A blockchain bond is a debt issuance that uses distributed ledger technology to record transactions regarding these debt securities. In August 2018, the World Bank launched its “blockchain operated new debt instrument” (BOND-I).
The Commonwealth Bank of Australia (CBA) was designated as the bond’s arranger. Below, we’ll discuss how blockchain-based bonds work and some recent market developments regarding blockchain bonds.
Key Takeaways
- In August 2018, the World Bank created the bond-i, the world’s first global bond using distributed ledger technology.
- The Commonwealth Bank of Australia arranged the blockchain bond issue, which initially raised A$110 million and a subsequent A$50 million during a second tranche offering.
- More financial institutions are considering using blockchain technology to manage, create, and oversee various debt instruments.
- A benefit of blockchain-based bonds is the ability to assist capital markets in achieving fast, efficient, and secure transactions via distributed ledger technologies.
World Bank Blockchain Bond-I Details
According to the World Bank, the bond-i is the world’s first bond to be “created, allocated, transferred, and managed through its life cycle using distributed ledger technology.” The Commonwealth Bank of Australia (CBA) was the arranger for the bond issue, which raised A$110 million. The maturity date for the two-year bond was Aug. 28, 2020. Coupon payments were paid semi-annually in arrears at an annual rate of 2.2%.
The bond-i was the culmination of research performed by the World Bank’s Blockchain Innovation Lab. Launched in June 2017, the lab’s research is part of the World Bank’s strategy to study the impact of disruptive technologies (such as blockchain) on global economies and harness its potential for development. The CBA Blockchain Centre of Excellence developed and built the bond-i blockchain platform.
In May 2019, the World Bank and CBA announced they had successfully added to their platform’s capability by enabling secondary bond trading recorded on a blockchain. The goal was to assist capital markets in achieving fast, efficient, and secure transactions via distributed ledger technologies. In August 2019, the World Bank reported it had issued a second tranche of its blockchain bond, raising an additional A$50 million.
It’s important to note that while bond-i is the first bond issued through blockchain, it is not the only debt instrument to do so. The Spanish banking group BBVA signed a €150 million blockchain-based loan in November 2018.
Note
The World Bank raises, on average, between $55 billion and $65 billion each year by issuing bonds.
The World Bank’s bond-i was not the first time that major financial institutions have considered using blockchain technology in various ways. The bond’s introduction paves the way for other institutions that may have previously been hesitant. Undoubtedly, the perceived success or failure of the bond-i program will impact other financial institutions’ decisions to explore this space as well.
The Ethereum Blockchain Is Integral
A private Ethereum blockchain is used for managing the blockchain bonds. This blockchain network also creates the bond-i products. According to the World Bank, the platform has been reviewed by Microsoft to ensure that the architecture, security, and functionality are solid. The CBA development team partnered with a law firm to plan for the issuance of bonds and to develop the smart contracts which govern bond-i products.
Special Concerns
There is nothing published regarding the blockchain and network protocols or how mechanisms work to secure them. This is concerning because money is involved in owning these bonds, and if the blockchains are attacked, the bonds could be stolen. The way digital assets are accessed remains one of the most used avenues for hacking, so the interfaces and storage mechanisms that allow investors to access and hold digital bonds are likely a vulnerability.
An additional security concern is that these networks are centralized. Blockchain networks like Bitcoin and Ethereum depend on size and participation for security—smaller networks are much more vulnerable.
Recent Developments
In October 2023, the World Bank’s bond became the first digital security issuer on Euroclear’s Digital Financial Market Infrastructure. Euroclear is a global financial market infrastructure service provider of transaction settlements, collateral management, and services assets like bonds, equities, derivatives, and funds.
In May 2024, the World Bank began issuing the 7-year CHF 200 million digital bonds on the SIX Digital Exchange and the traditional SIX Swiss Exchange. These bonds are settled in the Swiss National Bank’s wholesale central bank digital currency (CBDC).
Can I Buy World Bank Bonds?
Yes, you can buy World Bank bonds on most securities exchanges.
What Is a Blockchain Bond?
A blockchain bond is a debt issuance that uses a blockchain to issue the security and record and transfer ownership.
What Bonds are Issued By the World Bank?
The World Bank issues many bonds, including sustainable development, green, outcome, benchmark bonds, and more.
The Bottom Line
The World Bank’s blockchain-based bonds were the first bonds to be issued using a blockchain to secure data and ownership information. The blockchain was built using a private Ethereum client by the Commonwealth Bank of Australia and is available on most exchanges.
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