The Spanish banking giant Santander says it has become the first institution to use a public blockchain to manage all aspects of a bond issue.
Revealed on Thursday, the company not only used an ethereum token to represent the $ 20 million debt issue, but also resolved it with another set of ERC-20 tokens that represent cash in a custody account.
To understand why that is important, imagine asking someone a question on WhatsApp and waiting for them to send a postcard with the answer. That is what it is to issue values in a blockchain while solving the effective side of the operation through the legacy analog system. But Santander, in this analogy, conducted both parts of the conversation digitally.
Previously, the World Bank issued a similar blockchain bond, but used a private version of ethereum. French lender Societe Generale issued a bond earlier this year on the ethereum public network, but said nothing about the cash book.
Santander claims bragging rights as each part of its process is digitized, automated and chain-based, including the fact that Santander Security Services safeguards cryptographic keys for tokenized security and tokenized cash.
However, like SocGen, Santander issued the blockchain bond for itself, which means that no external investors participated.
“It’s an evolutionary step,” John Whelan, head of digital investment banking at the corporate and investment bank at Santander, told CoinDesk. “There are still no secondary markets, but we are on that road”
Describing the project as a “real money pilot,” Antonio Torío, Santander’s chief of funds, said the transaction was a simple one-year bond, four quarterly coupons and a standard rate of 1.98 percent.
“For Santander, this is really much more a problem of technological innovation than a pure financial problem. We believe that this is an important first step that will be followed by more complex transactions, ”said Torio.
Whelan said that the symbolic cash remained “in custody in a smart contract in the public blockchain ethereum, until the issuer signed the transaction and told the blockchain to make the delivery versus the payment,” at which point Cash and bonds were exchanged “simultaneously and irrevocably.” The process began on Friday and ended on Tuesday.
When asked if Sandander’s custody services could contain complete digital assets such as bitcoin and ether, Whelan said this was technically possible but not the bank’s plan, adding:
“At the bank, we are not interested in cryptocurrencies directly. The technology is the same underneath, but we are interested and our customers are interested in traditional dollars, euros, pounds and that’s our space.”
Santander relied on London-based technology provider Nivaura (in which the bank has invested) to help with the digitalization of the issue.
Nivaura CEO Avtar Sehra said that creating a blockchain link is not difficult; Basically, all you are doing is creating a form of notarized information through a smart contract.
“This is not really digitizing a bond,” he said. “All you are really doing is digitizing the registration and settlement process, and even for the liquidation part you are only addressing half of the problem because you have no cash in the blockchain.”
Nivaura allows all documentation and negotiation around the issue to be digitized so that the data can be encrypted so that each party can only see certain fields in the document, instead of sending PDF files and the like via email.
“That is the key meaning of what Santander is doing here,” said Sehra. “They are saying” we are going to digitize the whole process. “Now we are not doing old-fashioned bond construction, manually entering data insecurely into a blockchain to simulate it and doing the same with cash. That is absurd.”
“The execution of Santander is the first truly digital start-up execution process, which safely uses relevant data to simulate both assets and cash to allow chain liquidation and coupon payments,” Sehra added.
A conclusion that can be drawn from the efforts of Santander and others that do similar things is that the banking world is slowly but surely returning to trust Ethereum.
This may not be so surprising given that almost five years have passed since the second largest blockchain started its main network.
Whelan noted that bitcoin and ethereum have the unique characteristic of having had a 100 percent uptime since its launch (in this regard, unlike any other computer system on the planet that comes up with it).
“I think it’s becoming apparent that ethereum is just part of the internet.”
Santander image via Shutterstock