World Bank “Blockchain Bond” and what it means for DLT

Introduction

The evolution of DLT and other decentralized protocol rely on a collective development of infrastructure components in order to reach critical mass. These infrastructure components can be summarized as:

  • Technological 
  • Legal 
  • Regulatory 

Within the aforementioned categories challenges particularly exist regarding scalability (i.e. tx processing power), communication between blockchain protocols (i.e. interoperability),  identity and transaction disputes. 

The resolution to these challenges will come from development and launch of real-world enterprise DLT projects. 

World Bank "Bond-i"

One of these important infrastructure developments comes through the launch of the World Bank’s “Bond-i” (blockchain operated new debt intstrument), which is the first globally issued and managed debt offering using DLT. Bond-i will be issued on a permissioned blockchain and will be launched on Ethereum using the Microsoft Azure  cloud for hosting the new debt issuance. 

World Bank treasurer, Arunma Oteh, said in a press release:

We are particularly impressed with the breath of interest from official institutions, fund managers, and banks. We were no doubt successful in moving from concept to reality because these high-quality investors understood the value of leveraging technology for innovation in capital markets.”

Investors in “Bond-i” include Commonwealth Bank of Australia (CBA), First State Super, New South Wales Treasury Corporation, Northern Trust, QBE, SAFA and the Treasury Corporation of Victoria. These institutions represent major insurance, banking and capital markets providers, with the CBA as the lead arranger for “bond-i” which has raised $79 million USD (A$110 million) and will mature on August 28th. 2020  

James Wall, Executive General Manager of Institutional Banking & Markets International, CBA said:

We are delighted to have partnered with the World Bank and fully support its vision of making innovative use of technology such as blockchain to increase the efficiency of financing solutions to better achieve their goal to end extreme poverty.”

The World Bank, which has played a role in many financial innovations including the issuance of the first “e-bond” in Jan. 2000, issued the “Bond-i” to test the role DLT plays within financial markets. “Bond-i” was launched on a platform developed by the CBA’s Innovation Lab Blockchain Centre of Excellence as part of its broader strategic focus of leveraging blockchain techonology to support its sustainable development goals and end poverty.   

"Bond-i" Transaction Summary

Source: World Bank

The Beat

As one of the first globally issued new debt offerings using DLT, it is important to note that the “Bond-i” was issued on a permissioned, or private, blockchain. Criticisms lobbed at this fact fail to miss the broader point, that is DLT adoption can only come within a framework that addresses current problems surrounding scalability, interoperability and operational efficiency.

The goal of the issuance is to make public debt offerings efficient and streamlined using DLT. Furthermore, it represents major financial intermediaries testing their role as “nodes” within a distributed ledger framework. The “Bond-i” paves the way as a template for other financial institutions looking to adopt DLT into their current enterprise systems. 

The World Bank acknowledges that it is still piloting the role that DLT plays within the development of global financial markets. However, it is an important step to research, pilot and monitor DLT application which address key problems surrounding the technological, legal and regulatory framework surrounding blockchain. 

Dan is an analyst and contributor for the TD Ameritrade Network where he covers financial markets and the economy. He has held series 7 and 63 securities license and started off as a equity and equity derivatives rep for the trading platform thinkorswim. He holds an MBA from St. Bonaventure University and a B.S. in Finance.

Daniel Cecilia
Dan is an analyst and contributor for the TD Ameritrade Network where he covers financial markets and the economy. He has held series 7 and 63 securities license and started off as a equity and equity derivatives rep for the trading platform thinkorswim. He holds an MBA from St. Bonaventure University and a B.S. in Finance.