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World Bank kicks off its $73M blockchain bond experiment next week

The expensive test has only just begun

The world’s first public bond entirely managed via blockchain has been priced and is awaiting settlement. It’s part of a $73 million test of distributed ledger tech (DLT), mandated by the World Bank.

The new blockchain-powered financial instrument was only announced a fortnight ago, when it was nicknamed the “bond-i” bond. Investors were able to purchase it directly from the Commonwealth Bank of Australia (CBA), with a promised return of 2.251 percent over a two year period.

“CBA was mandated by the World Bank as arranger for the bond on August 10 and following a two-week consultation period with the market, the two-year bond has raised [$80 million],” a CBA press release reads.

Everything in its lifecycle, from creation to transference to settlement, will be managed by a private Ethereum-based distributed ledger (DLT).

A bond is is really an investment tool, referred to as a debt instrument. When a bond is purchased, the investor is effectively loaning money to its issuer, with a promise to repay after a certain period, typically with dividends.

The idea is that the asset settlement process can be greatly improved through automation provided by blockchain tech. This application should be viewed as an experimental trial of the technology, paid for by the World Bank.

Recently, the Australian Securities Exchange (ASX) detailed its own plans for new blockchain tech. It promises to save shareholders almost $17 billion a year, by switching its trading system to a DLT. If it manages to build something that works – it will be one of the largest implementations in the world.

Reuters reports the bond-i was priced at 0.23 percent above benchmark rates, typically the price of a government bond. The official data from CBA shows, though, that the standard price was AU$1,000 ($730).

Australian investors, who CBA notes raised the bulk of the money, were required to purchase almost half a million dollars worth of bond-i in order to participate. Financial services giant QBE were listed as having invested, alongside two Australian state treasuries.

The bond-i is issued in Australian dollars, and will be settled on August 28. Once that happens, I guess we’ll have to wait a whole two years to see if this grand (and expensive) blockchain experiment pays off.

Published August 24, 2018 — 13:34 UTC