The right to create assets is granted only to companies issuing bonds on the blockchain, for a short window around the time of bond issue. The origination of a bond is represented by the creation of a new tokenized asset by the debtraising company. Tokens of this asset are sent to lenders in exchange for cash transferred to the company. If we prefer this cash transfer to also take place on
the blockchain, an additional currency asset could be issued by a trusted party and used for this purpose. As in the previous scenario, participants could buy and sell these currency tokens using deposits and withdrawals in the issuer’s bank account.
The rights pertaining to bond holders are legally defined in terms of the state of the blockchain at particular points in time. For example, interest payments are made based on ownership of the asset in the first block whose timestamp is after their due date. At maturity, bonds are redeemed by their tokens being sent to the issuer in exchange for a cash payment to the bondholder.
Each exchange involving bonds can take place atomically, using a single blockchain transaction that represents the exchange. However, if mining is conducted collaboratively by competing institutions, partially signed transactions cannot be used to implement a decentralized exchange over the blockchain network. Let’s imagine that an attractive offer of exchange is transmitted as a partial transaction, leading several participants to create complete transactions which accept that offer. In this case, the miner of the next block has the power to choose which of these competing transactions is confirmed. If the miner has a financial stake in the outcome of that contest, perhaps because they created one of those transactions, a clear conflict of interest arises. Indeed, because of the constraint on mining diversity, participants might avoid mining altogether until a transaction appears which they want to see confirmed. As a result of these risks, the matching of parties in exchange transactions needs to take place in an external process, with the blockchain serving only to rapidly settle those exchanges.