Background

Slovenia has made history by becoming the first European Union nation to issue a sovereign digital bond. This €30 million bond, settled through the Bank of France’s tokenised cash system and facilitated by BNP Paribas, marks a pivotal moment in the evolution of financial markets. Slovenia’s commitment to adopting advanced financial technologies sets a benchmark for other nations in the region.

The Role of BNP Paribas

TBNP Paribas played a crucial role in this transaction. Acting as the global coordinator, sole bookrunner, and operator of Neobonds platform. This private tokenisation platform, built with Digital Asset’s Daml and using the Canton blockchain, ensured the seamless execution of the bond issuance. 

What are digital bonds?

Digital bonds are a type of bond that is issued and traded using blockchain technology. A bond is a type of debt instrument issued by a borrower (such as a corporation or government) to raise capital, which is then lent to the borrower for a fixed period of time at a fixed interest rate. 

Digital bonds allow for more efficient and secure issuance, trading, and settlement. Because the blockchain ledger is immutable and transparent, it can help increase transparency and reduce the risk of fraud.

Overall, digital bonds are a relatively new development in the bond market, but they have the potential to transform the way bonds are issued and traded, making the process more efficient, secure, and accessible.

As of July 2023, the global bond market was valued at $135 trillion. An increasing number of international banks and financial institutions have implemented and are planning to develop digital bonds as one of their financial products.

If you would like to learn more about digital bonds, please check our What are Digital Bonds: Definition, Use Cases and Examples blog.

A Global Trend Towards Digital Bonds

Slovenia’s achievement is part of a broader global trend towards digital bonds, reflecting a growing interest in leveraging blockchain technology to enhance financial systems. Other regions have also made significant strides in this area:

• Italy: Italy’s state-owned development bank, Cassa Depositi e Prestiti SpA (CDP), and the country’s largest lender, Intesa Sanpaolo, recently issued a €25 million digital bond. This marked the first such transaction under Italy’s new digital asset regulations, highlighting the country’s forward-thinking approach to financial innovation.
• Hong Kong: The Hong Kong Monetary Authority (HKMA) recently completed a HKD6 billion-equivalent (approximately $770 million USD) digitally native green bond issuance for the Hong Kong government. This landmark transaction set two records: the largest-ever digital bond deal and the first multi-currency digital bond issuance, encompassing HKD, CNH, USD, and EUR.

Global Trend Towards Digital Bonds

The adoption of digital bonds holds big potential to revolutionise the debt market. These digital assets offer several key advantages:

• Enhanced Efficiency: Digital bonds streamline the issuance and settlement processes, reducing time and costs associated with traditional bond transactions.
• Transparency: The use of blockchain technology ensures that all transactions are recorded on a transparent and immutable ledger, enhancing trust and reducing the risk of fraud.
• Accessibility: Digital bonds can be easily accessed by a wider range of investors, democratising investment opportunities and fostering greater market participation.

Global Trend Towards Digital Bonds

As technology continues to advance and regulatory frameworks mature, we can expect a surge in digital bond issuance across various sectors and jurisdictions. The successful examples set by Slovenia, Italy, and Hong Kong indicate a promising future for digital bonds, paving the way for more innovative financial solutions globally.

Stay Ahead of the Curve

With the rise of Central Bank Digital Currencies (CBDCs) and other blockchain projects worldwide, staying ahead of the curve is crucial. To learn more about the latest developments in blockchain and digital assets, explore our Blockchain and Digital Assets Programme.

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Introduction

In a groundbreaking move last Thursday, Italy’s CDP Cassa Depositi e Prestiti and Intesa Sanpaolo, the country’s largest bank, completed a €25 million bond transaction using blockchain technology. This significant milestone marks a major step forward in Italy’s adoption of Distributed Ledger Technology (DLT), setting the stage for other EU countries to follow.

How Blockchain is Revolutionising Finance

The Power of the Polygon Network

The bond transaction was conducted on the Polygon network, an Ethereum layer 2 blockchain. This not only showcases blockchain’s potential in mainstream finance but also highlights its benefits such as transparency, immutability, and cost-efficiency. By successfully implementing this technology, Italy’s largest bank has demonstrated how blockchain can transform traditional financial systems.

Real-World Applications of DLT

Intesa Sanpaolo’s investment in a bond with a four-month maturity period exemplifies the practical applications of DLT in traditional financial instruments. The bond, valued at €25 million, offers a fixed coupon at maturity of 3.633% per annum. This transaction proves that DLT can be seamlessly integrated into existing financial operations, providing real-world benefits.

The Future of Finance in Europe

ECB’s Role in Financial Innovation

This blockchain bond issuance is part of a European Central Bank (ECB) trial aimed at exploring new solutions for central bank money settlement on DLT. Such initiatives are crucial for paving the way for broader adoption of blockchain technology across Europe, enhancing the efficiency and security of financial transactions.

Towards Broader European Adoption

Countries worldwide are striving to harness blockchain for its numerous benefits, including transparency, immutability, and reduced settlement costs. Italy’s successful bond issuance sets a precedent for other European nations, indicating a growing trend towards integrating DLT into finance.

Conclusion

Italy’s pioneering blockchain-based bond issuance signals a transformative shift in the financial sector. As other EU countries take notice and potentially follow suit, the role of blockchain in mainstream finance is poised to expand. To stay ahead of the curve, explore our Blockchain and Digital Assets programmeand learn more about the future of finance.

