The World Bank has implemented the first full issue of public bonds via smart contracts utilising blockchain technology. As a result, a complete securities lifecycle was carried out using a private Ethereum blockchain – from placement to the issuer’s performance of its obligations to investors, including settlement.
Commonwealth Bank of Australia (CBA) was the organiser and main buyer of the issue of the “Bondi” bond, short for Blockchain Offered New Debt Instrument, with a 2-year maturity term. The so-called Kangaroo issuance (foreign bonds denominated in Australian dollars) was priced to yield 2.251 percent for a total sum of A$100 million ($73.16 million), a sufficient size to test the practicality of the new technology.
Each party in the transaction was able exchange documents online and follow the transactions’ status – from placing securities and receiving funds to the full execution of the issuer’s obligations to investors.
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The bond was assigned an AAA rating and was used to raise capital for the World Bank’s Reconstruction and Development division, which issues around $50-$60 billion worth of bonds annually to fund projects for sustainable development.
According to their joint statement, the transaction is the first time that a legally binding bond was created, allocated, transferred and managed through its life cycle solely using distributed ledger technology.
Last week, North American-based financial services provider BMO Capital Markets, in collaboration with a pension fund, conducted the first pilot using blockchain to automate fixed income transactions in Canadian dollars.
Thanks to the technology that underpins cryptocurrencies, BMO was able to issue a CDN$250MM 1-year floating rate Deposit Note which included Ontario Teachers fund as the buyer.