Goldman Sachs has launched its digital asset tokenization platform, GS DAP, with the issuance of a €100 million ($104m) digital bond for the European Investment Bank (EIB) on the private GS blockchain. This is EIB’s second digital bond, and as with the previous bond, Goldman, Santander, Société Générale and the Banque de France were involved.
The 2-year syndicated bond issuance was settled instantly in a delivery versus payment transaction that used experimental central bank digital currency (CBDC) tokens issued by the Banque de France. The bond and the CBDC tokens live on different blockchains.
Given that the bond is issued under Luxembourg law, the Banque centrale du Luxembourg was also involved with the bond settlement, and the security is listed on the Luxembourg Stock Exchange. Luxembourg is one of the friendliest jurisdictions for EU digital securities, although France and Germany are also attractive. Next year the EU DLT Pilot Regime commences enabling some level of digital securities testing across the European Union.
“Blockchain has the potential to disrupt a wide range of sectors. It plays a central role in the success of Europe’s green and digital transitions, and strengthens our technological sovereignty,” said EIB Vice-President Ricardo Mourinho Félix.
The key advantages of blockchain, in this case, are the ability to settle faster and operational efficiencies. Lowering the cost of issuance can also make smaller offerings more viable. Apart from efficiencies, once securities are tokenized, they also present new business opportunities.
Societe Generale Securities Services (SGSS) is the on-chain custodian with Goldman Sachs Bank Europe SE, Santander and Société Générale as joint lead managers. Investors included AXA IM and Union Investment, which also bought EIB’s first digital bond issued in April 2021 on the public Ethereum blockchain.
Goldman Sachs digital assets
“With this new digital bond, EIB is again showing its leadership in capital markets, pushing innovation further by pricing the first syndicated digital bond on a private permissioned chain and settling T+0 across two blockchain networks,” said Mathew McDermott, Global Head of Digital Assets at Goldman Sachs.
At a Financial Times conference this week, McDermott observed that the crypto boom led to numerous institutions performing due diligence. “As the use case to invest wasn’t always intuitive,” said McDermott, “they spent time looking at the underlying technology, and that’s where the excitement started to grow.”
“Over the last 12 months, there’s been a huge amount of investment across the market in terms of thinking about how they can use it to either digitize the whole lifecycle of their business or just pockets of what they do to improve resiliency, reduce risk, increase efficiencies.”
While he believes most institutions are comfortable with permissioned blockchains, as regulations provide more clarity, they will move towards public blockchains because of greater liquidity and a larger investor base.
The Goldman Sachs DAP platform was developed in conjunction with Digital Asset using its DAML smart contract language, with the collaboration announced just over a year ago. We’ve asked which permissioned blockchain technology was used but didn’t receive a response in time for publication.
In this case, the EIB also executed an interest rate swap on the GS DAP platform, using the Common Domain Model, an ISDA standard for derivatives.
This blockchain bond is part of the EIB’s Project Venus which involves issuing a series of digital bonds.
Meanwhile, Goldman Sachs is also involved in crypto derivatives. “As a US bank, the bank holding company cannot trade the bearer asset, but we can trade derivatives,” said McDermott. “There’s been a significant uptick in interest over the last few months as the market has deteriorated.”
Update: Comments from the FT conference were added