State-owned German Bank Set to Introduce Blockchain-Backed Digital Bonds

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The German state-owned bank Kreditanstalt für Wiederaufbau (KfW) announced on May 6 that it will launch its first blockchain-based digital bonds. The move signifies a major step towards adopting blockchain technology within traditional financial institutions in Germany.

The KfW bank official press release stated that the forthcoming blockchain-based digital bond would be issued as crypto security, adhering to the German Electronic Securities Act (eWpG).

A blockchain-based digital bond is a type of security issued and managed using blockchain technology. The blockchain allows the bond’s details and ownership to be recorded securely and transparently on a digital ledger, streamlining the bond issuance and trading process in real time.

German Digital Bond Set to be Completed in Summer 2024

The bond is set to be finalized in the summer of 2024, spanning from June to September, while payments will be processed through conventional payment systems.

KfW also disclosed it had successfully secured Union Investment as a key anchor investor, leveraging the company’s experience with crypto securities, which is important for the transaction’s preparation.

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Additionally, transactions will be facilitated by a consortium of bookrunners comprising DZ Bank, Deutsche Bank, LBBW, and Bankhaus Metzler. These entities will also participate in investor discussions, while DZ Bank will serve as the collective registered holder of the bond. German fintech firm Cashlink Technologies will serve as their crypto securities registrar.

KfW Treasurer Tim Armbruster called the upcoming blockchain bond a game changer to drive adoption and attract investors.

“The initial goal on the road to the digitalization of refinancing is to learn and thereby identifying potential for improvement,” said Armbruster. “We believe that digitalization will be advantageous for increased efficiency and scalability.”

The KfW digital bond will not be offered or sold in the U.S.

German Bank & JP Morgan Records Blockchain Adoption Points

Germany’s KfW is not the first major institution to introduce a blockchain-based bond.

Cryptonews reported in December 2023 that France’s third-largest bank, Societe Generale, issued its first green bond valued at 10 million euros on Ethereum. HSBC also facilitated issuing and storing digital bonds before launching a Gold token service for retailers in Hong Kong.

The City of Quincy’s decision to issue a $10 million municipal bond using JP Morgan's Onyx blockchain is a landmark step in bringing financial assets on-chain. It's a glimpse into the broader potential of blockchain technology for financial markets, where every asset class can…

— Cole Snell (@cole_infineo) May 7, 2024

In addition, on April 29, the City of Quincy, located on the outskirts of Boston, Massachusetts, issued a $10 million municipal bond using JP Morgan’s Onyx private blockchain.

The proceeds from this seven-year, tax-exempt bond issuance are earmarked to fund a range of street and sidewalk improvement projects throughout the city, as detailed in bond documents on MuniOS.

The migration of financial assets onto the blockchain is expected to see several key improvements, such as transparency, reduced costs, and public accessibility.

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