Blockchain-Based Digital Payment Obligations for Trade Finance

To help deep-tier suppliers access cheaper financing, the downstream anchor manufacturer can issue digital payment obligations (DPOs) based on a blockchain platform. The DPO can be passed on to the upstream of the supply network as a payment instrument and then the deep-tier suppliers are able to adopt factoring at a more favorable financing rate due to the manufacturer's creditworthiness programmed into the DPO. We investigate how DPO adoption impacts the operational decisions and profits of different participants in a three-tier supply network, and examine whether these participants voluntarily accept the DPO. We find that DPO adoption increases the efficiency of the supply network and benefits the downstream manufacturer and the suppliers on the reliable branch. However, the suppliers on the unreliable branch can be worse off. Despite the profit decrease, the suppliers on the unreliable branch accept the DPO voluntarily due to the threat posed by competitors.