In a move that will make the Liquid Network even more unpopular with Bitcoin maxis, Nexbridge has introduced a novel approach to issuing US Treasuries by deploying them as tradable tokens on the Bitcoin side chain. This novel development represents a significant milestone in the evolution of digital assets and financial infrastructure by tapping into such a large asset class, the US bond market.
The Liquid Network has long been a ghost town; blocks are hardly even filled with 10% of its capacity, and it’s been crying out for a killer app. Retail has not accepted the trade-off it offers in terms of speed and cost, barring a few high periods on the main chain.
While Liquid does provide opportunities for arbitrage between supporting exchanges and a middleware layer between the base chain and Lightning, these two use cases are not nearly enough to keep the ecosystem going.
The federation members will not support the network if they don’t see growth in Bitcoin locked on-chain, third-party AUM growth, and, of course, on-chain activity.
Given the fact that Lightning has been the preferred micro-payment option and commerce settlement layer, Liquid has to carve out a different niche for itself. It’s found that in tokenising traditional finance assets and offering a settlement layer.
The much-maligned side chain has always aimed to bridge traditional finance with blockchain technology, starting with stablecoins like L-USDT and L-CAD. It also issued several securities, such as debt instruments like the Blockstream Mining Note and stocks like CMSTR (MicroStrategy stock), as AMP tokens.
Apart from USDT, the rest of the 3rd party tokens are limited in demand and use, even with MSTR’s popularity in recent months.
The Role of the Liquid Network
Before discussing Nexbridge’s initiative in detail, it’s essential to understand the Liquid Network. Developed by Blockstream, this Bitcoin side chain is designed to enable faster, more confidential transactions between cryptocurrency exchanges and institutions.
It uses a peg-in system where Bitcoin is held in a multi-sig, issued on Liquid, and governed by a host of federation members.
Unlike the main Bitcoin blockchain, Liquid offers enhanced privacy and rapid settlement times, making it an ideal platform for more complex financial instruments.
New federation member
First, NexBridge is joining the Liquid Federation, a geographically and geopolitically diverse group of more than 70 Bitcoin companies and exchanges that govern the Liquid Network. Thus, NexBridge will not only issue assets but also sign blocks, run liquid nodes, and have a vested interest in the network’s upkeep.
The Significance of Tokenised US Treasuries
The offering, capped initially at $30 million, simplifies access to US Treasuries by tokenising them on Bitcoin’s infrastructure. The idea is that there are untapped markets for US treasury demand from outside the country, and using blockchain technology, accredited investors in other countries will be able to gain exposure to this asset class.
In theory, some of this trading volume and demand for third-party assets can drive demand for Bitcoin as traders on the Liquid Network require L-BTC to pay on-chain fees, but these fees are relatively negligible.
Michele Crivelli, NexBridge’s founder, hailed the development as a step toward “a globally accessible financial ecosystem” with compliance at its core.
Tokenising US Treasuries on a blockchain side chain is not just a technical achievement—it’s a potential game-changer for several reasons:
- Increased Accessibility: By representing US Treasuries on the Liquid Network, Nexbridge is making these traditionally institutional financial instruments more accessible to a broader range of investors.
- Enhanced Liquidity: Blockchain tokenisation can potentially increase the liquidity of US Treasuries, allowing for more efficient trading and fractional ownership.
- Reduced Intermediation: The blockchain approach can streamline the treasury transaction process, potentially reducing costs and increasing transparency.
Bitfinex Securities, the first platform to receive a Digital Asset License under El Salvador’s 2023 securities law, will list USTBL. White-listed users can purchase these tokens, leave them on an exchange, or hold them in any Liquid wallet.
However, redemption options will be available starting in March 2025.
According to Blockstream, USTBL’s first round of issuance was successfully oversubscribed, hitting the initial cap of $30 million for a token representing US Treasury bills on the Liquid Network in less than 72 hours.
How Nexbridge is Implementing the Solution
NexBridge™ is a digital asset issuer specialising in the tokenisation of financial assets—including publicly traded securities, private investment funds, and project-specific financial instruments. Nexbridge will hold the underlying treasuries and use the AMP tokenisation protocol for issuing and managing US Treasuries on the Liquid Network:
- Regulatory Compliance: The platform ensures full compliance with existing financial regulations.
- Real-time Settlement: Leveraging the Liquid Network’s capabilities for near-instantaneous transactions
- Robust Security: Utilising Bitcoin’s underlying blockchain security infrastructure, tokens have instant verifiability.
Potential Market Impact
As Bitcoin becomes part of the traditional financial system with the launch of the spot ETF and options on these products, Bitcoin-adjacent equities are in greater demand. As the two worlds collide, we could see a significant shift in how traditional financial assets are traded and managed.
By combining US Treasuries’ stability with blockchain’s technological advantages, Nexbridge is creating a new asset class that appeals to traders outside the US and those who want to manage their Bitcoin and traditional asset exposure in one ecosystem.
“At Blockstream, we’re committed to building the financial infrastructure of tomorrow, and NexBridge’s vision aligns seamlessly with our mission. By using Blockstream’s AMP technology on the Liquid Network, NexBridge is advancing a more open and interconnected financial ecosystem and accelerating the adoption of blockchain-based financial infrastructure on a global scale.”
Dr. Adam Back, CEO of Blockstream.
Challenges and Considerations
While promising, this approach is not without challenges:
- Regulatory scrutiny will be intense
- Investor education is crucial
- Technical infrastructure must continue to evolve
Liquid looking for liquidity
Nexbridge’s initiative represents a technological experiment for now. We’ll see how long they can keep issuing these tokens until they exhaust demand. It’s a glimpse into a future where traditional finance and blockchain technology coexist and complement each other seamlessly.
The company plans to issue up to $200 million worth of tokenised US Treasury securities, giving investors proportional shares of the assets under management.
