This week, the IT service provider and consultancy company, Nomura Research Institute (NRI) became the first platform to offer blockchain-based digital bonds directly to Japanese investors. The news falls-in-line with the group’s overall goal to expand tokenization efforts in the Japanese market.
Specifically, NRI issued two bonds. The first bond was a 25M yen ($232,000) bond with a three-month maturity. Interestingly, this bond differs from traditional bonds in that there is no interest paid to holders. Instead, these “digital asset bonds” pay redeemable points. Importantly, the second bond does pay holders a low-interest rate. This bond saw a 5M yen issuance.
The Nomura Group Makes it Happen
In order to bring this important milestone to the Japanese market, NRI utilized multiple partnerships within its sphere. Specifically, Nomura Securities acted as the underwriter for the tokenized bonds. Additionally, BOOSTRY is the registry agent for the issuance. Importantly, last year NRI and Nomura created BOOSTRY as part of a joint venture. Interestingly, the firms started the BOOSTRY project back in 2015.
BOOSTRY’s goal was to develop a blockchain platform for the exchange of securities. The tokenized asset platform under creation – ibet is to provide more efficiency, liquidity, and security to the market. Notably, the BOOSTRY project began with an $11M capital investment. Currently, Nomura has a 6% stake in the firm, while NRI holds a 34% share.
Nomura Crypto – NRI
The Nomura group continues to expand into the blockchain sector in a major way. In Q1, the Nomura Research created a cryptocurrency index to service the growing market demand. This month also saw the Nomura Institute of Capital Markets Research create a department specifically focused on blockchain financial instruments such as security token offerings (STO).
The goal of the group is to gather issuers, asset managers, settlement agencies, legal experts, and academics to focus on blockchain integration and its effects on the market. The group currently consists of some heavy hitters in the sector including
- Tokio Marine & Nichido Fire Insurance
- Nishimura & Asahi
- Mori & Tomotsune
- JCB, Daiichi Life Insurance
- Nomura Securities
- Nomura Trust
- Nomura Research Institute
- Mitsui and Mitsui Fudosan
- Nomura Asset Management
- Nomura Institute of Capital Markets Research
Investments into Blockchain – NRI
Last year, the company also invested in the smart contract development firm Omise Holdings, the parent company of OmiseGo (OMG) and GO.Exchange. The investment increased operations for the firm across a number of verticals. Additionally, the exchange Quantstamp secured funding from the firm on March 8, 2019. As part of the deal, the U.S.-based firm opened a subsidiary in Japan. Quantstamp provides an automated tool for developers and users that helps locate vulnerabilities in smart contracts. Also, the company offers auditing services for large-scale blockchain platforms.
Nomura Pushes Tokenization in Asia
Nomura continues to be a major advocate for tokenization in the financial sector. As such, the company is ideally positioned for the digitization of the markets. You can expect to hear more exciting developments from this team, as their projects continue to shape the Japanese market moving forward.
France’s Central Bank Completes Security Issuance with Digital Euros
A major milestone towards the launch of a Central Bank Digital Currency (CBDC) was achieved in Europe, and more specifically in France.
The acceptance of a digital currency on a global or even on a national level was perennially viewed as a pipedream. Nonetheless, even after dismissing the biggest digital currency in the world – Bitcoin – nation states and central banks started to pay more attention and work on their own currency’s digital version.
While several countries have made some progress, China is known to be at the most advanced stage for launching its own CBDC. At the same time, news of a successful test for a digital Euro comes from France’s central bank.
Banque de France Unveils CBDC Progress
This first successful test was done in partnership with one of France’s biggest banks – Société Générale. In what is called a covered bond issuance, the total value reaches the €40 million (~$44 million) mark.
This becomes a noteworthy milestone for digital security issuance, since the transaction was instantly settled via the delivery versus payment (DvP) method directly against digital Euros.
Société Générale has lauded the results of the test and is highly optimistic in regards to the benefits digital currencies can bring, saying “It paves the way for the automation and shortening of payment processes, with simplified market infrastructures and strengthened security.”
According to reports, the central bank digital currency is one to be used for interbank settlements, rather than consumer payments. With the positive outcome of this initial test, Société Générale is encouraged to undergo more rigorous testing in the coming weeks:
“This experimentation was performed end-to-end using blockchain infrastructures…It demonstrates the feasibility of financial securities being digitally settled and delivered in Central Bank Digital Currency (CBDC) for interbank settlements,” stated Societe Generale.
