World's first fully Blockchain dependent bond

By arvind |Email | Sep 19, 2018 | 3204 Views

Another technology that is emerging has the potential to take the industries by storm is blockchains. What is blockchain you ask? Blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as 'completed' blocks are recorded and added to it in chronological order; it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node gets a copy of the blockchain, which is downloaded automatically. In other words Bitcoin, Litecoin all these internet coins.

These cryptocurrencies are already making the news and the financial industries know the impact it can make. It reduces cost by eliminating manual processes. It increases speed of transaction and settlements through immediate distribution. Using cryptocurrency has better security. The cases of fraud and risk are going to reduce.

The World Bank has issued the world's first blockchain dependent bond dubbed "Bond-i" (an acronym for Blockchain Operated New Debt Instrument). It will become the first bond whose life cycle of activities will be entirely controlled, managed, and allocated by distributed ledger technology. Bond-i is a two-year bond that was created by the World Bank in conjunction with the Commonwealth Bank of Australia which must have taken inspiration for its name from the popular Bondi Beach in Sydney.

The launch of Bond-i fits into World Bank's goal of enhancing and securing capital markets and is seen as the first step towards making bond sales processes faster, cheaper, and automatic compared to the conventional manual methods currently being used. Bond-i has garnered the interest of several investors due to the deployment of emerging technologies in its operation.

World Bank Treasurer, Aruma Oteh, commented the following regarding the launch of this project:
"We welcome the huge interest that this transaction has generated from various stakeholders and will continue to seek ways to leverage emerging technologies to make capital markets more secure and efficient."

An outstanding $110 million was raised for the project, making it the first time investors have decided to lend their support to a World Bank venture involving transactions entirely managed by blockchain technology. Bond-I investors include seven Australian banks and state treasuries. Oteh also mentioned that that the project received support from Microsoft, Mark-it, King & Wood Mallesons, and Toronto Dominion Securities.

Why Bond-i?
Blockchain-based bonds are not so unique. Smaller enterprises in the UK have experimented with this concept and issued bonds using public blockchains  or other cryptocurrencies. In May, MTS - the largest mobile operator in Russia announced it launched the world's first blockchain bond when it placed bonds on the blockchain while transacting a 750 million rubles ($11.20 million) deal with Sberbank. Notwithstanding, Bond-i differentiates itself from other parallel projects due to the fact that it is fully dependent on the blockchain for the management of all processes for its two-year life cycle; it will also become the first blockchain bond "offered to a public, global range of investors." Additionally, Bond-i will have a larger scale offering compared to similar private blockchain bonds and will cut down the cost of issuance by reducing underwriting costs, providing substantial funding merits for the World Bank, an institution that issues $50 - $60 billion every year to support developing countries.

Beyond the World Bank
From all indications, Australia could be swept up in a wave of blockchain developments since Bond-i will be deployed at a time when the Australian Securities Exchange is making plans to switch to blockchain technology to reduce issuance costs and to handle operations involving trade equities. This move is slated to take place between 2020 and 2021.

Some enthusiasts of the project believe that the viability of the Bond-i concept stretches beyond the current World Bank goals, as the project model could offer tremendous benefits to the government of countries where it is adopted.

Source: HOB