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Introduction

The World Bank sensed the possibility of integrating CBDCs with faster payment systems (FPS). A recent report by The World Bank Group, named “Interoperability between central bank digital currency (CBDC) systems and faster payment systems,” is now launching into the moderation phase with ITS Technology and Innovation Lab (ITSTI).

This programme is poised to change how the financial landscape operates by providing increased efficacy and security in digital transactions. Understanding how CBDCs interact with faster payment systems will be critical to building a future global payments landscape that keeps pace with the digital economy.

Background on CBDC and Faster Payment Systems

CBDCs are digital currency issued and backed by a country’s central bank to be used for transactions. There are two main types:

1. Retail CBDC: Intended for the general public, on par with cash or bank deposits.
2. Wholesale CBDC (wCBDC): Created for payments between financial institutions.

What are Faster Payment Systems?

Faster payment systems allow users to transfer funds between bank accounts almost instantaneously. These systems are designed to function 24/7, ensuring continuous availability and shortening the time it takes for funds to be transferred and cleared.

They involve two main steps:

1. Payment by the End User: Streamlined transactions and reduced processing times.
2. Settlement Between Banks: Improved mechanisms for fraud detection and prevention, leading to cost savings for both financial institutions and consumers.

Scenarios of Possible Implementation

The report considers several interoperability implementation scenarios, including:

1. Retail Transactions: A scenario where one party is using a retail CBDC while another party is using a faster payment system.
2. Interbank Settlements: Utilising a wholesale CBDC to conduct faster interbank settlement processes.
3. Cross-Border Payments: Achieving interoperable systems that will improve efficiency in cross-border transactions.

Technical Approaches Explored by the World Bank

The focus of the World Bank’s report includes:

1. Work on Integration Systems: Ensuring ease of communication between CBDC and faster payment systems platforms.
2. Use of Bridge Providers: Entities that facilitate transactions between different systems.
3. Role of Central Banks: Acting as trusted intermediaries to accomplish interoperability.

Technical Approach in World Bank Experiments

Various technical approaches were involved in the experiments carried out by the World Bank to attain interoperability. These included the integration of the CBDC platforms with faster payment systems and assessment of various ways through which both would communicate seamlessly.

Key technical solutions proposed by the report include the use of APIs and standardised protocols to make interoperability seamless, ensuring efficient and secure transactions between CBDCs and faster payment systems.

Example of Bond Issuance on SIX Digital Exchange

A notable case involved the treasury department of the World Bank in a wholesale CBDC transaction, issuing a bond on the SIX Digital Exchange (SDX). This transaction was settled against the Swiss National Bank’s (SNB) wCBDC as part of the pilot project conducted by the SNB.

Key Takeaways from the SNB’s wCBDC Pilot

The recently extended two-year wCBDC pilot by the Swiss National Bank provides several insights into the practical implementation of wCBDC. The World Bank’s involvement in this pilot underscores the potential of wCBDC to improve interbank settlement procedures.

Conclusion

The World Bank’s exploration of interoperability between CBDC and faster payment systems marks a significant step towards transforming the financial landscape. The potential benefits of enhanced efficiency, added security, and cost savings underline the importance of this initiative.

As technology and financial systems continue to evolve, the insights and findings from the World Bank’s report will be instrumental in shaping the future of global financial transactions.

Learning More About Blockchain and Digital Assets

 For those interested in deepening their understanding of blockchain and digital assets, the Executive Certificate: Blockchain and Digital Assets for Financial Services offered by the Centre for Finance, Technology and Entrepreneurship (CFTE) and SMU Academy is an excellent resource.

This online programme provides comprehensive knowledge and skills to thrive in digital finance. Participants will learn about blockchain fundamentals, digital asset mechanisms, and real-world applications across various sectors, including finance, government, and healthcare.

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CFTE met Ondřej Kovařík, a member of the European (EU) Parliament at the Point Zero Forum 2023 (PZF) at the end of June in Zurich. We got the chance to interview Ondřej about the European approach to Digital Assets regulation – MiCA.

Ondřej Kovařík was elected as a member of the Economic and Monetary Affairs Committee in the European Parliament and as a member of the political group for Europe, representing the Czech Republic in 2019. He previously worked at the Czech Ministry of Foreign Affairs, the Office of the Government, the Embassy of the Czech Republic in Ottawa, the Czech Ministry of Defence and the European Parliament.

What is Europe’s approach to Digital Assets in terms of regulation?

O: The European Union has adopted an approach with a very comprehensive regulatory framework called the MiCA (Markets in Crypto Assets Regulation). This is the main piece of legislation dedicated specifically to digital assets in the European Union (EU), which will be applicable across the 27 member states in a unified manner in the future. MiCA provides companies in the crypto industry with Ex-Ante (before the event) rules, enabling them to be aware of their obligations and crypto-related rights within the industry.

What is the latest milestone with MiCA that happened recently?

O: The latest news with MiCA is that it has been published and adopted in any Member States of the European. It will enter into application very soon, but since it is the beginning of the practical implementation of these rules, it acts as a set stone for the legislation in the crypto market. Both industries and the public authorities are starting to prepare for the application with accumulative improvements in the upcoming years.

“The most significant challenge with the MiCA implementation is the licensing procedure, which will serve as the initial major test for the effectiveness of the regulation.”

Ondřej Kovařík, member of EU Parliament

Are there any potential challenges associated with MiCA’s?

O: The main challenge for MiCA is its successful implementation and enforcement across the EU. As it is a new piece of legislation, it requires significant effort not only from the companies to ensure compliance with the rules but also from public authorities for supervision and regulation. 

