The Silent Chains of Blockchain Bonds

EDITOR'S NOTES

Diving headfirst into the uncharted waters of blockchain bonds, giants like Citi, Euroclear, and the World Bank have marked a historical first by issuing a Digitally Native Note under English law. This ambitious endeavor to revolutionize the traditional capital markets via a digital bond is fraught with unseen perils. While the allure of improved efficiency and novel opportunities for debt capital market participants is undeniable, one must ask: At what cost do we embrace these digital tethers? As the race to innovate pushes boundaries, the ever-looming risks of digital assets remain an unspoken undercurrent, casting shadows over the promises of a digitized future.

Bill Brocius Oct 26, 23

The world’s largest financial service providers continue to deepen their engagement with blockchain technology as Citi’s Issuer Services, which is part of the firm's Securities Services, recently participated in the issuance of the first Digitally Native Note (DNN) issued under English law.

Citi Services, which currently has $28 trillion in assets under management and provides cross-border support for clients through customized data solutions, served as the Issuing and Paying Agent for the DNN.

The EUR 100-million 3-year DNN was issued by the World Bank’s International Bank for Reconstruction and Development (IBRD) via Euroclear’s Digital Financial Market Infrastructure (D-FMI) distributed ledger technology (DLT) platform, according to a press release. The product has an Aaa/AAA rating and is now listed on the Luxembourg Stock Exchange.

“We are delighted to work with our partners at Euroclear and IBRD on this inaugural digital issuance,” said Andrew Mulley, EMEA Head of Citi's Issuer Services. “It demonstrates the continued value of the international issuance model and its potential to transform the way in which the debt capital markets operate.”

The creation and settlement of DNNs on a T0 basis is seen as an important first step in the evolution of bonds on the blockchain and lays the foundation for a fully digital end-to-end transaction lifecycle.

“This initiative perfectly aligns with our mission of connecting our clients into new digital networks that enable them to create, or invest in, digital assets to unlock new efficiency, value, and operating models,” said Ryan Marsh, Global Head of Blockchain, Digital Assets and Innovation for Citi Securities Services. “This is the latest in a series of digital bond initiatives that we expect to participate in.”

Designing a system with the participation of key industry stakeholders lays the groundwork for a scalable model that “delivers the benefits of digitization whilst preserving existing bond accessibility and liquidity, illustrating how blockchain technology can be integrated with existing capital markets architecture,” Citi said.

The launch comes after a multi-year development program between Citi, Euroclear, and IBDR that set out to deliver a sustainable digital infrastructure for the issuance of DNNs and improve efficiency and growth opportunities for debt capital market participants as the infrastructure continues to develop.

"Our collaborations with Citi, TD Securities, and the IBRD have been instrumental in the launch of this major innovation in asset issuance,” said Lieve Mostrey, CEO of Euroclear Group. “The integration of our distributed ledger technology capabilities marks a significant milestone in the digital transformation of our global financial markets.”

Mostrey said the launch of the first DNN “represents a momentous stride towards realizing the boundless potential of digital assets, underpinned by our shared commitment to pioneering innovation and delivering transformative solutions for investors and issuers on a global scale.”

Originally published by Jordan Finneseth at Kitco