Digital bonds are debt instruments issued natively on a blockchain or distributed ledger (DLT). The term is often used interchangeably with tokenized bonds, although some view tokenized bonds as conventional bonds mirrored on a blockchain.

Most non-native tokenized bonds are for Treasuries on public blockchains. In contrast, most native digital bonds have been issued via institutional platforms, mainly on permissioned blockchains but increasingly on public blockchains.

Initially, Europe dominated native digital bond issuance, although Asia is gradually catching up.

One of the key benefits is lower costs due to automation and reducing the intermediaries involved. Hence, issuance sizes and denominations can be smaller. The longer the term of the bond, the larger the cost benefits because smart contracts help to automate interest payments and servicing.

Another advantage is atomic settlement, lowering counterparty risk. However, so far, many institutions have delayed settlement and instead use smart contracts to specify the price settlement timing rather than settling instantly.

Bond issuers also hope that public blockchains will help expand the reach of digital bonds.