Since many of these authorities are not familiar with the dimensions of the crypto industry, MiCA being the first legislation to cover crypto assets becomes particularly important. I believe the most significant challenge within the MiCA implementation is the licensing procedure, which will serve as the initial major test for the effectiveness of the regulation. 

How do you see the integration of MiCA into the industry?

O: It will take some time before it gets fully materialised, even after implementation, its full application will be around 18 months from now, earliest by 2025. But the key with MiCA as a legal framework is that it remains stable and predictable since the rules are now written on paper. Still, they were never tested into practice within the industry and operators. There will be a period for MiCA to adapt throughout the development and new events.

I think this can be accommodated by the supervisory authorities when approaching the industries throughout the marker regime. So instead of changing the rules, I would see this as the adoption of the supervisory practice. If we are able to implement MiCA, it would fuel the international establishment of more regulation in the crypto market.

What’s next for and after MiCA?

O: MiCA includes the identification and definition of fundamental categories within the crypto sector, such as tokens and cryptoasset service providers. Since it only provides a general regulatory framework, more measures are expected to be developed in the future. For example, decentralised finance (DeFi) aspects such as NFTs, staking, and lending may be addressed with further regulations. Authorities like the EU Commission and supervisory bodies will examine these areas to assess the further actions required alongside MiCA, with an ongoing process of defining use cases.

Since we just finished the Point Zero Forum, are there any insights you want to share?

O: Through the panels and open discussions, I got to share insights and ideas about MiCA with various stakeholders from the crypto industry. I believe that these open dialogues with the industry and public authorities will ensure a shared understanding within the community and enable public authorities to stay updated on the latest trends and developments in the crypto sectors.

The potential impact of MiCA’s

In summary, Ondřej highlighted the significance of MiCA and some of the measures that may be developed in the future world of digital assets. As technology continues to advance, MiCA will be set as a significant step towards establishing more comprehensive and stable regulations within the crypto sector, such as tokens and crypto asset service providers, fostering a future financially inclusive economy.

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Stay ahead in this fast-transforming digital era and keep updated on the latest blockchain advancements by enrolling in our program!

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CFTE met Alexandre Kech, Head of Digital Securities at SIX Digital Exchange (SDX), at Point Zero Forum 2023 (PZF) at the end of June in Zurich. SDX is a DLT-based platform for licence exchange and depository, where financial instruments such as bonds and equities can be issued, traded and secured as digital assets on the blockchain.

Alexandre has 25 years of expertise in traditional and open finance, including global custody, asset services, and data standardisation. As the former head of the Securities and FX market, APAC, at SWIFT, he has a strong post-trade experience, and an additional 5 years specialising in digital assets and blockchain. 

Can you explain what the wholesale CBDC project’s purpose and mission are?

A: In SDX, we automatically settle transactions by the Delivery versus Payment (DvP) method by moving securities and tokenising Swiss Francs together on the blockchain. Today’s challenge is that to tokenise Swiss Francs, we follow a structure where banks deposit Swiss Francs into our account at the Central Bank, and then we tokenise them on the block for DvP purposes. This means the banks have exposure to SDX. If we were to go bust, they would face the risk of losing the money deposited in our account at the central bank. 

The solution to this issue is the wholesale Central Bank Digital Currency (CBDC), which enables the Swiss National Bank to issue Swiss Franc in a tokenised form on our platform, where the commercial banks have no exposure to SDX through the Delivery versus Payment (DvP) system. There is no risk exposure when banks want to take back their tokens since the Swiss National Bank will pay back in cash. To make it happen, we have been in discussion with the Swiss National Bank for 3-4 years with one of the projects called Project Helvetia which was testing processability in various scenarios. Now, we are moving to a series of live production transactions starting Q4 2023.

What are the challenges that your project has faced?

A: The challenge is to onboard banks on SDX infrastructure, we are currently onboarding five more banks on the system, and now eight banks in total due to the wholesale CBDC project. The challenge is that these banks need to be familiar with the wholesale tokenisation process since they are used to the Real Time Gross Settlement (RTGS) payment system of the Swiss National Bank. The second challenge is to ensure banks are familiar with atomic settlements that requires pre-funding to ensure liquidity before settlements. Since banks are used to the settlement of DvP, T+2 where two additional days are required to fund and settle the transactions, it is a challenge to onboard and train the banks. 

How is the situation of the project, is it going to launch soon?

A: We are currently working with the Swiss National Bank to issue directly on our platform since it is a live transaction against tokenised central bank money. We are completing the Swiss National Bank onboarding process for wholesale CBDC integration, scheduled to be finalised by the end of October. In addition, we have onboarded several other banks to ensure regulatory compliance for issuance and secure live transactions on our platform. 

Regulation and access controls are necessary to determine who can access different financial services and assets.

Alexandre Kech, Head of Digital Securities at SIX Digital Exchange (SDX)

What is the timeline of the project?

The project involves a series of live transaction productions and is going to last until Q2 2024. After six months of the project completion, the National Bank will conduct a comprehensive assessment and release a report. So at the project’s early stage, it is quite limited to see the potential possibilities but we will see the end result and the direction the project will take. 

Are there any ongoing projects Switzerland has with other countries in the financial landscape?

The beauty of Switzerland is that you have a bit of everything, for example, the Swiss National Bank is working on Project Mariana with the Bank of France and the Monetary Authority of Singapore on cross-border payment of (Decentralised Finance) DeFi. Switzerland is also involved in financial instrument tokenisation alongside the Monetary Authority of Singapore (MAS), enabling the native issuance of blockchain-based private equity and assets. From these approaches, we aim to leverage the efficiency of the current financial market while fostering an ecosystem to support startups, SMEs, and institutional investors. 

