Blockchains meet Bonds

John Graves
Sep 3, 2018 · 3 min read

Blockchain experiences “big news” almost every news cycle but perhaps no recent news is bigger than the creation of the first bonds and corporate loans using distributed ledger technology.

As we see traditional finance begin to experiment with emerging technologies, blockchain repeatedly shows its applicability to more efficiently solve age old financial problems.

Upon its execution of the “first commercial blockchain-based commercial bond transaction” in May of this year, Sberbank CIB (the corporate and investment banking branch of the Russian bank, Sberbank) demonstrated the power of blockchain to lower transaction times and streamline the process.

After the transaction was finalized, Igor Bulantsev, the Senior Vice President of Sberbank and Head of Sberbank CIB, optimistically stated, “This MTS bond issue not only allowed us to confirm the reliability, efficiency and secure nature of the blockchain platform and carry out complex structured transactions involving securities, but also demonstrated the potential that this technology has to develop Russia’s digital economy.”

Surely if this transaction demonstrated the potential of blockchain to develop Russia’s digital economy, it must have the potential to revolutionize the rest of the world economy as well. All across the financial industry, institutions are beginning to utilize blockchain to put together deals.

Starting earlier this year, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) has been completing the first global corporate loan transactions, using blockchain technology. The bank has taken a huge leap in the world of digitized debt and has cited numerous benefits of using blockchain technology.

In addition to a shortened negotiation process facilitated by digitization, one of the clear benefits of executing such deals on the blockchain is the transparency with which the processes of contracting can occur. Throughout the whole process, both parties are able to individually view the current status of the deal and any changes in the conditions. This transparency is enabled by a shared ledger that was used for the entire process.

Even bigger than the previous deals, in August of this year, the World Bank announced the launch of a blockchain based bond. Called Bond-i (appropriately an acronym for Blockchain Operated New Debit Instrument), the roughly $73 million deal put together with the Commonwealth Bank of Australia is a public bond testing how blockchain technology may improve current bond sales processes.

As the World Bank commonly uses its borrowing power to develop new bond markets and new formats to buy and sell the debt securities, it has long been known as a bond-market innovator. For instance, the World Bank pioneered the first fully integrated electronic bond in January 2000, and now in August 2018, the World Bank has pioneered the first fully blockchain based bond.

The interest and confidence demonstrated by these financial institutions increases positive outlook on the space and should interest investors in the opportunity of this new kind of deal. Surely these deals will only be the first in the long process of adoption of blockchain technologies in traditional bond markets.

CONCLUSION

The potential of digitized debt is very large, and firms all across the globe are beginning to take advantage of these advances in technology. At Birch Global, we are working to create the first blockchain based debt crowdfunding platform that will provide accredited retail investors with the ability to invest in this new class of blockchain debt securities.

Birch Global Group

Birch Global Group is a boutique fintech focused studio

John Graves

Written by

Co-Founder @ Birch Global, working on Dinote

Birch Global Group

Birch Global Group is a boutique fintech focused studio

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