This also becomes a huge milestone for the Banque de France. The central bank’s ambition to test a digital currency was voiced late last year in December 2019, stemming from a political will to take on a leadership role within the European Union.
France’s Efforts on a Digital Euro Paying Dividends
The development activity and the encouraging test results around the digital Euro coming from Banque de France are cementing the country’s place at the forefront of digital financial securities landscape.
Banque de France said it will continue to do more tests with other financial institutions over the next few weeks, as part of its ongoing exploration of a digital Euro.
“The results of these experiments will be an important element of the Banque de France’s contribution to the more global reflection led by the Eurosystem on the interest of [a CBDC],” stated the central bank.
It’s not too long ago that the central bank launched its digital Euro programme. In April, the central bank said it aims to uncover the benefits of digital currencies for clearing and settlement of tokenized financial assets.
The central bank shared that since the programme launch, there have been a lot of applications and interest to test the central bank digital currency, emphasizing the leading role the country has in payments technology innovation.
This current iteration of the central bank digital currency is being earmarked to be used for and by financial institutions – not retail payments. At the time of the programme launch, the central bank said it is not looking to replace coins and banknotes.
According to the central bank’s governor, the consumer side would have to be complemented by a different digital currency that focuses on usability and may not be underpinned by blockchain technology.
The Race for the First Central Bank Digital Currency
France is not the only country to have started testing central bank digital currencies. Last month, China finally confirmed it had begun testing its digital Yuan in four cities. According to the People’s Bank of China it started researching CBDCs as far as 2014, and finalized a basic design back in January.
If governments were adamant of adopting a digital currency, now it seems central banks are racing to be the first-to-market. It’s not surprising as well, since a successful digital currency issued by a major central bank could be used as an international currency – potentially weakening the role of existing currencies, like the U.S. dollar.
Monetary experts have voiced their thoughts that a digital asset used on a global scale could significantly reduce the influence of the U.S. dollar on global trade and weaken its position as a world reserve currency.
Whether this will come from a digital currency built by a central bank or from a neutral digital asset like Bitcoin, it’s clear that the world of financial securities is set to go through a seismic change.
Provenance Facilitates Securitization & Issuance of $150M in Bonds
A group batch of loans, structured as HELOCs, have successfully been securitized and issued as bonds to investors on Provenance, by a group of enterprising companies. This process saw $150 million worth of these asset-backed loans undergo the process, entirely with the use of blockchain.
Figure Technologies, who spearheaded the endeavour, believes that this is the first example of bonds being issued solely through the use of blockchain.
While this endeavour may have been spearheaded by Figure Technologies, they are not the only ones that played a role. The following companies each took part in the securitization in varying capacities:
- Jeffries Group
- Nomura Securities
- Tilden Park Capital
The blockchain that made this securitization possible is known as Provenance. When describing the benefits of their platform, the company states,
“The distributed, trustless and immutable characteristics of blockchain eliminate costs from intermediaries, automate inefficient operational processes, reduce risk through data reliability, and enable innovative new products.”
While Provenance began life as a product of Figure Technologies, the company underwent emancipation in 2019. This occurred upon completion of a lucrative, and successful, STO, which saw the company generate $20 million in investments.
Since this event, Provenance has made it clear that a focus of theirs would be to change the way real estate is managed. At the time of their STO coming to a close, they indicated a desire to be the first at achieving the following:
- hedge fund on a blockchain
- real estate title entirely on blockchain
- digital mortgage on blockchain
Clearly, today’s news of the securitization of a group of HELOCs is right up their alley.
Upon announcing the successful completion of the securitization, representatives from multiple of the participating companies took their time to comment. The following is what each had to say on the matter.
Mike Cagney, CEO of Figure, stated,
“Blockchain has an almost incalculable potential for unlocking value for the world’s financial markets and we’re spearheading that transformation by taking on the big challenges like securitization…Until now, the industry has been slow to move past white papers and proof of concept projects. But this first ever production-level blockchain ABS achievement importantly underscores that the times are changing.”
Sanil Patel, Managing Director of Nomura Securities International, stated,
“Nomura is proud to have been a lead underwriter on Figure’s inaugural securitization on Provenance…Provenance is leading the way toward creating a more accessible securitization market, one where smaller issuers may securitize assets at a lower cost than the traditional model.”