What do you think the future of finance will look like in 10 years?

The future of finance will revolve around a global digital asset-agnostic settlement infrastructure, which is the direction we are heading towards. However, it is important to acknowledge that it may take 10-15 years to reach. Regardless of other financial instruments involved, our focus is on leveraging the efficiency of the infrastructure using wholesale CBDCs and other forms of digital currencies. So our ultimate goal is to ensure a seamless, and efficient settlement process within the financial ecosystem. 

What potential risks should we anticipate in the field of technology policy over the next decade, and what governmental frameworks can effectively manage these risks?

It is unrealistic to think that DeFi is a smart contract-based service on blockchain that can function independently. While financial inclusivity remains a challenge, it is impossible to have financial instruments for everyone, since those are better suited for experts or institutions. Therefore, regulation and access controls are necessary to determine who can access different financial services and assets. Regulated entities like Financial Market Infrastructures (FMI) play a crucial role in establishing new regulations, to ensure the deployment of audited smart contracts and blockchains that can be utilised by a wide range of users. Moreover, it is crucial for market stability to maintain a comprehensive regulatory framework that serves as a reference in case of unforeseen issues in the future. 

Are there any last thoughts you want to share?

In the next 10 or 15 years finance and banking integration will be rapidly transforming with blockchain technology. Despite the prior focus on pre-trade and trade activities, post-trade infrastructure, often siloed, hasn’t seen much innovation. Now, with blockchain, we can significantly enhance post-trade processes. So, I’d advise young people, if they are looking for jobs, to work for a post-trade provider like SDX or a bank. 

The future of finance in 10 years

In summary, Alexandre Kech of SIX Digital Exchange (SDX) sheds light on the intriguing progress of the wholesale Central Bank Digital Currency (CBDC) project. This initiative aims to alleviate the risk exposure associated with tokenising Swiss Francs on the blockchain for Delivery versus Payment (DvP) purposes. The future of finance will likely be centred on a global digital asset-agnostic settlement infrastructure, a direction that may take 10-15 years to fully realise. It is essential to have regulatory frameworks to ensure the accessibility and stability of these emerging financial services. 

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CFTE met Dante A. Disparte, Chief Strategy Officer and Head of Global Policy of Circle – a leading international financial technology firm, at Point Zero Forum (PZF) at the end of June in Zurich. We got the chance to interview him about the Circle’s USDC integration into the global transaction network and their ongoing partnership development. 

Before joining Circle, Dante served as a founding executive of the Diem Association (née Libra), leading public policy, communications, membership, and social impact. Dante is a global leader and speaker on risk, economic competitiveness, and security issues, where he has been regularly featured in leading media such as Harvard Business Review, BBC, Forbes, and Diplomatic Courier, where Dante serves on the editorial advisory board.

What is USD Coin (USDC), and how is it different from other stablecoins?

D: USDC is a US-regulated dollar-based digital currency, backed by an equal amount of cash or US treasuries or other high-quality liquid assets. This backing provides a constant and redeemable value of $1 for each USDC token at all times. It serves as a stable and reliable digital representation of the US dollar, enabling seamless transactions, and offering users more trust as the USDC holdings can be exchanged for an equivalent amount of US dollars.

Can you tell me about the Euro-backed Stablecoin (EUROC) and how it is different from USDC?

D: The approach we follow with EUROC is very similar to USDC. The idea is to establish a digital currency that represents the Euro and is tailored to the European market. Circle is actively working towards obtaining a licence in France, specifically an E-money licence, and France’s virtual assets service provider framework, specifically to align with Markets in Crypto-Assets (MiCA) regulations. 

By introducing EUROC, we envision a future where multiple digital currencies co-exist. These currencies would be built on public blockchain infrastructure and share common technological foundations, facilitating easier cross-border payment, and more efficient transactions, which we called ‘FC’, Fast Currency, is one of the potential developments in this evolving digital currency landscape.

Circle has a broad range of services, what is the most popular one that you are providing to the companies?

D: The majority of our customers are institutions such as digital asset exchange banks, and major companies like MoneyGram and MasterCard. Other than offering digital currencies like USDC and EUROC, we focused on empowering our users with the technology to upgrade the ways in which they can conduct the ‘four types of payments activity: send, spend, save, and secure’. It is a digital wallet environment where digital currency can operate across multiple blockchain platforms. 

What factors of the country and investment strategy does Circle consider and utilises when expanding the market internationally?

D: As a regulation-first company, Circle is focused on building out its operations in countries with dynamic fintech ecosystems and trusted regulators. For instance, Singapore, where we hold a Major Payment Institution (MPI) licence, is a key market for us in terms of talent, partners and customers – and this is a result of the country’s forward-thinking tech leadership and reputation as a hub for responsible financial services innovation.

The reality of crypto is more about the technology convergence of business models and the creation of more opportunities as opposed to disruption of them.

Dante A. Disparte, Chief Strategy Officer and Head of Global Policy of Circle

Besides Singapore, do you see any other countries in Asia to invest in?

D: There are a lot of amazing developments happening in other countries. For instance, Japan is now trying to harmonise with other regions, in bringing stablecoin frameworks such as USDC, into the fold of established regulatory regimes. Regulation is important in the internet-based finance industry due to its borderless nature. Hong Kong is also another region we cannot ignore due to its significance as a growing financial centre. Lastly, South Korea with its strong technological literacy and innovative capacity has limitless potential to invest in tech companies.

