German government-owned bank KfW has issued its second bearer digital bond, following the €100m first issuance last month. The latest €50m bond was settled using the German Bundesbank’s Trigger Solution, in which a smart contract triggers a payment in central bank money by linking to the TARGET2 RTGS system. Hence, this was a delivery versus payment (DvP) transaction.
The pilot issuance was part of the European Central Bank’s (ECB’s) wholesale DLT settlement trials using central bank money. The tests have attracted participation from almost 60 institutions. Apart from the Trigger Solution, other settlement options include the Banque de France’s CBDC and the Bank of Italy’s TIPS-Hashlink solution.
In order to perform the entire life cycle of the security as part of the pilot, the redemption will take place on 28 November before the ECB’s trials end.
A key advantage is this kind of settlement is it reduces risks, while the on-chain digital issuance has the potential to enhance efficiencies.
KfW issued the bond as a crypto security under Germany’s eWpG laws. Cashlink supplied the blockchain infrastructure and acted as the crypto securities registrar with Boerse Stuttgart Digital providing custody. The investors were DZ Bank, DekaBank and Union Investment, with DZ bank acting as sole bookrunner and collective registered holder of the bond.
“This trial allows us to test automated cash settlement and DvP transactions for blockchain-based digital bonds, significantly speeding up the process and reducing risks,” said Gaetano Panno, Head of Transaction Management at KfW.
KfW’s first digital bond was issued on the Polygon blockchain. A spokesperson confirmed the latest one uses the same chain.
Not all KfW digital bonds are crypto securities
Meanwhile, KfW has also been working on digital bonds with the Deutsche Börse using its D7 platform. The most recent issuance was a €4 billion digital bond issued in July. While the D7 platform uses DAML smart contracts and is underpinned by the Canton blockchain, technically the bond issuance was via the central securities depositary Clearstream, so the €4 billion bond was not a crypto security.
Update: added that the digital bond was issued on the Polygon blockchain
