According to Bloomberg, the European Investment Bank (EIB) has mandated Goldman Sachs, Santander and Société Générale to be joint lead managers for a €100 million bond issuance on the Ethereum blockchain.
The issue date is 28 April for the two-year AAA-rated bond that complies with French law and is targeted at professional clients. Two weeks ago, it was rumored that the bond was in the works.
While Société Générale and Santander have both previously issued bonds on the public Ethereum network, those bonds or security tokens were bought by associated entities. In contrast, the EIB bonds are being sold to third parties, so it’s a much bigger milestone. Update: The EIB said settlement used central bank digital currency.
The amount matches the first Société Générale bond issuance, but the French bank followed it up with a second bond for €40 million settled with a trial central bank digital currency. Santander’s bond was for €20 million.
While today’s transaction is a big step forward, it doesn’t fully exploit all the benefits of distributed ledger technology (DLT). One of the advantages of blockchain is to digitize a still relatively manual bond issuance process. Another benefit is the potential to provide a blockchain shared registry without a central securities depository (CSD). That was enabled here because France was chosen as the jurisdiction, but is not yet viable in most countries. The possibility of instant settlement or delivery versus payment also removes counterparty risk. However, in this case, payment is the next day (T+1).
Other government-related institutions that have adopted blockchain for bonds include the World Bank and retail treasury bonds issued by the banks of Thailand and the Philippines. However, these all used permissioned blockchains.
Update: Corrected the reference to a CSD being sidestepped.