The Commonwealth Bank of Australia (CBA) has announced the issuance of a ‘cryptobond’ for the Queensland Treasury Corporation (QTC), with the claim as the first blockchain bond issuance by a government entity in Australia or anywhere the world.
The Australian banking giant has further claimed that the Queensland Treasury Corporation – the state government’s central financing authority – has already used its permissioned private blockchain platform to generate a bond tender, see instant settlements with investors after viewing their bids in real time while finalizing investment allocation.
In this transaction, the QTC took up roles as both issuer and investor to test the end-to-end bond issuance process. The bond was a trial prototype, one that carries no debt obligation and is untradeable.
Smart Contract-Forged Bond
The ‘cryptobond’ was created using smart contracts, gaining the ability to automatically pay coupons to the holder of the bond, when due. The bank claims a more-streamlined issuance process for a bond due to the application of blockchain as the core technology.
In statements, George Confos, chief of business and corporate finance at CBA stated:
Our proof-of-concept demonstrates blockchain is capable of delivering efficiency to issuers, investors and other market participants. Blockchain makes it possible to increase efficiency and transparency, which will redefine how capital markets operate.
Additionally, the CBA says the overall settlement process for a bond is simplified due to the blockchain platform working as both the bond register and the payment platform. A single ‘instant transaction’ will process both the investors’ payment and the issuers’ title transfer.
For the Queensland Treasury, it’s all about experiencing blockchain technology first-hand, in the form of a working bond prototype. The prototype will also help the QTC to look at other possible applications of the innovation.
Grant Bush, deputy chief executive and managing director at QTC Funding Markets stated:
For QTC, we are looking at the long-term implications of the technology as a semi-government issuer. The collaboration with CBA and other stakeholders involved is proving to be extremely useful as we can understand and think through applications along the way based on the prototype.
Meanwhile, the CBA says it will continue working with other collaborators toward blockchain development such as endeavors through R3, the global financial distributed ledger consortium of which it is a member of. The bank was among 10 other financial institutions that saw a successful blockchain experiment that spanned multiple continents, connecting banks over a common decentralized ledger to simulate the exchange of trades and value on an R3 managed distributed ledger.