Banco Santander Issues $20 Million End-to-End Blockchain Bond

Spanish banking giant Banco Santander has issued the first end-to-end blockchain bond. According to the bank, they’re the first to use the technology to manage all aspects of a bond issue.

Through a press release on September 12, Santander revealed that it issued a $20 million bond directly on the public Ethereum (ETH) blockchain. It’ll remain there until the end of its one-year maturity.

Bypassing legacy systems

As per the reports, Santander issued the bond, and on the other side, one of the bank’s units purchased the bond at market price.

Santander operated as tokenization agents and custodian of the cryptographic keys by securely tokenizing the bond in a permissioned manner. On the other side, Santander Corporate and Investment Banking (CIB) acted as a dealer.

Both the money used to complete the transfer and the quarterly tokens were tokenized. As explained by John Whelan, head of digital investment banking at Santander, the (tokenized) cash was held “in escrow in a smart contract on the public Ethereum blockchain, until the issuer had underwritten the transaction and instructed the blockchain to perform the delivery versus payment.”

This can be seen as the first step towards a potential secondary market for mainstream security tokens. Santander is thus claiming to be the first to complete a digitized automated and on-chain process. Whelan talked about the issuance:

“It’s an evolutionary step. There are no secondary markets yet, but we are on that path.”

Even though Santander issued the blockchain bond to itself, the transaction was faster, more efficient and simpler than legacy systems.

Antonio Torio, head of funding at Santander, described the project as a “real-money pilot.” Reportedly, he also said that the “transaction was a plain-vanilla bond with a one-year maturity, four quarterly coupons and a standard rate of 1.98 percent.”

Noting the high degree of automation involved in the entire process, which significantly reduced the number of intermediaries required for the operation, the bank now wants to continue developing the initiative.

It seems like the bank is betting on technology. Torio commented:

“For Santander, this is really much more of a technology innovation issue than a pure financial issue. We regard this an important first step that will be followed by more complex transactions.”

But is it really novelty?

As previously reported by The Blockchain Land, the World Bank issued a similar blockchain bond last year in August. Assigned to Commonwealth Bank of Australia (CBA) and developed with the help of the software giant – Microsoft, a private version of Ethereum was used.

In April of this year, French banking giant Societe Generale issued its first covered bond as a security token on a public blockchain. The covered bond was issued on the Ethereum blockchain, and it was worth over €100 million.