Today Banco Santander announced that it issued a tokenized $20 million bond on the public Ethereum blockchain. It will live on the blockchain until maturity, with both the investment and quarterly coupons tokenized as securities. This, the Spanish bank claims, is the first bond processed end-to-end using distributed ledger technology (DLT).
While the bond involves real money, it was issued by the bank and purchased by one of its subsidiaries.
The project was completed with help from London-based blockchain startup Nivaura. Santander InnoVentures, along with the London Stock Exchange, invested in the firm in February.
Like Societe Generale earlier this year, Santander chose public Ethereum.
In a tweet, Santander’s John Whelan stated: “Other smart contracts were used too – a whitelisting smart contract allowing only entities properly KYC’d and onboarded to hold tokens (bonds or cash) and an exchange contract that acted as the escrow until the Issuer accepted the transaction triggering the atomic DvP (delivery versus payment).”
Other smart contracts were used too – a whitelisting smart contract allowing only entities properly KYC'd and onboarded to hold tokens (bonds or cash) and an exchange contract that acted as the escrow until the Issuer accepted the transaction triggering the atomic DvP.
— John W. ???????? (@_JohnWhelan) September 12, 2019
The bond’s quarterly coupons, at a rate of 1.98%, have also been tokenized, allowing for automation for the entire year until maturity.
The bank cites efficiency, simplicity, and the reduced number of intermediaries as the successes of the blockchain project. Santander believes this could be a step towards using DLT in a future secondary market for security tokens in general.
“Santander is at the forefront of the profound digital transformation of the financial sector and this transaction is one example,” said José García Cantera, CFO of Banco Santander.
He continued: “We want to take advantage of any technology that can accelerate that process, so that our customers thrive and be faster and more efficient, and blockchain is one of those technologies.”
The global head of Santander Corporate & Investment Banking, José María Linares, agreed with the sentiment: “Our clients are increasingly demanding the best thinking and technology in how we serve them in their capital-raising efforts. This blockchain-issued bond puts Santander at the forefront of capital markets innovation and demonstrates to clients that we are the best partner to support them on their digital journey.”
Along with Societe Generale, many firms are beginning to adopt DLT in the sector. Blockchain in bond markets is being tested by the World Bank which launched bond-i with Commonwealth Bank of Australia last year. Back in July, Nomura Research Institute (NRI) and Nomura Holdings announced they were jointly developing a blockchain trading platform with an initial focus on corporate bonds. Spanish bank BBVA has been one of the most active in this sector.
This week the Thailand Bond Market Association announced it’s adopting blockchain.
This post was updated with John Whelan’s tweet.