Home > News > Finance > Palau and German financier WIBank issue blockchain bonds
Blockchain bonds are growing in popularity as more financial industry players seek to improve efficiency and transparency in the $130 trillion industry. The latest is the island nation of Palau, which issued blockchain bonds to leverage local capital for infrastructure projects.
In Germany, regional lender WIBank tested the waters with a €5 million ($5.4 million) blockchain bond as part of a regional distributed ledger technology (DLT) trial.
Palau leverages blockchain savings bonds
Palau is considering blockchain savings bonds to finance infrastructure projects. The initiative is partnering with Soramitsu, a Tokyo-based blockchain services company. Japan’s Ministry of Economy, Trade and Industry (METI) also participated.
Palau is an island country in the Western Pacific Ocean. It is made up of 500 small islands and has a population of approximately 20,000 people. Tourism is the main industry. Palau’s economy is closely tied to the United States, and Bank of Hawaii is one of the most popular banks on the island. This inevitably leads to an outflow of capital from the local population to the United States and other countries in Micronesia through bank deposits.
The Palau government aims to tap this market and reduce capital outflows with a new blockchain savings bond called Palau Invest.
“The Savings Bond Initiative allows us to finance critical projects such as housing, small business development, and infrastructure with domestically sourced funds,” President Slangel Whipps, Jr. commented.
“By investing in these areas, we stimulate job creation, enhance business opportunities and foster a vibrant economy.”
The project begins with a savings bond prototype, which allows local investors to learn about the system and how it works. Neither Soramitsu nor the Palau government has said how long the process will last before the bonds are fully issued. However, once launched, investors will be able to purchase through an app on their mobile phones.
The bond will be issued on the Hyperledger Iroha 2-based permissioned blockchain network developed by Soramitsu. The company has extensive experience in creating blockchain applications for governments. The company has been working with the Central Bank of Cambodia for years, culminating in the launch of Bakong, a blockchain-based payment system, in 2020. It is also working on a similar project with the Central Bank of Laos and a central bank digital currency (CBDC). Feasibility study with the Philippines, Papua New Guinea, and Vietnam.
Germany’s WIBank issues 5 million euro blockchain bond
In Germany, regional development bank Wilschaft und Infrastructurbank Hessen (WIBank) has issued a €5 million bond on a public blockchain.
WIBank is a subsidiary of the Hesse-Thuringia State Bank, commonly known as Helaba, and is a regional bank that serves almost half of all savings banks in Germany as a central clearing house.
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 funds. Trigger connects the blockchain holding tokenized assets (in this case, the Ethereum layer 2 network Polygon) to the traditional payments infrastructure, known in Germany as TARGET2, enabling atomic transactions. Trigger leverages the benefits of DLT technology without the risks of digital currencies.
The atomicity of the process achieved through delivery and payment transactions eliminates counterparty risk. This transaction also reduces credit risk, as it relies on central bank funds rather than digital assets.
WIBank’s parent company, Helaba, acted as the cash clearing agent, and Germany’s second oldest bank, Bankhaus Metzler, was the sole investor. Deloitte and Munich law firm Annerton were also involved. Cashlink, the German asset tokenization leader, tokenized and settled the bond on a public blockchain.
Christian Forma, Head of Finance at WIBank, believes that the experience gained by the lender will “open up new possibilities to further develop existing financial products in combination with innovative technology”. This minimizes risk and optimizes the process for both us and our investors. ”
WIBank joins other German banks in considering blockchain bonds to increase efficiency and increase transparency. Last month, Frankfurt-based KfW, the world’s largest state-run development bank, issued a 50 million euro ($54.6 million) bond that was settled through Trigger Solutions. This follows a €100 million ($109.3 million) blockchain bond issued in August.
However, although these bonds are becoming increasingly popular, they remain a niche market limited to a small number of participants. For example, a 100 million euro ($109.3 million) bond attracted only six investors, all of whom were clients of bookrunner DZ Bank.
In some jurisdictions, bond issuers are integrating their blockchain products with traditional channels to make bonds available to more investors. For example, in Hong Kong, HSBC (NASDAQ: HSBC) recently integrated the HKMA’s Central Financial Markets Unit (CMU) in issuing a HK$1 billion ($130 million) digital bond on the Orion blockchain platform. .
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