Spanish banking giant Santander said it has become the first institution to use the public blockchain to manage all aspects of the bond issuance process.
Data released on Thursday showed that the bank not only used a token issued on the Ethereum network to complete a $20 million bond issue, but also used another set of ERC-20 tokens to settle the cash in the escrow account. .
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To understand why this is important, imagine asking someone a question on WhatsApp and then waiting for them to mail the answer via postcard. It's like issuing securities on the blockchain, but by simulating the old system to settle the cash portion of the deal. But Santander, in this analogy, digitally conducted the dialogue between the two parts.
Previously, the World Bank issued similar blockchain bonds, but used a private version of the Ethereum network. Societe Generale issued a bond on the public Ethereum network earlier this year, but the cash on the account book was not mentioned.
Santander claims to be proud of the capital, as every part of its process is digital, automated and chained, including allowing Santander's securities services to act as tokenized securities and cash-hosted encryption keys.
However, like Société Générale, Santander has also issued such blockchain bonds on its own, which means no outside investors are involved.
“This is a gradual step,” said John Whelan, head of digital investment banking at Santander's corporate and investment banking division, to CoinDesk. “There is no secondary market yet, but we are on this road,”
Antonio Torio, head of finance at Santander, called the project a "physical currency pilot," saying the deal was a common bond with a one-year, four-quarter coupon and a standard interest rate of 1.98%.
“For Santander, this is actually more of a technical innovation issue than a purely financial one. We think this is an important first step, and there will be more complicated deals later.”
Whelan said the cash, which was tokenized, was “managed in a smart contract on the public Ethereum blockchain until the issuer underwrote the transaction and instructed the blockchain to fulfill its obligation to deliver and pay” "In the meantime, cash and bonds are exchanged simultaneously and irrevocably." The process begins on Friday and ends on Tuesday next week. When asked if Santander's hosting services could hold mature digital assets such as Bitcoin and Ethereum, Whelan said it was technically feasible, but not the bank's plan.
“At the bank, we have no direct interest in cryptocurrencies. The technical level is the same, but we and our customers are interested in the traditional dollar, euro and pound, which is our industry.”
The role of Nivaura
Santander relied on London-based technology provider Nivaura, which the bank has invested in, to assist with the digital distribution.
Nivaura CEO Avtar Sehra pointed out that creating blockchain bonds is not difficult; essentially, all you do is create a notarized form of information using smart contracts.
“This is not a true bond digitization,” he said. “What you are really doing is digitizing the registration and settlement process – even in the settlement section, you only solve half of the problem because there is no cash on your blockchain account.”
Nivaura allows all documentation and negotiations on the distribution to be digitized so that the data can be encrypted so that the parties can only see certain fields in the document, rather than sending e-mails such as pdfs everywhere.
“This is the key to what Santander has done here,” Sehra said. “They said, 'Let's digitize the whole process.' We are not building bonds in the old fashion, but instead manually entering data into the blockchain for tokenization in an unsafe way, and doing cash. The same operation. This is ridiculous."
Is this a vote of trust in Ethereum?
From Santander's efforts and other similar actions, we can conclude that the banking industry is slowly but surely turning to believe in Ethereum .
Considering that the world's second-largest blockchain has been on the main online line for five years, this may not be surprising.
Whelan pointed out that bitcoin and Ethereum are unique in that they have 100% uptime since their launch (in this respect, unlike any other computing system on the planet that he can think of).
His conclusion is:
“I think that Ethereum is only part of the Internet, and this is becoming more and more obvious.”