Conditional Token: A New Model to Supply Chain Finance by Using Smart Contract in Public Blockchain

Che-Pin Chen (), Kai-Wen Huang and Yung-Chi Kuo
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Che-Pin Chen: Department of Risk Management and Insurance, National Cheng Chi University, Taipei 116011, Taiwan
Kai-Wen Huang: Department of Management Information Systems, National Cheng Chi University, Taipei 116011, Taiwan
Yung-Chi Kuo: Department of Management Information Systems, National Cheng Chi University, Taipei 116011, Taiwan

FinTech, 2023, vol. 2, issue 1, 1-35

Abstract: This paper defines Conditional Token (CT) as the token with specific conditions and proposes the use functions for its operations in smart contract so that it can be deployed at the public blockchain. If CTs were exchanged to/equivalent to fiat currency once then all conditions are realized, that is, the required performances and obligations/rights are agreed upon. In use, the obligation-type CT can be used as a divisible mortgage or be used as a representation of accounts receivable, accounts payable and vouchers as it is used in accounting. While the rights-type CT can be used as divisible fixed-income bonds or as an investment vehicle. Integrate both types of CTs with a matching methodology can thus be used in any kind of peer-to-peer (P2P) system of the decentralized finance, such as crowdfunding and P2P lending. This paper thus applying this new model to solve the complex issues of supply chain finance. For feasibility, this study concludes CT is the “Verdinglichung Obligatorischer Rechte”, and CTs are better than the current corporate loans in terms of cost and benefits. In addition, it is capable of transferring risk to other investors. In terms of implementation, this paper proposes a system framework and has completed a proof of concept of the system.

Keywords: supply chain finance; smart contract; DeFi; conditional token; verdinglichung obligatorischer rechte (search for similar items in EconPapers)
JEL-codes: C6 F3 G O3 (search for similar items in EconPapers)
Date: 2023
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