Definition ∞ A Debt Instrument is a financial tool representing a loan made by an investor to a borrower, obligating the borrower to repay the principal amount along with interest over a specified period. Examples include bonds, notes, and debentures. These instruments are a fundamental component of capital markets, allowing entities to raise funds by incurring liabilities. They define the terms of repayment and interest obligations.
Context ∞ In the digital asset space, debt instruments are gaining relevance through tokenization, where traditional debt is represented as digital tokens on a blockchain. This innovation potentially offers enhanced liquidity, fractional ownership, and more efficient settlement processes. Discussions often address the legal and regulatory classification of tokenized debt, particularly concerning existing securities laws. Future developments involve expanding the use of decentralized finance protocols to issue and manage these digital debt obligations.
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