German State-Owned Bank to Launch Blockchain-Backed Digital Bonds
Kreditanstalt für Wiederaufbau (KfW), a state-owned bank in Germany, announced on May 6 that it will introduce its first digital bonds backed by blockchain technology. This move signifies a significant advancement in the adoption of blockchain technology by traditional financial institutions in Germany.
According to an official press release from KfW, the upcoming digital bonds will be issued as crypto securities, in compliance with the German Electronic Securities Act (eWpG). A blockchain-based digital bond is a type of security that is issued and managed using blockchain technology. The use of blockchain allows for secure and transparent recording of the bond’s details and ownership on a digital ledger, streamlining the process of bond issuance and trading in real time.
The digital bond is expected to be finalized between June and September 2024, with payments being processed through conventional payment systems. KfW has also secured Union Investment as a key anchor investor, leveraging the company’s expertise in crypto securities to aid in the preparation of the transaction.
To facilitate the transactions, a consortium of bookrunners consisting of DZ Bank, Deutsche Bank, LBBW, and Bankhaus Metzler will be involved. These entities will also participate in investor discussions, with DZ Bank acting as the collective registered holder of the bond. Cashlink Technologies, a German fintech firm, will serve as the registrar for the crypto securities.
KfW Treasurer Tim Armbruster believes that the upcoming blockchain-based bond will be a game changer in driving adoption and attracting investors. He sees digitalization as a means to improve efficiency and scalability in the refinancing process.
It’s worth noting that the KfW digital bond will not be available for sale in the United States.
Germany’s KfW is not the first major institution to introduce blockchain-based bonds. Societe Generale, the third-largest bank in France, issued its first green bond valued at 10 million euros on the Ethereum blockchain in December 2023. HSBC has also facilitated the issuance and storage of digital bonds, and recently launched a Gold token service for retailers in Hong Kong.
Furthermore, on April 29, the City of Quincy, located near Boston, Massachusetts, issued a $10 million municipal bond using JP Morgan’s Onyx private blockchain. The proceeds from this bond issuance will be used to fund street and sidewalk improvement projects throughout the city.
The migration of financial assets to the blockchain is expected to bring about various benefits, such as increased transparency, reduced costs, and improved accessibility for the public.