What are some of the collaborations that you are doing and what are you looking for in terms of the partners globally?

D: One remarkable example of an institutional partnership, although not widely publicised as of yet, is that which we have recently commenced with SAP.  This pilot is enabling SAP customers to build cross-border payment modules using USDC. We are also honoured to be partnering with the United Nations (UN) and the United Nations High Commission for Refugees (UNHCR), with several other major NGOs, aiding humanitarian relief efforts through USDC. 

Our partnerships are focused on bridging the gap between digital currencies and traditional financial systems. Currently, 75% of USDCs originate from crypto asset exchanges and are utilised in Externally Owned-wallet Addresses (EOAs). We have major partnerships with household names like Visa, MasterCard, and MoneyGram. Visa, for instance, has integrated USDC into its global settlement layer, benefitting 70 million merchants internationally. 

What is the cryptocurrency trend in the current market landscape?

D: The nature of digital currency is volatile at the moment since it is closely tied to the crypto capital markets. For instance, when the capital market shrank last year, the industry witnessed losses amounting to $2 trillion. The narrative with crypto for many years has been that banks and Wall Street are going to get democratised and that DeFi will supersede them. The reality is that this is more about the technological convergence of business models and the creation of more opportunities, as opposed to total disruption.

What is the company’s main emphasis now and in the future?

D: Currently, our main focus is on improving the payment system to be more efficient, safer and cost-effective. We are also focused on ensuring that stablecoins like USDC are as widely available as the demand for digital dollars in the world presents. So we are focused on building and expanding our partnerships with banks and non-banks that provide access to the financial systems in all of the most important markets in the world.

We just finished the Point Zero Forum, what are some of your key takeaways?

D: PZF is a truly unparalleled opportunity for central banks, policymakers, banks, and academics to come together and engage in an open dialogue about technology and the future of global financial systems. The format of designful roundtables, considered debates and insightful panels, works incredibly well and I look forward to attending further events curated under this architecture in the future.

Future outlook of stablecoins

In conclusion, our conversation with Dante A. Disparte of Circle underscores the increasing importance and potential of digital currencies like USDC and EUROC in today’s financial landscape. 

As more countries adopt regulatory frameworks that accommodate stablecoins, Circle aims to provide efficient, secure, and accessible digital transaction services. While volatility remains a concern in the cryptocurrency landscape, Circle is focused on non-speculative 100% backed payment tokens, and Disparte emphasises that this isn’t about replacing current systems, but rather creating new opportunities through technology convergence. 

Moving forward, Circle will continue focusing on improving payment systems, emphasising security, speed, and cost-effectiveness. The insightful discussions at Point Zero Forum underline the necessity for industry leaders, policymakers, and academics to collaborate openly on the future of technology, a trend that Disparte hopes will persist in the years to come.

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What are Digital Bonds?

Tokenisation is the issuance of securities as digital assets on the blockchain, where they can be stored, transferred and exchanged seamlessly and transparently. Digital Bonds are therefore a tool for corporations, municipalities or even governments to raise money from investors on the blockchain, in a faster and cheaper way.

With the support of Central Banks and Stock Exchanges, more and more institutions are starting to issue bonds directly on the blockchain. According to Standard & Poor’s Global, digital bond issuance totaled about $1.5 billion over 2022 (Source: Digital Bonds: The Disruption Is Underway | S&P Global Ratings).

Organisations are experimenting with digital bonds because their issuance is more efficient, more transparent and can appeal to a wider range of investors. On the other hand the investors can access these investment opportunities in a new regulated way.

There are several bond digitisation initiatives all over the world. To help you navigate through them and understand the use cases, we’ve compiled a list of top Digital Bonds projects you don’t want to miss in this article.

Top Digital Bond Projects You Should Know

1. Lugano Digital Bond

Status: Launched

Description:

In January 2023, the city of Lugano (Switzerland) issued a digital bond with a total volume of CHF 100 million and maturity in 2029. The bond is being issued on the DLT-based SIX Digital Exchange (SDX), but this instrument is listed and tradeable both on the SIX Digital Exchange and SIX Swiss Exchange. 

Objective: 

• To experiment with these new tools, allowing the City of Lugano to become an international centre of innovation and excellence for Blockchain and Crypto adoption.
• To prove that the DLT does not introduce higher risks compared to a traditional issuance. Moody’s rated the bond Aa3.
• To foster the ecosystem of blockchain companies and startups in Lugano, proving their solutions to be both practical and compliant with existing financial markets’ regulations.

Find more on this project on CFTE’s analysis of blockchain projects

2. Project Mercure

Status: Launched

Description:

In December 2021, the European Investment Bank issued a 2-year digital bond with a total volume of EUR 100 million. This issuance was done on Ethereum through Forge, a fully integrated subsidiary of Société Générale Group. 

Objective: 

• To get familiar with the over-the-counter issuance of bonds on a public blockchain.
• To prove that the end-to-end process worked well from a technical perspective, even with the involvement of several institutions.
• To establish compliant processes and procedures, with the overview of the regulators and central banks.

Find more on this project on CFTE’s analysis of blockchain projects

3. Project Venus

Status: Launched

Description:

In October 2022, the European Investment Bank issued its second digital bond. This bond had a volume of EUR 100 million and 2-year maturity as well. However this time the issuance happened on a private blockchain, through Goldman Sachs’ platform GS DAP.