Brian McGrath, Managing Director of Jefferies Group, stated,
“We are happy to partner with Provenance to bring to market a deal that meets the needs of our clients utilizing their innovative technology.”
Founded in 2018, Figure maintains operations in San Francisco, California. Above all, the company is looking to leverage blockchain and DLT, in an effort to transform FinTech. Today’s discussion is an example of this implementation.
CEO, Mike Cagney, oversees company operations.
A ‘HELOC’ simply refers to a home equity line of credit. These are essentially credit lines which allow one to leverage equity in their home for financial flexibility – essentially an asset backed loan. While standards for qualification may differ, depending on the region, the concept remains the same.
To date, many remain wary of HELOCs. While they can provide great benefits when used correctly, they are not without their risks. During the housing crisis, roughly 10 years ago, HELOC based bonds were of great popularity. When the market collapsed, many were left owing more on their homes than they were worth. As a result, there was a simultaneous collapse of the associated bonds.
HELOC backed bonds fell out of fashion for multiple years, but have recently seen a resurgence.
In Others News
If the idea of merging blockchain and DLT with bonds sounds familiar to you, it may be, in part, due to the following instances. Over the past year, a variety of banks have seen the merit behind this infusion of technology, and have done their best to trial it. Make sure to peruse the following articles to learn more about how banks around the world are faring.
Arca Funds Seeks to Tokenize US Treasury Bonds
This week, Arca Funds announced it will seek regulatory approval to begin tokenization of US Treasury Bonds. Importantly, this filing isn’t the first time Arca sought SEC approval for a new blockchain-based platform. The news showcases the further integration of blockchain technology into the traditional financial sector, as well as, further determination on the part of Arca Funds to bring their products to the market.
The Los Angeles-based fund management firm, Arca Funds, seeks to provide investors with a modern alternative to the current outdated Treasury Bond systems in use. The firm believes that only tokenization can provide more efficiency in the market. As such, Arca Funds hopes to capture a majority share of the tokenized bonds sector moving forward. This strategy puts Arca Funds in a profitable situation. According to a recent report by Morningstar, there is approximately $330 billion of funds devoted to investing in government bonds, dominated by U.S. Treasuries.
As it stands now, Arca’s SEC filing represents a major milestone in the market. If successful, Arca would become the first tokenized fund to be fully authorized under the Investment Company Act of 1940. Consequently, the platform could offer its service to most U.S. traders.
Arca executives labeled the new financial instrument a blockchain-traded fund. Importantly, the new technology provides faster transactions than Wall Street’s current market systems. Additionally, it eliminates many of the middlemen. For example, the current system requires you to buy bonds from a broker or acquire shares in a fund. All of these third-parties increase the cost of your transactions.
Pay for Goods?
Interestingly, developers envision a day in which you could pay for goods or services using the Treasury-fund tokens. Discussing this possibility in the very near future, Arca CEO Rayne Steinberg spoke on how technology makes it possible to “collapse the space between payments and investment vehicles.”
Investors in the Arca Fund receive ArCoins for their participation. These coins reside on the Ethereum blockchain network. Specifically, the tokens are the popular ERC-1404 standard. As such, they provide users with the highest level of interoperability within the Ethereum ecosystem
Arca Funds Partners
As part of the strategy, Fifth Third Bank, one of the largest banks in Ohio, agreed to function as the custodian for the tokens. Also, DTAC LLC signed on as the platform’s transfer agent. Importantly, DTAC is a subsidiary of TokenSoft, a major player in the tokenization market.
Unfortunately, Arca Funds has its work cut out for it. The SEC repeatedly denied EFTs to date. Importantly, Arca was part of a Bitcoin ETF filing last summer with Wilshire Phoenix. The firms were denied. Then, the firms filed again just last month. The SEC rejected the second filing on the grounds that Wilshire Phoenix had not proven the bitcoin (BTC) market is sufficiently resistant to market manipulation. The denial was met with discourse to the point that SEC Commissioner Hester PeirceHester Peirce published a dissent.
Arca Funds – Determination
Arca Funds continues to seek SEC approval to bring new and exciting financial tools to the market. Hopefully, in the near future, regulators will give the firm the fair attention it deserves. For now, these developers continue to pioneer new tokenization strategies.