The World Bank has priced the world’s first public blockchain-based bond at $73 million (£57 million) in a deal designed to improve the efficiency of automated financing for countries with extreme poverty by transitioning away from decades-old bond sales practices.
The two-year bond is priced to yield 2.251% and is to be settled next week, says the Commonwealth Bank of Australia (CBA), the manager of the deal.
It has been dubbed the Bondi, which stands for Blockchain Operated New Debt Instrument as well as being a reference to Australia’s most popular beaches.
Transitioning from manual to automated
The World Bank views this deal as a way to transition bond sales away from manual processes and towards fasters and more cost-effective automation.
“You’re collapsing a traditional bond issuance from a manual bookbuild process and allocation process, an extended settlement then a registrar and a custodian, into something that could happen online instantaneously,” says CBA Executive General Manager James Wall in an interview with Reuters.
Ethereum and Microsoft
Bondi will be issued and managed on a private Ethereum blockchain, jointly operated by the World Bank and the Commonwealth Bank of Australia Also, the World Bank will utilise Microsoft’s cloud computing services to run the bond from Washington DC.
READ MORE: A brief history of Ethereum
The World Bank, whose bonds carry an AAA rating, frequently uses its borrowing power to aid in developing new bond markets and spearhead new ways of selling and trading securities. It issues circa $60 billion (£46.6 billion) a year of bonds to help developing countries in progressing economically.
Preferred test site
Australia is a preferred test place for market developments because of its efficient financial infrastructure and the familiarity of global investors with the Aussie dollar, one of the most traded currencies in the world. The Bondi will be the first time capital is publicly raised through legally-valid bond issuance on the blockchain.
READ MORE: History of blockchain technology
Russia-based telecom operator MTS and Sberbank claimed to have launched the first blockchain-powered bond; however, it was placed privately.