Blockchain Bonds Gain Traction as Financial Industry Seeks Efficiency and Transparency

The latest is the island nation of Palau, which has issued a blockchain bond to tap into local capital for infrastructure projects.

Palau, an island nation in the western Pacific, is exploring blockchain savings bonds to raise capital for its infrastructure projects, partnering with Soramitsu, a Tokyo-based blockchain services company, on the initiative.

The project aims to tap into local capital and reduce capital outflow, with the savings bonds, dubbed Palau Invest, to be made available through an app on investors’ phones.

The bond will be issued on a Hyperledger Iroha 2-based permissioned blockchain network developed by Soramitsu, which has been working with Cambodia’s central bank for years, culminating in the launch of Bakong, a blockchain-based payments system, in 2020.

In Germany, the regional development bank Wirtschafts und Infrastrukturbank Hessen (WIBank) has issued a €5 million bond on a public blockchain.

The bond was settled using Trigger, a system developed by Germany’s central bank to enable the settlement of DLT-based securities transactions using central bank money. Trigger connects the blockchain holding the tokenized assets (in this case, the Ethereum Layer-2 network Polygon) to the traditional payment infrastructure, which in Germany is known as TARGET2, for atomic transactions. Trigger capitalizes on the benefits of DLT technology without the risk of digital currencies.

The process’s atomicity, realized through delivery versus payment transactions, eliminates counterparty risk. Since the transaction relies on central bank money rather than digital assets, credit risk is also reduced.

Helaba, WIBank’s parent company, acted as the cash settlement agent, while Bankhaus Metzler, Germany’s second oldest bank, was the sole investor. Deloitte and Munich law firm Annerton were also involved. Cashlink, an asset tokenization leader in Germany, tokenized and settled the bond on the public blockchain.