World Bank raises $80m on first Ethereum blockchain bond
Meet the Bond-i, a new blockchain venture from the World Bank. And it’s enjoyed an “overwhelming” response already…
The World Bank has sold a two-year public bond to major organisations using an Ethereum-based blockchain, raising $80.4m (AUS$110m).
The blockchain platform which underpins the bonds was built by Australia’s Commonwealth Bank of Australia (CBA). The CBA said reaction to the bond had been “overwhelming” and had exceeded expectations.
It has been named the Bond-i, which stands for Blockchain Operated New Debt Instrument, and is a knowing nod to the country’s famous Bondi beach. It will pay 2.20% interest.
This marks the first time globally that a fully blockchain-operated debt instrument has been sold at market, and the first time investors have supported the World Bank’s programs in developing countries with a blockchain-managed product.
Arunma Oteh, World Bank Treasurer, said his organisation was “particularly impressed with the breadth of interest from official institutions, fund managers, government institutions, and banks, ” adding, “[t]his pioneer bond transaction using distributed ledger technology [was] no doubt successful in moving from concept to reality because these high-quality investors understood the value of leveraging technology for innovation in capital markets.”
The first seven investors include pension fund First State Super, Australia’s largest insurance group QBE, the Treasury departments of New South Wales, South Australia and Victoria, and American investment fund Northern Trust.
The Bond-i is seen as the first step towards streamlining and automating financial processes which are normally done manually.
CBA’s Head of Blockchain Innovation Sophie Gilder said: “We know blockchain has the potential to revolutionise financial services and markets, and this transaction is a significant step towards that future state.”
Word is bond
Bonds are effectively loans to the issuer, so entities that buy bonds usually receive a fixed income over a set period of time. They are a very popular way of investing at relatively low risk.
As issuer for the bond the World Bank has an AAA credit rating with agencies Fitch, Standand & Poor and Moody’s, meaning it is highly likely to be able to meet its financial commitments. AAA is the best credit quality rating available.
The Bond-i is a two-year bond, so investors get their money back, plus a set rate of interest, at the end of the second year.
The bonds are due to be settled on August 28th, and mature in two years’ time, on August 28th 2020.
The Bond-i will run in Washington DC on Microsoft’s Azure cloud computing service. Microsoft was brought in to validate the operational capabilities of the bond and to secure its scaling.
Australia is seen as a crypto-friendly regulatory state, despite recent warnings over growing cryptocurrency investment scams, and the head of payments for the Reserve Bank Tony Richards’ well-publicised concerns that Bitcoin is slow, unreliable and can’t scale as a payment method.
The Austrialian Tax Office is one of only a handful worldwide which has offered clarity on the legal status of cryptocurrencies, authorities have followed European developments by banning cash purchases over $10,000 and the country’s securities exchange has said it will bring in blockchain settlements systems by 2020.
The World Bank issues between $50 billion and $60 billion in bonds every year.
The World Bank’s Group Chief Information Officer Denis Robitaille spoke of how the bond would “help countries transition to technology-led development”; the financial institution sees the pioneering Bond-i as “a milestone in our efforts to learn how we can advise client countries on the opportunities and risk that disruptive technologies offer.”
CBA said it would continue to keep the Bond-i open to new investors throughout its two-year life cycle.
Law firm King & Wood Mallesons acted as legal counsel on the bond issue.