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The Challenge
The international accounting standard IAS 38 prohibits recognizing internally generated intangible assets (such as patents, brands, and software) on the balance sheet unless they are acquired through transactions. This leads to major consequences:
Exclusion of Value: Up to 79% of global intangible asset value is left out of formal financial reporting.
No Collateralization: These assets cannot be used as collateral in traditional lending or capital raising.
Distorted Valuation: For many modern companies, as much as 90% of enterprise value is derived from intangibles—completely unrecognized under strict IAS 38 rules.
Furthermore, IAS 38 requires intangible assets to meet strict criteria of identifiability (separability from the business) and measurability (market-verified value), which most internally developed IP cannot satisfy in practice.
How IP Bonds / IP CDOs Solve the Problem
IP Bonds and IP CDOs offer a technological and financial workaround by creating an alternative system for recording and valuing intangibles, operating independently of IAS 38 limitations:
Off-Balance-Sheet Recording: Instead of seeking balance sheet recognition, IP Bonds allow intangibles to be used as collateral, even when not accounted for on the balance sheet.
Tokenization of Intangibles: Patents, brands, and copyrights are converted into blockchain-based IP Bonds. These tokens live outside the traditional accounting system and derive their value from market demand, not regulatory standards.
The value of IP Bonds is established through trading on digital marketplaces, providing real-time, transparent price discovery.
Example:
A patent recognized at $10 million under IAS 38 (as R&D cost) may achieve a market valuation of $120 million through tokenization—enabling companies to raise capital up to the full market value, instead of zero under the traditional IAS 38 approach.
IP Bonds & CDOs: Beyond a Financial Instrument
Bypass, Not Reform: These instruments do not amend or replace IAS 38. Instead, they introduce a parallel infrastructure that allows companies to unlock and leverage the economic value of their internally created intangibles today.
From Invisible to Liquid: Internally developed intangibles become visible, liquid, and investable through transparent trading and collateralization.
Market-Based Valuation: Tokenized IP Bonds create market pricing mechanisms for previously unrecognized intangibles, bringing them into global financial circulation.
Why This Matters
Until IAS 38 (and similar accounting standards) are updated, IP Bonds & CDOs provide an immediate, practical solution for companies seeking to monetise internally developed IP. This approach does not violate accounting rules; instead, it creates a new, decentralized digital layer where IP assets are recognized, priced, and financed—transforming them from "invisible" to liquid and investment-grade assets.
IP Bonds and IP CDOs bridge the gap between the real value of intangible assets and outdated financial accounting rules, enabling businesses to unlock capital and reflect the true weight of intellectual property in the knowledge economy—even before new accounting standards catch up.