Santander Digitalized a $20 Million Bond Trade on Ethereum

The biggest banking institution in Spain, Santander, announced it became the first organization to use a public blockchain to manage every part of a bond task, thus fully digitizing it.

Last Thursday, Santander used a token on Ethereum to depict a $20 million debt issuance and settled it with other ERC-20 tokens that depict cash held in a custody account.

Earlier, the World Bank tried to issue an analogous blockchain bond but did it with a private Ethereum network version. Societe Generale also issued a similar bond on the public Ethereum network but did not share any information about money on-ledger.

Santander is basically the first party to settle the typically, cash side of these types of trades digitally and deserve the bragging rights. Nevertheless, like Societe Generale, Santander also issued the bond to itself and no outside investors did participate. John Whelan, Santander’s Head of Digital Investment Banking shared his content:

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

Is it a financial or tech success?

Santander’s Head of Funding, Antonio Torio illustrated the activity as a “real-money pilot” and that the transaction was a plain-vanilla bond with a maturity of one year, a standard rate of 1.98% and four quarterly coupons.

Torio did share his view on the aforementioned dilemma:

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

The operation started on Friday the week before, and finished on Tuesday. Whelan noted that the “cash” side was retained “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,” at which point the cash and bonds were swapped “simultaneously and irrevocably.”

This success of course raises many possibilities like if Santander could handle full-grown digital assets e.g. Bitcoin or Ether. To that Whelan answered positively but noted:

“At the bank, we are not interested in cryptocurrencies directly. The technology is the same underneath, but we are interested and our customers are interested in traditional dollars, euros, pounds and that’s our space.”

Who else deserves credit?

Santander was not alone in this attempt, as they received help from Nivaura, a London-based technology provider in which Santander had invested in.

 Avtar Sehra, Nivaura CEO, also shared his view on the accomplishment:

“This is not really digitizing a bond,” he said. “All you are really doing is digitizing the process for registration and settlement – and even for the settlement part you are only addressing half the problem because you haven’t got cash on the blockchain.”

Nivaura were very important in this task because they digitalized all documentation and negotiations that come with an issuance, in a way allowing the data to be encrypted. Subsequently every party can see only certain parts of a document, in contrast to sending PDFs via mail.

According to Sehra, this is the innovation at hand:

“They[Santander] are saying ‘let’s digitize the entire process’. We are not now doing the bond construction in the old fashioned way, inputting data manually in an insecure fashion into a blockchain to tokenize it and doing the same with cash. That’s absurd.”

He continued:

“The Santander execution is the first truly digital front to back execution process, which securely uses relevant data to tokenize both the assets and cash to enable on-chain settlement and coupon payments.”

This case is just another testimony that the banking world is starting to trust at least the larger cryptocurrencies by market cap.