The European Investment Bank (EIB) has taken another groundbreaking step in the world of finance by pricing its first ever £50 million digital bond using at the same time both private and public blockchain technology. The technology partner executing the project is HSBC, through its token platform Orion, and the legal framework applied was Luxembourg's regulation, specifically designed for the issuance, transfer, and storage of digitized securities on distributed ledger technology.
The private blockchain, which is encrypted, serves as a record of legal ownership for the digital bonds and provides a structure for managing the floating rate instrument along the entire process. The public blockchain (it has not been disclosed which one), is used for informational purposes and provides increased transparency for investors and the market by presenting the holdings of the digital bonds in an anonymized manner. The bonds are stored in digital securities accounts kept on HSBC Orion and are under the custody of BNP Paribas Securities Services in Luxembourg, RBC, and HSBC.
This is EIB's third on-chian issuance, highlighting its commitment to the adoption of blockchain technology and the advent of the token economy. In the words of Vice-President Ricardo Mourinho Felix: "The time has come for further innovation in the financial sector."
HSBC itself has previously conducted experiments with blockchain bonds. In 2020, it collaborated with the Singapore Marketnode tokenization platform to issue a $400 million bond for the agriculture company Olam. In late 2021, HSBC carried out tests with the Banque de France using a wholesale central bank digital currency to finalize digital bond transactions. The project included both the Hyperledger Fabric and R3 Corda enterprise blockchains.
In 2021, the EIB launched its first digital bond issuance on a blockchain platform, working with Goldman Sachs, Santander, and Société Générale to use distributed ledger technology (the Ethereum network specifically), to register and settle €100 million in digital bonds.
The EIB said then that the use of blockchain technology in capital markets can bring benefits to market participants, including "a reduction of intermediaries and fixed costs, better market transparency through an increased capacity to see trading flows and identity of asset owners, as well as a much faster settlement speed".
In 2022 the EIB, also in partnership with Goldman Sachs, Santander, and Société Générale launched Project Venus, another 100 million euro-denominated digital bond issuance, although this time on a private blockchain, that of Goldam Sachs (GS DAP™). Banque de France and the Banque Centrale du Luxembourg took part in the project to provide a digital representation of euro central bank money in the form of tokens. Société Générale Security Securities Services (SGSS Luxembourg) and Goldman Sachs Bank Europe SE acted respectively as on-chain custodian and account keeper.
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