The idea behind CMADS (collateralized multi-asset digital securities) is to create crypto-securities that can accrue value based on a dynamic pool of underlying assets. The concept might seem similar to financial products such as collateralized debt obligations (CDOs) or real estate investment trusts (REITs) just if those were open, programmable, simple and transparent.
Let’s imagine a security token that is collateralized by a dynamic pool of real estate assets or a dynamic pool of US municipal bonds. By dynamic, we meant that the number of collateralized assets will vary over time. To understand CMADS, let’s compare it with the existing generation of security tokens.
Suppose that we create the Muni-Bond Token(MBT) as a tokenized representation of US municipal bonds. Our MBT security will start with an initial pool of municipal bonds valued at $100 million under current market conditions but we would like to increase the valuation over time.
The MBT protocol will allow any holder of municipal bonds to received MBT collateralized by their holdings. Similarly, MBT holders can redeem their tokens and receive their municipal bonds back. This model borrows a few ideas from stable coins such as Maker DAO but also brings the unique angle of applying that model to digital securities.
The collateralization, redemption mechanisms and programmatic stability maintenance mechanisms of stable coins are incredibly relevant to CMADS. The process of receiving a CMADS by registering an ownership position in US municipal bonds is not different than the mechanisms used by stable coins to issue new crypto-coins based on fiat reserves.
Stable coins are a great commerce mechanism but not very attractive for investors as their price doesn’t fluctuate too far from the underlying fiat currency. CMADS vehicles offer some of the benefits of stable coins while also resulting attractive to investors. A CMADS that represents a pool of US Treasury Bonds will still yield between 2–3% every year.
While the CMADS concept might seem obvious, the protocols for creating this type of asset are far from it.