Amazon’s Tokenization Experiment Could Mean Instant Payouts for Sellers
Amazon, in collaboration with StraitsX and NTT Digital, is exploring a new tokenization-based system designed to help sellers access their earnings faster.
Currently, Amazon sellers often face delays of up to 14 days, or in some cases as long as 90 days, before receiving payments for their sales. These waiting periods can create cash flow challenges, especially when sellers need funds urgently to restock inventory or cover operational costs.
Amazon’s testing new simulation system uses tokenization to speed up payments.
Instead of waiting for their payments, Amazon generates a digital token representing the money owed to the seller. For instance, if Amazon owes a seller $1,000, the token acts as a promise: “We’ll pay you $1,000 in 14 days.”
Sellers can then sell this token to lenders or investors. The lender provides most of the token’s value upfront, say $950, and later collects the full $1,000 from Amazon once the payment period ends. This allows sellers to receive cash almost immediately.
The catch? Sellers don’t get the entire payment upfront — they lose a small portion, such as $50 in this example, in exchange for faster access to funds. However, for many, the ability to access cash quickly outweighs the minor deduction.
Once the token is sold, sellers are paid in XSGD, a stablecoin pegged to the Singapore Dollar. To ensure security, this system uses a feature called Purpose Bound Money (PBM). PBM adds an extra layer of protection, guaranteeing the payment follows specific rules and remains secure throughout the transaction.
This test is only a simulation for now, meaning Amazon isn’t rolling it out just yet. But if it works, it could help sellers get faster access to their earnings, making it easier for them to run their businesses without long payment delays.
The simulation is a great example of how trade finance flow can gain acceleration and impact the sector.
Trade finance moves 80–90% of the world trade. Despite that, the global trade finance gap reached $2.5 trillion in 2022, up from 1.7 trillion in 2002. Access to financing, lack of transparency, compliance, and logistics are significant challenges widening the trade finance gap today. Trade credit forms a considerable part of the trade finance sector.
The Asian Development Bank recommends that digitizing trade credit can reduce the gap, improve transparency, and grant a more remarkable ability to monitor environmental and social standards. Tokenization can be a great tool for digitizing trade finance. Many Web3 protocols are already working towards this, and the efforts of Web2 companies like Amazon can help accelerate the adoption even further.
Let’s discuss how the tokenization of trade finance works and how it can favorably impact the sector.
What is Trade Credit? How Can It Be Tokenized?
Trade credit is a financial arrangement between two businesses that allows the buyer entity to purchase goods or services from the other without paying cash upfront. In trade credit, the buyer agrees to pay the seller/supplier within 30, 60, 90 days or more. The arrangement to pay later and the purchase value are recorded in an invoice.
Tokenization transforms physical documents like invoices, bills of lading, and accounts receivables into tokens on a blockchain. Digitizing trade finance documents could help bridge the trade finance gap and decentralize trade finance operations for easier credit access.
Amazon did the same in collaboration with stablecoin firm StraitsX and NTT Digital. By tokenizing accounts or trade documents, sellers can sell their receivables and receive money faster. So, an invoice that would have fetched payment in 1 to 3 months can be redeemed quickly.
The invoice tokens can be placed in an exchange and traded to bring liquidity and accessibility of credit in the trade finance sector.
Accounts receivables and other trade documents often have maturity dates. The smart contract underlying the tokenized receivables can encode these dates. The purchase takes place as soon as the conditions are met, and the redemption happens automatically at the maturity date.
The tokens can also be embedded with regulations and compliance rules concerning the receivables. The accounts receivables can be settled in stablecoins or the currency of the holder’s choice, similar to how P2P transactions happen on exchanges.
How Can Tokenization Help Bridge the Gap in Trade Finance?
A World Trade Organization article says, ‘Part of the collapse of world trade is due to problems with trade credit financing. Since statistics on this are scarce, it is impossible to be precise about the most immediately salient and challenging feature of the financial crisis from a trade perspective — the supply of trade finance.’
When tokenized, trade finance can be mapped to the last atom. Every exchange, buying, selling, and trading is recorded as a transaction on the blockchain and becomes part of the immutable history. The data can be collected in real time to help identify trade finance issues and remove supply chain and logistics gaps.
Steven Hu, head of Digital Assets, Trade, and Working Capital at Standard Chartered, says traditional trade finance processes are often slow and vulnerable to fraud, “With tokenization, we create a new distribution channel to the capital market, [and] also to the emerging digital asset market with greater efficiency and transparency, while creating a viable, brand new asset class with a stable and attractive yield.”
Earlier, banks were the only ones that serviced these bills of lading and accounts receivable. With tokenization, trade credit can be democratized, and new players can enter the market.
He says, “It (trade finance) is traditionally reserved for banks. With tokenization, we can open access to a wider, broader range of investors. That investor could be different from how we imagine an investor today, like an asset manager.”
Tokenized accounts receivables can be bought, sold, and traded by individual investors, entities, and other players 24/7 worldwide. This helps reduce friction in trade finance and improve accessibility for companies involved in trade and their trade finance providers, says Bhriguraj Singh, chief product officer for Global Trade Solutions at HSBC.
The inflow of credit will massively support small and medium enterprises and help them grow their businesses, as SMEs face a greater number of rejections from banks for trade credit servicing. In 2022, while 38% of the applications received by banks were from small businesses, a larger share of rejections (45%) involved SMEs, according to a 2023 report by ADB.
The added liquidity via tokenized trade credit in the secondary markets can open up new business models and bring fresh liquidity for SMEs. Tokenization can also help add a layer of traceability and transparency to how trade is financed globally.
Blockchain may soon become a global register of trade finance transactions. The benefits of trade finance tokenization can also be extended to supply chain suppliers and help reduce risks and frauds involved in international trades.
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