Sierra has added a new Available Yield Source of institutional trade finance, which has been included as a reserve strategy for SIERRA and is available to every issuing partner of Sierra.

What is Trade Finance?

Trade Finance helps international businesses buy and sell goods by providing short-term financing as the goods are transported from the seller to the buyer. For example, a company producing coffee in the United States does not want to pay the coffee beans producer in Brazil until the coffee beans shipment reaches the United States. Similarly, the producer in Brazil wants to be paid upon shipping the coffee beans, rather than waiting several weeks or months until the shipment has arrived.

Trade finance solves this timing problem between buyers and sellers by paying the seller immediately upon the shipment departing and then collecting payment from the buyer upon the shipment arriving. Historically, banks dominated trade finance but due to frictions like changing capital requirements and increasing operational expenses, new non-bank financial intermediaries have emerged. Global trade is a trillion dollar industry, with many companies in emerging markets as well as small and mid-sized enterprises (SME) involved.

Why TradeFlow and Obligate?

One unique approach that has emerged is TradeFlow Capital Management's CEMP USD Trade Flow Fund. TradeFlow Capital Management is a Singapore-headquartered institutional asset manager founded in 2016. Its funds have facilitated more than $5 billion of physical commodity trade across 5,000+ transactions in nearly 20 countries, covering more than 35 non-perishable commodity types on behalf of almost 2,000 SME counterparties.

TradeFlow has taken a different approach than banks by purchasing the non-perishable commodities from the seller and taking legal ownership during the shipment. Simultaneously, TradeFlow has a contract to sell the shipment to the end buyer and earns a spread on the transaction.

From the perspective of risk management, this structure mitigates the use of loans to reduce credit risk of the borrower. Since the trades are pre-booked with mandated buyer pre-payment, market risk of changing commodities pricing is addressed. TradeFlow also requires each seller to post collateral, providing an additional buffer to market risk. Additionally, the risk that the goods could be damaged, lost or otherwise not delivered is insured through obtaining Marine All-Risk insurance. All counterparty buyers must complete KYB onboarding with TradeFlow and are subject to an AI-driven counterparty scoring model.

Rather than investing directly into the TradeFlow Capital Management's CEMP USD Trade Flow Fund, Sierra accesses bonds issued by TradeFlow in the form of Obligate eNotes. Obligate is a Zurich-based digital securities platform registered as a financial intermediary under the Swiss Anti-Money Laundering Act and a member of VQF, a FINMA-recognized self-regulatory organization. All eNotes are ledger-based securities issued based on the Swiss DLT securities framework, giving the instrument the same legal enforceability as a traditional registered security while enabling native onchain access via stablecoins. Obligate has facilitated more than $300 million of native onchain debt securities to date.

New Yield Opportunity for Sierra Protocol and SIERRA

By adding institutional trade finance as an Available Yield Source, both the Sierra Protocol and the flagship liquid vault token, SIERRA, benefit through:

• Uncorrelated yields as trade finance is unaffected by the changing yield dynamics in the crypto market

• Scalability given the size of global trade finance

• Potentially higher returns as TradeFlow eNotes have consistently returned 8-9% in the past

• Enhanced liquidity profile through 3-month eNotes rather than direct investment into the fund, which carries a longer redemption period

• The unique approach of TradeFlow that offers several risk mitigation strategies

Sierra’s Advisory Council has applied the Risk Framework to this yield source and approved it for SIERRA’s Reserve Management Strategy. Given the 3-month liquidity profile, the maximum portfolio allocation has been set at 15% and will be allocated gradually to build a ladder of maturing eNotes over time. All stakeholders can review SIERRA’s allocation through the Transparency Dashboard and weekly Vault Reports.

Furthermore, all permissionless Vaults and LVTs issued by the Sierra Protocol can now allocate to this yield source. This new yield source expands the menu of options for asset managers, fintechs, exchanges and other issuing partners by enabling further customization of their target risk, liquidity and yield profile. Get in touch with the Sierra team to learn more here.

About Obligate

Obligate AG is a Swiss-based provider of blockchain-based capital markets infrastructure, offering a secure, transparent, and regulatory-compliant platform for the issuance, trading, and lifecycle management of debt instruments natively on the blockchain. Through its proprietary eNotes and eTrackers, recognised as ledger-based securities under advanced DLT legislation, Obligate AG enables access to investment solutions while meeting institutional standards for enforceability and risk management. Obligate AG is a financial intermediary according to article 2 paragraph 3 of the Swiss Anti-Money Laundering Act and a member of the Financial Services Standards Association (VQF), an Anti-Money Laundering Self-Regulatory Organization (SRO), regulated and supervised by the Swiss Financial Market Supervisory Authority (FINMA).

About TradeFlow

TradeFlow Capital Management is a pioneering asset-backed investment manager and fintech innovator focused on global commodity trade. The firm utilises its proprietary Risk Transformation Engine (RTE) to structure physical commodity import/export trade transactions all over the world into institutional-grade, asset-backed investments. By focusing on a non-credit approach, taking legal title to goods rather than lending, TradeFlow provides access to an institutional investment strategy focused on asset-backed commodity trade finance. For investors, that means asset-backed exposure with historically demonstrated low correlation to traditional markets. For SMEs, it means access to the financing their trade depends on. One strategy, two outcomes: capital put to work in the supply chains that power the world economy, with the discipline institutional investors require.

Since 2021, TradeFlow’s investment strategies have achieved investment-grade ratings, and since the inception of its flagship fund in 2018, the platform has enabled more than USD5 Bn  dollars of underlying trade activity. Since 2016, TradeFlow has remained a leader in the digitalisation of trade, providing a transparent and secure bridge between global SMEs and institutional capital.

TradeFlow Capital Management is licensed to operate in the United Kingdom as TradeFlow Capital Management Limited, an Appointed Representative of Infinity Asset Management LLP which is authorised and regulated by the Financial Conduct Authority (FCA) in the United Kingdom. For more information, please visit www.tradeflow.capital or contact us at enquiry@tradeflow.capital.