This month, the international Spanish banking giant Santander concluded their testing of a blockchain-based securities strategy. The bank performed an early redemption of a $20 million bond the firm issued on the Ethereum blockchain back in September.
At the time of issuance, the $20 million tokenized bond was a pilot transaction. Developers needed to confirm that the technology would function as promised. Discussing the strategy, the head of Digital Investment Banking at Santander, John Whelan described the project as a success.
Whelan didn't mince words as he discussed the progress to date. He exclaimed that the tests “unequivocally proves that a debt security can be managed through its full lifecycle on a blockchain.” He also spoke on the importance of this technology as a real-world solution for securities issuance. Notably, Whelan is also the chairman of the Enterprise Ethereum Alliance.
Santander – A Tokenized Bond Strategy
In this instance, Santander functioned as both the investor and the issuer. This strategy made testing easier to complete. To begin the process, a custom Ethereum token was made to represent the bond. Santander Security Services provided custody of the cryptographic keys as part of the concept.
Interestingly, when it was time to cash out, Santander settled it with another token that represents cash held in a custody account. In this manner, the bank streamlined the entire securities issuance and management process.
Whelan took to social media to praise his team's efforts. In his posts, he provided the public blockchain transactions on Etherscan. Etherscan is a blockchain scanning tool that allows you to find proof of the transactions.
An Important Milestone
While Santander isn't the first institution to issue a tokenized bond, it is the first major financial institution to use a public blockchain to manage all aspects of a bond's issuance. To date, other major firms that have stepped into the tokenization sector such as World Bank and Societe Generale. Currently, both banks have tokenization programs in place.
A More Efficient Alternative
One of the key takeaways from the project is that the use of smart contracts removes the need for expensive third-parties. This strategy provides investors with a more secure alternative than the status quo. Smart contracts allow developers and issuers to preprogram the regulatory compliance mechanisms directly into the token. In this manner, the token remains compliant throughout its entire lifecycle, including secondary trading markets.
Santander began service in 1902. Formerly, Santander went by another name – Sovereign Bank. Today, the bank has offices around the globe with the main North American headquarters based in Boston. Respectfully, the bank has a yearly net income of around $1.042 billion USD.
Since its inception, Santander has seen great success. Today the bank has over 650 retail banking offices and over 2,000 ATMs internationally. Notably, the bank employs approximately 9,800 people.
Santander Joins the Tokenization Train
This latest news showcases how major financial institutions continue to seek out blockchain alternatives. Now that the testing phase of Santander's blockchain strategy is complete, you can expect to see a variety of new financial products and tools become available in the coming weeks.