Objective: 

• To get familiar with the issuance of bonds on a private blockchain.
• To list the digital bond on a traditional stock exchange, for investors to buy and sell on the secondary market.
• To experiment with new features, which would allow for future on-chain derivatives.

Find more on this project on CFTE’s analysis of blockchain projects

4. Tokenised Green Bonds

Status: Launched

Description:

In February 2023 Hong Kong issued its first HK$ 800 million (USD$ 102 million) green digital bond, with 1-year maturity and 4.05% interest. The issuance happened on a private blockchain, once again through Goldman Sachs’ platform GS DAP.

Objective: 

• To test out the financial infrastructure and the regulatory environment in Hong Kong for the use of DLT.
• To dramatically reduce reconciliation costs, since ownership details are recorded on the blockchain, record keeping aspects can be automated.
• To serve as a guideline for similar future issuances, by involving other financial institutions in the process.

Find more on this project on CFTE’s analysis of blockchain projects

5. EDF ESG Bonds

Status: Launched

Description:

In July 2022, EDF ENR issued an ESG digital bond through BNP Paribas’ digital assets platform AssetFoundry. The security was issued, registered and transferred on the public blockchain Ethereum in compliance to the French laws for unlisted securities.

Objective: 

• To technically and legally prove how security tokens can help small-scale initiatives attract investors and raise capital.
• To improve the transparency, scalability and verifiability of data across the whole value chain.
• To lower the costs per trade, allowing a much wider range of potential investors to access these investment opportunities.

Find more on this project on CFTE’s analysis of blockchain projects

6. Santander Tokenised Bond

Status: Launched

Description:

In September 2019, Banco Santander issued its first digital bond, a $20 million bond with 1-year maturity and a quarterly coupon of 1,98%. Banco Santander is itself the issuer of the bond, while one of the Group’s units purchased it at market price. Santander Securities Services acted as tokenization agent and custodian of the cryptographic key, while Santander Corporate and Investment Banking (CIB) acted as dealer for the issuance.

Objective: 

• To engage with the most innovative clients and partners.
• To leverage the Ethereum blockchain to tokenise cash and securities, registering them in a secure and permissioned manner on the blockchain.
• To reduce the number of intermediaries required in the processes, making the transactions simpler, faster and more efficient.

Find more on this project on CFTE’s analysis of blockchain projects

7. Blockchain-Based Regulated Bonds

Status: Launched

Description:

In July 2022, the Bolsas Mercados Españoles (BME), along with Banco Bilbao Vizcaya Argentaria (BBVA) and the Inter-American Development Bank (IDB), have issued the first digital bonds listed on a regulated market in Spain. The platform ioBuilders was used to issue, trade and manage the bonds’ life cycle. BBVA acted as digital custodian, structurer and active bookrunner, Citi was the agent, while Iberdrola and Renta 4 invested in the bonds.

Objective: 

• To leverage blockchain technology in order to remain at the forefront of financial markets’ digitisation and modernisation.
• To evaluate how to reconcile distributed ledgers with the current market infrastructure, in terms of system interconnectivity.
• To cut down issuance-related frictions and costs significantly, allowing capital markets to expand, by making them accessible to small investors.

Find more on this project on CFTE’s analysis of blockchain projects

8. UBS Digital Bond

Status: Launched

Description:

In November 2022, UBS AG priced its first unsecured digital bond, a 375 million CHF three-year bond with 2.33% coupon (ISIN: CH1228837865). It was issued on the blockchain-based platform of SIX Digital Exchange (SDX) while being listed and traded both on SDX and SIX Swiss Exchange (SIX).

Objective: 

• To issue the world’s first public bond that investors can access in both digital and traditional markets.
• To leverage atomic settlement technology via SDX central securities depository (CSD) to make the process instantaneous and automatic, without involving a central clearing counterparty.
• To enable investors to invest in a digital bond, regardless of whether they have the blockchain infrastructure.

Find more on this project on CFTE’s analysis of blockchain projects

9. Societe Generale SFH Covered Bond

Status: Launched

Description:

In April 2019 Societe Generale issued EUR 100m of covered bonds as a security token, directly registered on the Ethereum blockchain. This operation was the first pilot project developed by Societe Generale FORGE. The tokens have been rated Aaa / AAA by Moody’s & Fitch, and have been fully subscribed by Societe Generale.

Objective: 

• To speed up the organisation’s digital transformation and better serve its clients.
• To boost product scalability, efficiency and transparency, while reducing time to market and settlement times.
• To develop a new standard for issuances and secondary market bond trading, while reducing cost and the number of intermediaries.

Find more on this project on CFTE’s analysis of blockchain projects

10. Singtel Sustainability-Linked Bond

Status: Launched

Description:

In April 2022, Singtel announced the pricing of a US$100 million digital Sustainability-Linked Bond (SLB) in partnership with UOB and ADDX, UOB is the lead manager for the issuance and the entire SLB will be tokenised on the digital securities exchange ADDX. The SLB will carry a 5-year maturity and a fixed coupon rate of 3.56%.

Objective: 

• To democratise funding, giving a wider group of investors the opportunity to participate in Singtel’s investment projects.
• To boost green financing, by improving the cost efficiency of issuances and encouraging a higher number of sustainable projects.
• To eliminate manual processes throughout different stages of the security’s life cycle, such as issuance, distribution, custody and post-trade servicing.

