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.
More contents to be discovered…
If you are interested in discovering how blockchain is implemented in the industry, these are some of the best resources that can help you out!
