CyberTrust is creating new financial products for existing banks and financial institutions, which would allow them to easily buy crypto-assets. The team is starting off with the most common of these – BTC, ETH, and BCH. This is helpful because many institutions are looking to add crypto to their investment portfolios.
The most interesting element of this project is that it plays well within the existing financial system. When financial institutions look at crypto, it seems like a totally new asset class that doesn’t follow any established rules. While that may be alright for individuals, institutions are risk averse. They operate in a regulated environment. CyberTrust bridges that gap between the wild west of crypto and the trillions of dollars sitting on the balance sheets of financial institutions. These bridges are only going to get more important as crypto increases in size as an asset class.
The way CyberTrust solves this problem is it ‘wraps’ the existing crypto assets into a financial instrument that is familiar for the banks and financial institutions. This is important because all such institutions trade assets like equities or ETFs. If the mechanics of trading are the same, i.e. if someone can make the crypto functionally behave as an equity, then for all purposes, from a bank’s point of view, it is just another stock, albeit with slightly different characteristics like higher volatility. This lets the existing financial industry put their money into crypto without having to go through the unfamiliar waters.
What CyberTrust is doing to solve this problem is interesting. To understand the workflow, look at the image below:
- The first step is to create an SPV – a Special Purpose Vehicle, whose sole purpose is to hold a given crypto. There will be a separate SPV for each crypto – BTC, ETH, and BCH.
- The second step is to create a Note against this SPV. The CyberTrust team calls it a Global Crypto Note or GCN in short. You can issue a fixed number of GCNs against each SPV. Each GCN is fully backed by the assets of the SPV, which would be just the corresponding crypto holdings.
- In the third step, the GCN created above gets an ISIN. Once you have an ISIN you’ve basically gotten a foothold into the existing financial industry. Anything with an ISIN is just a familiar package – like a stock. Trading it is trading in just another name for the traders and portfolio managers.
- In the fourth step, you need a way to house these GCNs and a place to clear and settle them. This is where the existing infrastructure comes into play – clearing houses like Clearstream provide this service on thousands of ISINs already – add in a new one and it’s no big deal for them.
- Finally, everything is audited by an auditing firm, which makes sure that all the assets are in place and there’s no accounting issues going on with the SPVs and GCN issuance.
And viola! All of a sudden, you’ve created an ISIN for an underlying crypto. That’s it really – anyone can trade an ISIN, and therefore anyone can trade the underlying crypto.
The CABS Token for CyberTrust
The native token, CABS, allows investors to bet on the spread between spot prices and price of the GCN, so they act as arbitrageurs in a way and make money from that arbitrage. The token is used for the securitization process as well. Therefore, if you want to securitize 1 BTC, it will need 1 CABS token. This is what gives value to the token as well.
Note that once the above platform is ready, there is no need to restrict it to certain crypto-assets. There are no such limitations really – as long it is profitable to create a new SPV with its own crypto, it can be done right away. This provides growth and expansion opportunities, as the crypto market itself expands over time.
Another interesting aspect of the token sale for CABS is that there is a reserve which acts as a price support for if the token price falls drastically. We know crypto can be turbulent, and this is just opportunistic buyback by the company. This is value accretive to the token-holders if they don’t sell during the price turmoil.
The team has the buyback price at 0.2 ETH or $50, whichever is lower. This means if the price of the token falls below this value, the team will use the reserve to buyback and burn the tokens. There is a reserve for this purpose. If you’re a long-term token holder, this is a great thing because when the price eventually rallies, you’ll retain a higher share of the network than before.
Photo Credit: David Ohmer