Find more on this project on CFTE’s analysis of blockchain projects

Future outlook of Digital Bonds development

Digital Bonds are already allowing financial institutions and public entities around the world to greatly reduce the costs and simplify the procedures associated with the bonds’ life cycle, from issuance all the way to post-trade activities. On top of the optimisation of resources, digital bonds democratise the access to investment opportunities by allowing a wider range of small investors to access these tools, which were previously accessible only to large institutional investors.

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What is blockchain?

Blockchain is a peer-to-peer (P2P) network that could be defined as a shared and immutable ledger where transactions are permanently recorded by appending blocks. Its history can be traced back to 1991 when Stuart Haber and W Scott Stornetta invented the concept of a cryptographically protected chain of blocks, whereby digital time-stamped documents can be stored.

Blockchain has been presented as a breakthrough technology that is associated with several benefits in different sectors not limited to financial services. It can enhance the efficiency, transparency, scalability of companies or projects’ operations.

After understanding the growth of blockchain technology and its potential growth, it would be interesting to take a look at the top blockchain companies in 2023. 

Largest blockchain companies in the world

• Ripple

Ripple is a real-time gross settlement system, currency exchange, and remittance network. Its objective is to provide a secure, low-cost, and fast way to transfer money globally.

Discover more in the website: https://ripple.com/

• Binance

Binance is a cryptocurrency exchange that allows users to trade cryptocurrencies. Its objective is to provide a user-friendly platform for trading cryptocurrencies with low fees.

Discover more in the website: https://www.binance.com/en

• Coinbase

Coinbase is a cryptocurrency exchange and wallet provider. Its objective is to provide a safe and secure way to buy, sell, and store cryptocurrencies.

Discover more in the website: https://ripple.com/

• Chain

Chain is a blockchain platform that enables companies to build financial services applications on top of its blockchain. Its objective is to provide a secure, transparent, and efficient platform for financial transactions.

Discover more in the website: https://www.chain.com/

• Bitmain

Bitmain is a cryptocurrency mining hardware manufacturer. Its objective is to provide high-quality mining hardware that is energy-efficient and cost-effective.

Discover more in the website: https://www.bitmain.com/

• BitGo

BitGo is a blockchain security platform that provides multisignature wallets, custody, and security solutions for institutional clients. Its objective is to provide a secure and easy-to-use platform for managing digital assets.

Discover more in the website: https://www.bitgo.com/

• ConsenSys

ConsenSys is a blockchain software technology company that provides infrastructure, tools, and solutions for building decentralised applications. Its objective is to promote the adoption of blockchain technology for social and economic benefit.

Discover more in the website: https://consensys.net/

• Huobi

Huobi is a cryptocurrency exchange that allows users to trade cryptocurrencies. Its objective is to provide a secure and reliable platform for trading cryptocurrencies.

Discover more in the website: https://www.huobi.com/en-us/

• Circle

Circle is a blockchain-based financial services company that provides payment and treasury infrastructure for businesses. Its objective is to enable businesses to transact seamlessly using blockchain technology.

Discover more in the website: https://ripple.com/

• Blockstream

Blockstream is a blockchain technology company that provides infrastructure, tools, and solutions for building decentralised applications. Its objective is to provide a secure and scalable platform for blockchain development.

Discover more in the website: https://blockstream.com/

• Stellar

Stellar is a blockchain platform that enables the transfer of digital assets, including cryptocurrencies and fiat currencies. Its objective is to provide a fast and low-cost way to transfer value globally.

Discover more in the website: https://stellar.org/

• Digital Asset Holdings

Digital Asset Holdings is a blockchain software technology company that provides infrastructure, tools, and solutions for building decentralised applications. Its objective is to enable financial institutions to adopt blockchain technology for more efficient and secure financial transactions.

Discover more in the website: https://www.digitalasset.com/

• VeChain

VeChain is a blockchain platform that provides a range of supply chain management solutions. Its objective is to enable businesses to improve their supply chain management processes by using blockchain technology.

Discover more in the website: https://www.vechain.org/

• Tezos

Tezos is a blockchain platform that provides a self-amending blockchain protocol. Its objective is to provide a blockchain platform that can evolve and adapt to changing market needs without requiring a hard fork.

Discover more in the website: https://tezos.com/

Conclusion

Blockchain is not only about cryptocurrencies, the innovative solutions provided by blockchain have disrupted various sectors, from finance to supply chain management. Its future looks promising, as it continues to expand its global reach and collaborate with other leading companies.

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The role of transparency in blockchain

Blockchain technology has numerous benefits but one factor that makes it so appealing is the degree of transparency it offers. It is one of the biggest reasons behind blockchain’s perennial growth and its adoption in several industries like supply chain, cybersecurity, crypto trade, healthcare, and more. Blockchains were built with the goal of providing a simple, secure, and traceable way to transact such that there is increased accountability and unduly modification to data is eliminated.

All transactions on the blockchain network can be viewed by the nodes on the network with no centralised authorities to overlook activities. It is a peer-to-peer network that follows a distributed ledger system where each node has a copy of the ledger of transactions and gets real-time updates when a new block is added to the existing chain of transactions. This is what makes blockchain transparent and secure.

How do blockchain technologies ensure transparency in different sectors?

Supply chain

The application of blockchain technology in supply chain management is known to be one of its most promising. It offers complete transparency of all information involved in supply chain activities. Its digital record-keeping system helps create a fully transparent, tamperproof history of the transaction’s data flows, financial flows, and inventory flows. Products are made more traceable, thus improving the coordination between buyers, sellers, and banks.

This automated tracking of all steps throughout the supply chain process enables information to be available to the group of people involved, leaving no room for unethical business practices.

