Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Blockchain Smart Bonds
Coindesk | Anthony Bufinsky | Apr 19, 2023
Image: Unsplash/Shubham Dhage
Smart bonds can transform the life cycle of debt instruments and have the potential to disrupt debt capital markets.
- Smart bonds – digital bonds stored on a distributed ledger – are an emerging application of the technology wherein each bond has a unique digital signature that verifies ownership and eliminates the need for physical certificates. Blockchain ensures all transactions are recorded and stored permanently, making it difficult for anyone to steal or alter the bond's value without detection.
- This digitalization of bonds may enhance process efficiencies and liquidity, reduce costs, simplify and democratize capital raising for issuers, and create a broader investable landscape.
Citi Report: Blockchain’s Next Billion Users: Money, Tokens, Games
- Benefits: Smart bonds can also significantly reduce the need for intermediaries (using a tokenization platform), such as banks, brokers, and clearinghouses thus eliminating (reducing) associated fees and the overall cost of bond management services.
- Smart contracts can be coded with bond details and stored on blockchain, providing transparency and authenticity.
- Smart bonds can be allocated to investors and payment is automatically deducted, settling the transaction simultaneously for all investors.
- Smart contracts can automate clearing and settlement processes, reducing the time required to complete tasks and the likelihood of a price change.
- Smart contracts can automate interest payments and return of principal at maturity, reducing counterparty risk and ensuring timely payments.
- Perceived risk of security breaches for smart bonds?
- Unlike cryptocurrencies, smart bonds are not bearer assets and ownership is registered on the blockchain.
- Fraudulent transfers of smart bonds can be invalidated, and ownership may be recorded with transfer agents.
- Transfer agents decrease decentralization but help safeguard customer assets by facilitating freezing, cancellation or replacement of tokens in case of a mistake or attack.
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