This week ratings agency Moody’s published a paper on the cyber risks of bonds issued using distributed ledger technology (DLT). While it acknowledges the benefits of digital bonds include settlement speed, transparency and cost savings, the focus is on the risks.
It goes through the known blockchain security risks, such as attacking the network itself and smart contract vulnerabilities. So far, the issues have not surfaced because of the small number of issuances. However, it concludes that failures could be expensive for platform providers in terms of compensation, the viability of the platform and the damage to reputations of the large institutions backing the platform.
The paper doesn’t mention how this might influence future Moody’s ratings of digital bonds. For example, the SIX Digital Exchange hosted a bond for the City of Lugano which was rated by Moody’s after spending significant time reviewing the SDX platform. It stated re the Lugano bond, “in Moody’s view, the different technology will not add materially higher risks compared to a traditional issuance.”
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