On Friday U.S. startup said Alphaledger recorded three U.S. municipal bond issuances on its permissioned blockchain. However, for now it is parallel recordkeeping.
The key benefits of using blockchain are improved transparency and lower costs. Distributed ledger is being used for a wide range of bond issuances and digital assets, often because the efficiency gains make smaller issuances more practical. In the United States, the vast majority of bond issuances are in the sub $50 million category.
According to SIFMA, in 2021 there were 13,000 muni bonds issued worth $482 billion. When it comes to U.S. fixed income, the value of muni bonds outstanding is the fourth largest, after Treasuries, mortgage-related and corporate bonds.
Recording the issuance on a blockchain is just the first step planned by Alphaledger, which has its eye on using smart contracts for on-chain clearing and custody.
The company was started in 2019 by a core team of ex-PIMCO founders and initially focused on the municipal loan market to digitize a very manual process. This enables community bank investors to expand their reach beyond the very local area. Diversifying their portfolios reduces their exposure to hyper-local environmental risks.
Apart from recording loan issuances, Alphaledger has evolved its activities to recording a secondary market loan sale and recording municipal security originations (parallel recordkeeping).
“Schools, water, power, roads – this is infrastructure vital to America’s growth which has been hard for investors to access directly in the traditional financial system,” said Alphaledger co-founder Manish Dutta. “Alphaledger is built to provide greater transparency, traceability, and accessibility for towns and municipalities issuing bonds and to support investors seeking to access the returns they offer.”
While Alphaledger is primarily a technology company, to facilitate transactions on the platform, it has a transfer agent subsidiary and a FINRA-registered broker-dealer Iris Technology.
Meanwhile, back in 2020, blockchain startup ConsenSys acquired a U.S. broker dealer with the aim of tokenizing the municipal bond market, with a similar vision to Alphaledger.
Many companies are developing blockchain bond issuance platforms, and several state-backed organizations have used blockchain to issue bonds, but only a few are in the municipal market. Examples of issuances include the World Bank, the European Investment Bank (EIB) and consumer-targeted government bonds issued in the Philippines and Thailand.
On the corporate side, last month saw the largest blockchain issuance to date from UBS for CHF 375 million ($370m).