Cryptocurrency Trade

Blockchain technology is the driving force behind the new and exciting cryptocurrency market. Cryptocurrencies are digital currencies such as Bitcoin, Ethereum, and Litecoin among several others that can be mined, bought, and sold for value. This data recorded on the blockchain is available to all participants on the network, making it very difficult to manipulate therefore enforcing the transparency of all transactions.

Blockchain has helped make day-to-day business operations more efficient in cryptocurrency trade due to its transparent record of transactions which improves data integrity and customer experience. It is attracting more companies and governments because of its security and transparency.

Cybersecurity

New opportunities are being created in the cybersecurity sector by blockchain technology that could not have been imagined before. Cybersecurity users face significant problems when it comes to identifying security vendors that can be trusted or not. Blockchain helps these customers using cybersecurity services to verify the legitimacy of web attacks being detected and blocked.

Data is made more open and transparent using blockchain technology. Its participants can access public address transactions using a block explorer to search or explore blockchain blocks, their content, and details. This makes data surrounding threats more accessible, increasing safety and trust.

Conclusion

In today’s world, having transparency and security of data is a luxury, but blockchain technology is helping change the game. Several factors contribute to its transparency, which benefits sectors spanning from supply chain to cybersecurity. Their operations are being made more secure, open, and reliable, which is imperative for the success of any industry. With the rapid growth of this technology, new use cases for blockchain are constantly being unravelled. Therefore, keeping up with new blockchain projects and deepening your knowledge about this new technology is essential to stay on top of the game and use its applications optimally.

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Digital assets are disrupting industries today as this technology continues to evolve in financial ecosystems around the world. It has transformed the infrastructure of our financial markets, the way we buy and pay for things, and what we invest in. Digital assets include cryptocurrencies, NFTs, stablecoins, and security tokens, among others which have now become synonymous with technological growth and innovation.

A new type of economy based on trust and consensus is emerging before us in the virtual world. To better understand it and its future implications, it is essential to go back to the roots and understand how it all began.

The history and evolution of digital assets

1998: The ‘bit gold’ Idea

The emergence of digital assets dates back to 1998 when Nick Szabo proposed the idea of ‘bit gold’, a decentralised digital form of currency. He aimed to create a payment mechanism that was free from a central authority and would act as a long-term store of value. Its decentralised nature was brought about by its cryptographic and mining properties, whereas the proof-of-work mechanism allowed for the recording and verification of time-stamped blocks, similar to Bitcoin’s blockchain. However, Nick never put this proposal into action.

2008: The introduction of the first cryptocurrency; Bitcoin

A decade later, Satoshi Nakamoto wrote a paper on Bitcoin, which led to its introduction as the first cryptocurrency. It is a peer-to-peer digital currency created using blockchain technology, with no intermediary or central authority to govern it. The distributed ledger technology used in Bitcoin started gaining attention from upcoming new players and regulated financial institutions due to the security and efficiency provided by it when transferring currency or digital assets.

The realisation of the benefits of this technology brought about the evolution of digital assets as several new cryptocurrencies and tokenised assets were then introduced. Ethereum was the first public blockchain that introduced smart contracts and sparked the birth of decentralised finance and non-fungible tokens.

2011: The rise of altcoins

Following the success of Bitcoin, thousands of other digital currencies known as ‘altcoins’ or alternatives to Bitcoin (or sometimes Ethereum) were introduced. These either focused on making up for Bitcoin’s shortcomings or faults or focused on a different purpose altogether. In 2011 the first altcoin, Litecoin, was introduced, which used a different proof-of-work mechanism from Bitcoin called Scrypt. It used far less energy and was much quicker than Bitcoin’s consensus mechanism.

2014: The need for stablecoins

As the evolution of digital assets continued, the volatility of cryptocurrencies such as Bitcoin and others was questioned by society as it could harm a firm’s balance sheet health and investors. To address this issue, Stablecoins were introduced in 2014 as they eliminated the risk of volatility while still providing the benefits of crypto and its new capabilities. Stablecoins enable peer-to-peer transfers, digital wallet capabilities, and smooth cross-border transactions. Additionally, its volatility is reduced as its value is linked to traditional assets like fiat currencies or a commodity. Stablecoins have already exceeded $100 billion in market capitalization. This space continues to grow as digital assets like central bank digital currencies (CBDCs), tokenized securities, and more continue to be introduced.

2018-2020: ‘Crypto winter’ is here

Rapid proliferation was seen in the digital asset market from 2016 to 2018. However, following this period, the market witnessed a downward fall in 2018, known as “crypto winter” It was a difficult period as this bear market saw Bitcoin’s value drop by 83% from its highest to a low of $3,217. Similarly, Ethereum saw a drop of 94% in its value. The market began seeing improvements as it moved towards 2019, and by November 2021, Bitcoin had rebounded its value to nearly $69,000.9.

What is the future of digital assets?

Despite concerns regarding their volatility in value, digital assets are here to stay for a long time. As they continue to evolve rapidly, their adoption in both the institutional and retail industry has tremendously increased, given the expansion in use cases ranging from payments, money movement, art, entertainment, gaming, and more. Additionally, about 80% of central banks, including the federal reserve, are looking to launch their own digital currencies. The maturing of digital assets and their infrastructure is attracting a more mainstream audience. The shaping of their regulatory framework plays a significant part in this shift as it eliminates the uncertainty that initially held back these institutions and paves the way for the mass adoption of digital assets. To keep with this momentum, a deeper understanding of this asset class is needed so you and your organisation can become innovation leaders.

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