What collateral do you use for securing business finance?
If you are a business, and want some form of finance, the finance provider will want a bearer instrument as security in the case your business fails. Whatever you use as your bearer instrument is known as your collateral.
A bearer instrument is a document that entitles the holder of the document to rights of ownership or title to the underlying property, such as shares, bonds or house titles.
All financial assets bear counterparty risk. On the other side of a financial asset is a counterparty with a financial liability. Counterparty risk can exist in credit, investment, and trading transactions. It’s the nature of their configuration.
Financial assets are based on some accepted unit of measure. Once it was termed as fiat Lux. Let there be light. Let there be a visible unit of measure. The power to construct the measure has usually resided with the sovereign and more recently the state.
In modern fractional reserve banking systems, the state treasury works with the central bank to control the issuance of credit. In this sense, all financial assets that exist within the fractional reserve system are tied back to the sovereign and her measuring gauge.
Sovereign debt is a central government’s debt. It is debt issued by the national government in a foreign currency in order to finance the issuing country’s growth and development.
Sovereign risk is the potential that a nation’s government will default on its sovereign debt by failing to meet its interest or principal payments. To date, capital has fled to US Treasuries in times of perceived risk.
Bitcoin is a new form of a bearer instrument that offers the possibility of providing collateral functionality with zero counterparty risk.
Bitcoin can be used in the world of decentralized finance as collateral. Increasingly, Bitcoin will be used to power modern businesses given that it is already tied into the Defi fabric.