Commonwealth Bank of Australia (CBA) and Queensland Treasury Corporation (QTC) have created a digitized bond, or cryptobond, with the assistance of blockchain technology. Stemming from the CBA Innovation Lab, its blockchain team collaborated with the Institutional Banking and Markets’ debt markets team to develop a private, permissioned, capital markets blockchain platform. CBA states the transaction marks the first government bond using blockchain technology, as well as the first trial of its blockchain platform for the end-to-end issuance of bonds.
Acting as both the issuer and investor, the QTC successfully utilized the blockchain to generate a bond tender, view real time investor bids, finalize investment allocation, and handle investor settlements. The bond will use smart contract technology to automatically pay dividends to the holders once they’re due. Regarding the project, Sophie Gilder, Head of Blockchain at Commonwealth Bank stated:
We are delighted QTC and our other government treasury partners are participating in the project. Building the capital markets platform and collaborating with forward thinking partners has accelerated our understanding of blockchain in the real world. Our long term view is blockchain technologies will significantly alter capital markets dynamics, changing the way participants interact, with increased efficiency having positive impacts on risk, cost and transparency.
Bonds represent one of the more secure portions of any investment portfolio. A successful implementation of blockchain technology for capital markets assets could assist with developing a system that allows for the issuance of government bonds, globally. In early 2016, Australia conducted simulated trading between 10 banks using the Ethereum blockchain. Well known banking symposium, R3, described the operation as a ‘significant milestone’, but it isn’t Australia’s only successful contribution to the fintech revolution.
In 2016, Australian Stock Exchange (ASX) and Digital Asset Holdings (DAH) collaborated on a blockchain-based solution that sought to slash settlement times, streamline risk management, and mitigate market oversight for ASX participants. The goal of the project was to replace the ASX’s Clearing House Electronic Sub-register System (CHESS). Blythe Masters, CEO of DAH and revered blockchain evangelist, described Australia as the “perfect environment” for launching innovative securities trading infrastructure. Furthermore, in May 2016, the Australian government released a discussion paper titled “GST treatment of digital currency”. Four months later, in an effort to boost venture capital investments within the Australian fintech industry, the Australian government announced its intention to halt ‘double taxation’ of digital currencies.
Over the past year, the Australian government branded themselves as an extremely progressive and staunch supporter of the blockchain. Dismissal of taxes, stock exchange implementation, and involvement in international banking transfers show that the Australians are looking toward a more blockchain dominated economy. However, a successful implementation of a capital markets investment platform on the blockchain can be good for the global economy by influencing other countries to spur investments into similar projects that boost opportunities for blockchain technology worldwide.