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By Kalonji Bankole | Updated June 26, 2018 - Published June 25, 2018
Securitization is a financial process that can be used to consolidate a set of illiquid assets into a set of tradable securities. A common example of an illiquid asset would be a home mortgage, as one cannot be readily bought and sold. An example of a tradable asset is a stock or bond. This process can be useful for financial institutions that are looking to increase the liquidity of their assets and free up capital. This app leverages the IBM Blockchain Platform Starter Plan and provides a dashboard that allows users to create and view the relationship among assets, pools, investors, and securities.
Financial institutions that own too many long-term non-liquid assets and want to free up capital for new investments can benefit from securitization. Securitization provides a method to add liquidity to assets that cannot be readily bought or sold. The assets can be pooled together and divided up into securities, which can then be publicly traded. This also gives investors an alternative to riskier investments like stocks. Securities are more comparable to bonds, expect the holder receives monthly payments instead of a lump sum.
Securitization hasn’t been widely implemented partially because it’s a complex process, and also because it generally requires the input of many parties – creditors, underwriters, loan officers, etc. Blockchain can be used to provide more transparency, and standardize and automate many of the securitization processes. For example, smart contracts can be used to measure the investment risk of security pools, notify investors/creditors when a mortgage has gone delinquent, and determine the value of securities in real time.
In this code pattern, we will demonstrate securitization and show how this process can be tracked using a blockchain ledger. We’ll present an application using React.js, Express.js, and the Hyperledger Fabric SDK. This integration allows users to simulate a securitization process and understand how the various transactions can be handled on the blockchain.
When you have completed this code pattern, you will understand how to:
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