Shalini Nagarajan

The World Bank has initiated the first issuance of digital securities on Euroclear&#8217;s newly launched Digital Securities platform.



Euroclear&#8217;s Digital Financial Market Infrastructure (D-FMI), a platform based on distributed ledger technology, facilitates the establishment, issuance and settlement of international securities digitally, all under English law, according to a Tuesday press release.



The World Bank <a href="https://www.worldbank.org/en/news/press-release/2018/08/23/world-bank-prices-first-global-blockchain-bond-raising-a110-million">said</a> it has raised 100 million euros ($105.9 million) from the three-year digital bond, dedicated to backing its sustainable development projects, with the bond making its debut on the Luxembourg Stock Exchange.



The bond&#8217;s release involved Citi overseeing the issuance and payment processes, TD Securities serving as the dealer and Euroclear Bank functioning as the Central Securities Depository for the issuer.&nbsp;



R3, the developer behind the platform, <a href="https://r3.com/press-media/r3s-corda-powers-first-digital-bond-issuance-on-euroclears-digital-financial-market-infrastructure/">said</a> that the Corda permissioned blockchain was used for the bond issuance.



The World Bank first <a href="https://www.worldbank.org/en/news/press-release/2018/08/23/world-bank-prices-first-global-blockchain-bond-raising-a110-million">experimented</a> with blockchain bonds in 2018 by raising around $73 million.



Other experiments with blockchain-based bond issuance, <a href="https://blockworks.co/news/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds">such as those by Société Générale</a>, have used public Ethereum.



<a href="https://blockworks.co/news/2023-year-of-asset-tokenization">Asset tokenization</a> is transforming finance by making transactions more efficient and reducing costs through digital processing.&nbsp;



It democratizes investment by breaking down high-value assets into purchasable tokens, thereby broadening market access.&nbsp;



This process enhances liquidity, turning illiquid assets like real estate or art into easily tradable forms. Additionally, it transcends geographic restrictions, creating a round-the-clock global market and facilitating smoother international transactions.



“The integration of DLT in asset issuance is a critical step forward in the evolution of our ecosystem’s digital capabilities, as we continue to deliver on our goal of becoming a fully digital and data enabled Financial Market Infrastructure,” Lieve Mostrey, Euroclear’s CEO, said in a statement.



Boston Consulting Group <a href="https://www.hubbis.com/news/tokenization-of-real-world-assets-gains-momentum-predicted-to-reach-16-trillion-industry#:~:text=According%20to%20projections%20from%20Boston,of%20%242.75%20billion%20in%20August.">forecasts</a> that by 2030, the global industry for tokenizing illiquid assets could expand to $16 trillion, accounting for 10% of the world&#8217;s gross domestic product.



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bonds

World Bank rolls out first digital bond issuance on Euroclear

Macauley Peterson

<div id="highlights-block_616ff78c4051d" class="highlights">
 <ul>
 <li>A consortium of banks and financial institutions including BNP Paribas, HSBC and Société Générale participated, along with Agence France Trésor, the Debt Management Office of the French government</li>
 <li>Goal of the project was to look at how blockchain could reduce the overall cost and increase the efficiency of the capital markets</li>
 </ul>
 
</div>



The French central bank — Banque de France — embarked on a test of a digital euro in March 2020, to learn how a European CBDC could be used in the exchange and settlement of tokenized financial assets using a permissioned blockchain. A consortium of banks and financial institutions including BNP Paribas, HSBC and Société Générale participated, along with Agence France Trésor, the Debt Management Office of the French government.



According to <a href="https://www.euroclear.com/content/dam/euroclear/news%20&amp;%20insights/Format/Whitepapers-Reports/settlement-french-government%20bonds-in-cbdc-with-blockchain.pdf" target="_blank" rel="noreferrer noopener">a report</a> published by Euroclear, a Belgium-based financial services company that led the project, the experiment “showed the capacity of blockchain platforms to coexist and interoperate with existing settlement infrastructures.”



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“By attracting more direct market participants on a common ledger for post trade operations, blockchain could also reduce the overall cost and increase the efficiency of the capital markets,” the report states.</blockquote>



An embrace of blockchain, Euroclear concludes, provides opportunities for the market to “change the way it organised so as to reduce trade to settlement cycles, increase direct market participation and reduce reconciliation efforts.”



These are advantages — in short, speeding transaction settlement and reducing costs — that have been long championed by advocates of DeFi, but they can also serve public and private institutions that rely on more centralized infrastructure.



<h3 class="wp-block-heading">A permissioned blockchain</h3>



The French project is not operating on a public blockchain, such as Ethereum, nor do they regard a public blockchain as desirable for the intended use case, where “a framework of control, privacy and confidentiality” were requirements. Instead, with IBM as a technology partner, a <a href="https://cms.blockworks.co/ethereum-steps-up-as-rails-for-new-capital-markets/" target="_blank" rel="noreferrer noopener">permissioned blockchain</a> using Hyperledger Fabric was employed to run the experiment via just three network nodes. (For comparison, Ethereum&#8217;s mainnet has about <a href="https://www.ethernodes.org/history" target="_blank" rel="noreferrer noopener">3,740 nodes currently</a>.)



The parties were aiming to simulate real market activity at scale, with Agence France Trésor issuing securities tokens and Banque de France issuing CBDC tokens using the IBM-built blockchain. The securities’ had an International Securities Identification Number (ISIN) generated by smart contracts, which also managed the auto-collateralization on settlement flows.



In a video <a href="https://www.youtube.com/watch?v=0cSOcoLSBgc&amp;t=36s" target="_blank" rel="noreferrer noopener">posted to YouTube</a> by Eurorclear, Guénolé de Cadoudal, of Crédit Agricole, said, “the tested on-chain business logic demonstrated the benefits of an automatic cash and security liquidity pool by leveraging on-chain portfolios as collateral.”



The participants also found that a token-based approach proved to be just as efficient as an account-based one, with the former better able to facilitate cross-border funds flows.&nbsp;



Euroclear’s Philippe Verriest calls the experiment a success that “demonstrates that a broad range of post-trade operations can be run on blockchain,” adding that, “we believe the blockchain technology could increase the overall efficiency of post-trade operations.”



While blockchain aficionados and industry participants are likely to read this as restating the obvious, it is important to see major public and financial institutions acknowledge the technological merits.



The next step will be to compare these experiments to those running on public infrastructure. Société Générale <a href="https://cms.blockworks.co/major-french-bank-wants-to-back-the-dai-stablecoin-with-40m-in-bonds/" target="_blank" rel="noreferrer noopener">has recently undertaken</a> to embark on one such effort by posting real estate bonds as collateral with MakerDAO.



For now, the reports’ authors conclude:



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“It does not seem possible for a public blockchain model to meet all the regulatory requirements to run post-trade activities.”</blockquote>



Perhaps as the technology matures, French institutions can reassess which is more compatible with the principles of liberté, égalité, fraternité.



This story was updated on October 20, 2021, at 10:13 am ET.

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