European Union Bank Again Uses Ethereum to Explore Tokenized Bonds

The European Investment Bank (EIB) is once again leveraging Ethereum in its quest to tokenize capital markets, this time while issuing the first-ever digital pound sterling (GBP) bond on a seperate private blockchain.

EIB, the primary lender of the European Union, deployed the £50 million ($86.6 million) bond to a permissioned network underpinned by HSBC’s tokenization platform, Orion. The EIB is a public institution owned by the EU’s 27 member states.

The bank opted for a private network for privacy and efficiency, according to a statement. In an effort to increase transparency, the bond was also recorded on Ethereum, a spokesperson told Blockworks.

This was done to provide evidence the issuance took place while still maintaining the anonymity of bondholders (Blockworks reached out for some transaction IDs but they weren’t readily available. We’ll update this piece should EIB provide them).

HSBC debuted Orion last November, when it first flagged intent to launch the tokenized GBP bond. BNP Paribas, HSBC, and RBC Capital Markets were named as joint lead managers of the bond, with those firms serving as custodians. Client assets will be stored in digital securities accounts kept on Orion, the bank said.

The EIB’s new vehicle is expected to bring a range of benefits to market participants, including reduced costs, improved efficiency and real-time data synchronization in an otherwise cumbersome process.

Digital bonds have garnered interest from financial institutions in various countries, including Australia, Germany, France and Sweden since at least 2017.

A Luxembourg legal framework that enables firms to issue dematerialized securities using distributed ledger technology was enacted into law in January 2021, paving the way for further exploration.

Dematerialized securities refer to digital representations of financial assets that exist only in electronic form, rather than as physical certificates or paper documents.

“The time has come for further innovation in the financial sector,” said EIB Vice-President Ricardo Mourinho Felix. “This new financial tool will provide additional capital flow that the EIB will invest in projects with global impact.”

This isn’t the first digital bond issued by the EIB. That happened back in Apr. 2021, when the European Union’s investment bank deployed a two-year, 100 million euro ($110 million) bond entirely on Ethereum.

David Canellis contributed reporting.

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