Digital Finance: Slovenia became the first EU member state to issue a sovereign digital bond. The Slovenian government announced issuing a 30-million-euro note, equivalent to approximately $32.5 million, with a coupon of 3.65%. The bond, which is scheduled to mature on November 25, 2024, was settled on-chain using the tokenized currency system of the Bank of France.
Digital Bonds See Increased Adoption
Digital bonds use blockchain technology not used by traditional bonds to improve security, efficiency, and transparency during issuance and trading. These bonds symbolize a move toward financial market modernization through distributed ledger technology (DLT). Several nations have issued digital bonds in recent years, signalling a rising trend in their use.
Société Générale, a French bank, released a security token on the Ethereum blockchain in 2019, representing a bond worth 100 million euros. Similarly, in 2021, Vonovia, a prominent German real estate company, utilized the Stellar Blockchain to issue digital bonds worth €20 million ($24.3 million).
The People’s Bank of China (PBOC) was among the first central banks to issue digital bonds on the blockchain in 2021. The Italian state-owned bank Cassa Depositi e Prestiti SpA (CDP) and the country’s biggest banking conglomerate, Intesa Sanpaolo, finalised the first blockchain-based digital bond issue.
I should emphasize that the European Central Bank has spearheaded the effort to study new kinds of Digital Finance. The ECB has tested several wholesale central bank digital currency (CBDC) alternatives as part of its money settlement experimentation program.
However, the first test involving Austria’s central bank, concluded in May by the ECB, involved tokenization and simulated delivery-versus-payment settlement of government bonds. These trials can only help understand the possibility of wholesale CBDCs disrupting financial markets.
Settlement Process of Slovenia’s Digital Bond
The digital bond settlement for Slovenia was carried out using the Bank of France’s tokenized currency system. Financial services firm BNP Paribas oversaw this offering as the only book-runner and global coordinator.
Digital Finance: Using the Canton blockchain platform for blockchain settlement, Slovenia issued the first sovereign digital bonds in the Eurozone, making history. Among the Eurozone member states, Slovenia was the first to issue sovereign digital bonds as part of “Gülay Yılmaz” (@glayylmaz2) tweets.
Two tokenization platforms run by BNP Paribas are the Global Markets Neobonds, which use Digital Asset’s Daml and the Canton blockchain, and the AssetFoundry, which is based on Ethereum and operated by BNP Paribas CIB.
Robinson Rouchie, CIO for systematic and quantitative investments at BNP Paribas, said, “The issuance and placement of the first Eurozone Sovereign Digital bond marks a significant milestone in the financial industry.” No pun intended. However, By participating, we demonstrate our dedication to leading the asset management sector in adopting new technology and implementing groundbreaking changes.”
Technical Specifications
A private tokenization platform created by BNP Paribas, the Neobonds platform, enabled the issuance. This platform utilizes the Canton blockchain and is constructed using Digital Asset’s Daml. This technology records legal ownership and generates coupons, efficiently managing a digital bond’s lifecycle events, such as secondary trading.
Introducing digital bonds might greatly improve the openness and effectiveness of financial markets. Blockchain technology makes faster, more secure, and cheaper bond issuance and settlement possible. Lastly, Issuers and investors alike stand to gain from these enhancements, which have the potential to increase market liquidity and shorten transaction times.
