Germany’s state-owned development bank, KfW, has selected Boerse Stuttgart Digital (BSD) as its infrastructure partner for its upcoming blockchain-based digital bond.
KfW has been investigating blockchain technology in bond issuance for years and will issue the very first digital bond in 2022. In July, it issued a $4.3 billion digital bond, the largest in the world. However, the bond was not fully on-chain and relied on a centralized platform. Days later, it issued another $108 million digital bond, this time entirely on the blockchain.
The bank is about to issue its second on-chain bond, which will rely on BSD’s technical infrastructure, the two entities revealed in an announcement this week. BSD is the digital asset and blockchain arm of Boerse Stuttgart, the sixth largest exchange group in Europe. It provides tokenization and other infrastructure services to institutional clients and digital currency trading services to retail clients, accounting for 20% of the exchange group’s revenue last year.
BSD will secure private keys and manage portfolios for KfW during the bank’s issuance and redemption of digital bonds.
BSD Managing Director Ulli Spankowski described the partnership as a step forward for the company as it aims to become the ultimate one-stop shop for institutional clients in digital assets.
“As a pioneer in digital assets, we want to significantly shape Europe’s digital market infrastructure. The expansion of our offering for institutional clients and our involvement in KfW’s next blockchain-based digital bond mark a milestone in the digital transformation of the financial sector,” said Spankowski.
KfW, the world’s third-largest development bank, will issue the upcoming digital bond as part of the regional central bank’s ongoing digital euro trials.
“The use of new technologies as part of the ECB trials allows us to technically process a ‘delivery versus payment’ transaction and thus supports our digital learning journey,” said KfW’s Gaetano Panno.
Delivery versus payment is one of the key benefits of blockchain in the bond industry. Also called atomic settlement, it involves the simultaneous settlement of securities and payments, thereby reducing counterparty risk.
DekaBank, another German lender, also issued a digital bond on its private institutional blockchain network SWIAT in July as part of the ECB’s large-scale digital euro trial.
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