In a first, Santander, a major Spanish bank, has issued $20 million bond issue on Ethereum in tokenized form and settled the sale using ERC-20 tokens from another custody account. There was no other third party involved in the whole process besides the underlying Ethereum blockchain. This latest bond issue on Ethereum shows what it means to truly exploring blockchain implementation in the banking sector. This is reportedly the first ever blockchain based deal.
Blockchain is fast gaining ground in the banking arena with major banks now using it to secure their networks or manage their digital transactions. Traditionally, bonds were issued by banks through a public or private ledger using conventional payments systems.
Blockchain powered bond issue on Ethereum paves way for new future
Santander has gone one step ahead with this Ethereum bond issue by executing the entire deal utilizing blockchain on both ends.
In early 2019, another such deal was said to be executed by Societe Generale and the World Bank via Ethereum. However, it wasn’t known whether or not it was settled using blockchain. Blockchain bond issue is something the banking sector has been exploring recently.
Santander claims that the entire operation involved nothing but Ethereum processes indicating clearly that it was solely a blockchain success. Furthermore, the cryptographic keys for issuing the bond in a tokenized form were managed by the Santander Security Services. The same channel was used to settle the deal in tokenized coupon form.
Bonds were issued by the bank to itself using nothing except highly capable Ethereum blockchain with no outsider support.
Cryptographic details of the blockchain bond issue
John Whelan, digital investment banking head at Santander, added that this bond issue on Ethereum via blockchain was more about financial innovation rather than a fiscal concern. The bank views this as a building block for upcoming complex bond sales in the near future.
Plain vanilla bonds were used for this operation which had four quarterly coupons, one year maturity and a 1.98% interest rate. The exchange of tokenized cash was irrevocable and simultaneous. An smart-contract enabled Ethereum escrow account held the cash that was released after underwriting confirmation from the issuer.
When inquired whether a similar process can be completed using Ether or Bitcion, Whelan confirmed its possibility but said the bank has no such plans in the near future.