities for active managers. We discussed how these characteristics enable active managers to execute tactical trading strategies, capitalizing on short-term price movements and market inefficiencies. Building on that foundation, we now turn our attention to the unique market microstructure of digital assets.
Conducive market microstructure of digital assets
The market microstructure of digital assets - a framework that defines how crypto trades are conducted, including order execution, price formation, and market interactions - sets the stage for active management to thrive. This unique ecosystem, characterized by its continuous trading hours, diverse trading venues, and substantial market liquidity, offers several advantages for active management, providing a fertile ground for sophisticated investment strategies.
24/7/365 market access
One of the defining characteristics of digital asset markets is their continuous, round-the-clock operation.
Unlike traditional financial markets that operate within specific hours, cryptocurrency markets are open 24 hours a day, seven days a week, all year round. This continuous trading capability is particularly advantageous for active managers for several reasons:
- Immediate response to market events: Unlike traditional markets that close after regular trading hours, digital asset markets allow managers to react immediately to breaking news or events that could impact asset prices. For instance, if a significant economic policy change occurs over the weekend, managers can adjust their positions in real-time without waiting for markets to open.
- Managing volatility: Continuous trading provides more opportunities to capitalize on price movements and volatility. Active managers can take advantage of this by implementing strategies such as short-term trading or hedging to mitigate risks and lock in gains whenever market conditions change. For instance, if there’s a sudden drop in the price of Bitcoin, managers can quickly sell their holdings to minimize losses or buy in to capitalize on the lower prices.
Variety of trading venues
The proliferation and variety of trading venues is another crucial element of the digital asset market structure. The extensive landscape of over 200 centralized exchanges (CEX) and more than 500 decentralized exchanges (DEX) offers a wide array of platforms for cryptocurrency trading. This diversity is beneficial for active managers in several ways:
- Risk management and diversification: By spreading trades across various exchanges, active managers can mitigate counterparty risk associated with any single platform. Additionally, the ability to trade on both CEX and DEX platforms allows managers to diversify their strategies, incorporating different levels of decentralization, regulatory environments, and security features.
- Arbitrage opportunities: Different venues often exhibit price discrepancies, presenting arbitrage opportunities. For example, managers can buy an asset on one exchange at a lower price and sell it on another where the price is higher, thus generating risk-free profits.
- Access to diverse liquidity pools: Multiple trading venues provide access to diverse liquidity pools, ensuring that managers can execute large trades without significantly impacting the market price.
Spot and derivatives markets (Variety of instruments)
The seamless integration of spot and derivatives markets within the digital asset space presents a considerable advantage for active managers. With substantial liquidity in both markets, they can implement sophisticated trading strategies and manage risk more effectively.
For instance, as of August 8 2024, Bitcoin (BTC) boasts a daily spot trading volume of $40.44 billion and an open interest in futures of $27.75 billion. Additionally, derivatives such as futures, options, and perpetual contracts enable managers to hedge positions, leverage trades, and employ complex strategies that can amplify returns.
Overall, the benefits for active managers include:
- Hedging and risk management: Derivatives offer a powerful tool for hedging against unfavorable price movements, enabling more efficient risk management. For instance, a manager holding a substantial amount of Bitcoin in the spot market can use Bitcoin futures contracts to safeguard against potential price drops, thereby enhancing risk control.
- Access to leverage: Managers can use derivatives to leverage their positions, amplifying potential returns while maintaining control over risk exposure. For instance, by employing options, a manager can gain exposure to an underlying asset with only a fraction of the capital needed for a direct spot purchase, thereby enabling more capital-efficient investment strategies.
- Strategic flexibility: By integrating spot and derivatives markets, managers can implement sophisticated strategies designed to capitalize on diverse market conditions. For instance, they may engage in volatility selling, where options are sold to generate income from market volatility, regardless of price direction. Additionally, managers can leverage favorable funding rates in perpetual futures markets to enhance yield generation. Basis trading, another strategy, involves taking offsetting positions in spot and futures markets to profit from price differentials, enabling returns that are independent of market movements.
Exploiting market inefficiencies
Digital asset markets, being relatively nascent, are less efficient compared to traditional financial markets. These inefficiencies arise from various factors, including regulatory differences, market segmentation, and varying levels of market maturity. For example:
- Pricing anomalies: Phenomena like the "Kimchi premium," where cryptocurrency prices in South Korea trade at a premium compared to other markets, create arbitrage opportunities. Managers can exploit these by buying assets in one market and selling them in another at a higher price.
- Exploiting mispricings: Active managers can identify and capitalize on mispricings caused by market inefficiencies, using strategies such as statistical arbitrage and mean reversion.
The unique aspects of the digital asset market structure create an exceptionally conducive environment for active management. Continuous trading hours and diverse venues provide the flexibility to react quickly to market changes, ensuring timely execution of trades. The availability of both spot and derivatives markets supports a wide range of sophisticated trading strategies, from hedging to leveraging positions. Market inefficiencies and pricing anomalies offer numerous opportunities for generating alpha, making active management particularly effective in the digital asset space. Furthermore, the ability to hedge and manage risk through derivatives, along with exploiting uncorrelated performance, enhances portfolio resilience and stability.
In our next article, we'll delve into the various techniques active managers employ in the digital asset markets, showcasing real-world use cases.
