India’s Demat 2.0 tokenized bond pilot has gained momentum, with two further issuances since the inaugural issuance by REC Limited earlier in the week. Engineering firm L&T Limited raised ₹5 billion ($52m) from four investors on 9 September, and brokerage IIFL raised ₹250 million from a single investor the same day, bringing the pilot total so far to ₹10.25 billion ($107m). SEBI has also published details that clarify several open questions about the pilot’s architecture, while an RBI executive signaled that gold could be the next asset class to be tokenized.
Despite being referred to as tokenized bonds which imply a digital twin, the bonds are in fact natively digital. The bond is issued as a digital token on a DLT network owned by the central securities depositories, NSDL and CDSL, and the token itself is the bond. The depository remains the authoritative record of ownership under the Depositories Act, with the distributed ledger simply being the form in which that record is kept.
The pilot is rolling out in three stages. The current first stage covers issuance, with asset servicing such as coupon payments handled by smart contracts on the ledger. Participation is institutional only for now. Stage two will enable secondary market trading through existing RFQ platforms and extend access to retail investors. In the interim, peer to peer transfers may be available for liquidity. Stage three would extend DLT nodes to credit rating agencies, depository participants and other regulated entities, and potentially bring in other instrument types.
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