What the World Bank believes will be the first ever ‘public blockchain bond’ is expected to be settled on the Ethereum platform next week after it was yesterday priced at A$100 million ($73.16 million). The Commonwealth Bank of Australia is the two-year AAA-rated bond’s manager, and settlement will take place on a private blockchain built on the Ethereum platform next Tuesday, August 28th. The World Bank, whose bonds all carry the maximum AAA rating assigned by credit analysts, is for the first time testing a fully blockchain-managed issue. It is hoped that the new technology platform will improve on the efficiency of current bond-sales systems that have remained almost unchanged in decades.
The ‘Bondi’ Bond – Landmark ‘Public’ Blockchain Bond Sale
The bond has been named the ‘Bondi’, with the term an acronym for ‘Blockchain Operated New Debt Instrument’, as well as giving a nod to the debt issuance’s A$ denomination. Bondi is also the name of Australia’s most well-known beach, a favoured haunt of surfers located 7 kilometres to the east of Sydney. The bond carries a yield, or coupon, of 2.251%, 23 basis points above the benchmark rate.
Earlier this year Moscow-listed Russian telecom MTS also managed a bond sale and settlement over a blockchain. However, the placement was private rather than a public auction as is the case with the World Bank’s new Bondi bond.
Australia was chosen as the testing ground for the innovative new blockchain-based sales process due to its well-established financial infrastructure and the liquidity of the Australian dollar, one of the established foreign exchange ‘majors’ and fifth most traded currency in the world. The country is also establishing a reputation as a blockchain in capital markets pioneer. The ASX, Australia’s primary stock exchange, is in the process of building a new blockchain-powered clearance and settlement system. Re-platforming to the new system has been targeted for 2020.
How Ethereum Rules the Blockchain
The Ethereum blockchain chosen to host the private blockchain application that the Bondi bond sale will be settled on next week is the most well-established ‘smart contracts and decentralised apps’ blockchain platform. The large majority of ICOs, the controversial blockchain-sector equivalent to traditional IPOs, are also run on Ethereum, which was launched in 2012. Ether (ETH), the Ethereum blockchain’s native cryptocurrency, used to pay for the platform’s computational power, is the second largest cryptocurrency by overall market capitalisation, behind only bitcoin. The motivation to buy Ether (ETH) can be either to use the cryptocurrency to pay for the use of the Ethereum blockchain or as a speculative investment on its exchange rate, as traded over cryptocurrency exchanges.
- As of Friday, August 24th, the Ether (ETH) value was $277.34, as averaged across major cryptocurrency exchanges by market data provider CoinMarketCap.
- Ether (ETH) chart price has been volatile over the past 12 months and rose to an all-time high of around $1370 in January of this year before suffering a correction along with the wider cryptocurrency market during 2018.
- However, investors will be optimistic that more applications such as that the Commonwealth Bank of Australia is using for the sale and settlement of the Bondi bond choosing the Ethereum platform will increase demand for ether and drive a price recovery over coming months.
Blockchain in Capital Markets
Blockchain, or Distributed Ledger Technology (DLT) as it is often termed within the context of capital markets, is considered to hold particular promise as the basis for a more efficient new technology architecture for the clearance and settlement of financial instruments. Legacy systems take time to reconcile transaction data across fractured systems. It is believed that the secure, automated way that blockchain-based alternatives promise to reconcile the transaction data that is involved in the trade of securities will significantly reduce both time lags and costs. Ethereum will hope that next week’s prototype bond settlement on its platform will help position it ahead of rivals in what promises to be a valuable new market.
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