Definition ∞ SOFR linked debt refers to debt instruments where the interest rate is directly tied to the Secured Overnight Financing Rate, a key benchmark interest rate. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, published by the Federal Reserve Bank of New York. It has replaced LIBOR as the primary benchmark for various financial products globally. Debt linked to SOFR includes bonds, loans, and other financial contracts, with interest payments adjusting based on changes in this reference rate.
Context ∞ The transition from LIBOR to SOFR linked debt continues to be a major topic in traditional finance, with increasing relevance for digital asset markets as institutions seek compliant on-chain debt instruments. Discussions involve the potential for tokenized SOFR-linked debt to bring greater transparency and efficiency to lending markets within decentralized finance. The development of robust infrastructure for issuing and managing such digital assets is crucial for integrating real-world financial benchmarks into blockchain-based financial systems.
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