Wirtschafts- und Infrastrukturbank Hessen (WIBank), a German development bank owned by Helaba, has taken an important step in integrating blockchain technology into traditional finance by issuing a registered bond on a public blockchain. The deposit was settled using a delivery versus payment (DvP) transaction, facilitated by the Bundesbank’s Trigger solution. This settlement mechanism works by triggering the transfer of assets on the TARGET2 payment system, which is part of the Eurosystem’s distributed ledger technology (DLT) wholesale settlement trials.
WIBank’s initiative marks a significant advancement in the use of blockchain for traditional financial products, with the simultaneous exchange of digital bonds and cash providing an additional layer of security. The process eliminates counterparty risk, as the deposit and payment are transferred simultaneously. Additionally, the use of central bank money minimizes credit risk, ensuring the security and efficiency of the transaction.
Improving financial product development using blockchain
The issuance of this bond represents a crucial step for WIBank and its partners in leveraging blockchain to optimize financial transactions. WIBank expressed optimism about the future of financial products incorporating blockchain technology, emphasizing that the experience gained through this project paves the way for innovative development in the sector. By using blockchain and minimizing associated risks, WIBank aims to improve its processes, to the benefit of both the bank itself and its investors.
In this particular transaction, Cashlink, a well-known player in the field of tokenization and settlement infrastructure, provided the necessary technology. In the meantime, Helaba acted as a cash settlement agent, managing the smooth flow of payments, while Bankhaus Metzler served as an investor for the digital bond. Deloitte played a role in implementing the project and Annerton provided legal advice to ensure regulatory compliance throughout the process.
While the specific blockchain used for the transaction has not been confirmed at the time of publication, it is worth noting that many of Cashlink’s previous tokenization projects have used Polygon, a popular blockchain for issuing assets digital. This suggests the possibility that Polygon may have been used in this case, although further confirmation is awaited.
Explore DLT settlement options in the Eurosystem
WIBank’s bond issuance is part of a broader movement within the Eurosystem to explore various settlement options using DLT. The European Central Bank (ECB) is currently conducting large DLT settlement trials in several countries, testing different digital asset settlement approaches. The German Trigger solution, used by WIBank, is one of three settlement solutions being tested. Other solutions include the Italian TIPS Hashlink solution, which runs on the TIPS payment system, and the French central bank digital currency (CBDC) initiative.
The ECB’s wholesale DLT settlement trials aim to explore how blockchain can be used to settle financial transactions more efficiently and securely. These trials are expected to be completed soon and there are plans to consider the next steps for the integration of DLT into European financial systems. Recently, an ECB director announced that a European ledger would be considered as part of the central bank’s plans after the trials were completed.
A new era for digital bonds and blockchain finance
The issuance of registered bonds by WIBank on a public blockchain highlights the growing importance of blockchain in the modernization of traditional financial products. The ability to settle digital bonds using central bank currency, coupled with the benefits of delivery over payment, offers a glimpse into the future of secure and efficient financial transactions. The involvement of major institutions such as Helaba, Deloitte and Bankhaus Metzler, as well as Cashlink’s technological expertise, highlight the collaborative effort required to bring such innovations to life.
The move could signal wider adoption of blockchain-based solutions in European financial markets, especially as the ECB continues its trials and plans to develop a European registry. The benefits of blockchain, including reduced counterparty and credit risks, streamlining settlement processes and increased transparency, could transform the way financial products are managed and traded in the years to come.
In conclusion, WIBank’s blockchain-based bond issuance and settlement via the Bundesbank’s Trigger solution demonstrates the growing convergence between traditional financial systems and innovative technologies. As blockchain adoption continues to grow, projects like this could pave the way for broader integration of DLT in global financial markets.
