In a bid to encourage retail investment in small municipal bonds, ConsenSys Digital Securities LLC (CDS), the in-house broker-dealer of Ethereum venture ConsenSys has acquired Heritage Financial Systems Inc. The acquisition will enable CDS to use Codefi in the tokenization of smaller municipal bonds to reduce its high costs of issuance and management, according to a blog post on February 4, 2020.
CDS Acquires Heritage Financial Systems Inc.
Per the blog post, ConsenSys Digital Securities LLC (CDS) has acquired brokerage firm Heritage Financial Systems Inc. to tokenize mini municipal bonds on the blockchain.
According to the team, this tokenization will be made possible using the ConsenSys Codefi software, a product suite that digitizes financial instruments and builds customized decentralized applications.
Also, the aim of this tokenization is to provide municipal bonds in smaller denominations for local residents to enable them to invest in community projects.
And at the same time, reduce the high cost of selling, distributing, and managing mini municipal bonds.
Per the team, it is just as expensive to issue and manage small bonds as it is the case of a multi-billion dollar bond.
As such, this high costs prevent scaling of mini municipal bonds since it poses barriers for smaller firms looking to enter the municipal bond market.
Despite this high cost, there is still a high demand for small bonds with lower denominations by retail investors, since these bonds help in the development of community infrastructure projects.
In 2017, for instance, Lawrence, Kansas issued around half a million dollars of bonds with the aim of purchasing a fire truck for the community, while in 2014, Denver sold $12 million in mini municipal bonds in 20 minutes.
Municipal Bonds are Now Too Expensive for Local Residents to Invest
However, the focus of late has been on larger bonds with denominations as high as $100,000, whose investors are majorly large institutions and mutual funds and these bonds are targeted at making a profit rather than developing community projects that would’ve benefitted local residents.
Accordingly, tokenization will help in managing the bond’s lifecycle more efficiently and, therefore, bring about the scalability of small denomination bonds, the team outlined.
“Building a cost-efficient and effective solution for direct, local investment in mini muni bonds is a good thing both for financial markets and democracy,” the team added.
BTCManager reported on September 17, 2019, that ConsenSys has launched Codefi to strengthen the development of tools for commercially viable decentralized finance and business platforms.
On October 22, 2019, BTCManager also informed that ConsenSys has partnered with the Secure World Foundation to launch the TruSat satellite tracking app based on the Ethereum blockchain.