Russia’s largest clearing and settlement company has issued its first-ever live bond using blockchain, and already, issuers and brokers are wanting in on the action.
Initiated three weeks ago, the National Securities Depository (NSD) reproduced the financial instrument, a $10 million bond for shares in Russian telecom giant MegaFon, using smart contracts and the open-source Hyperledger Fabric blockchain. The bond is now expected to mature in about nine weeks (or three months after it was issued).
In an exclusive interview with The Global Blockchain, the NSD’s head of decentralized solutions, Alexander Yakovlev, detailed what he characterized as the surprising demand for a trial he said is making “boring” paper bonds sexy. Following the formal announcement, the NSD has received 30 requests to repurpose the smart contract to issue other bonds.
“Issuers or brokers think blockchain can help transform these boring commercial bonds into some other product, because it will look different and taste different, so it’s different.”
While the NSD hasn’t recouped the money it put into the R&D just yet, Yakovley positioned the solution as one that will future-proof their processes for a time when clients demand the faster settlement times and enhanced transparency of a blockchain solution.
Copy and paste?
Built in coordination with the Russian central bank and in consultation with the NSD’s legal and operations teams, the bond was intended to help create a new workflow for how such an issuance could be done in compliance with regulations.
And repurposing might very well be possible.
The MegaFon bond, which allowed the company to sell its shares to Raiffeisenbank Russia (a subsidiary of Raiffeisenbank International), was developed by California-based Altoros using smart contracts on the Hyperledger Fabric implementation.
At this early stage, the smart contract is a relatively simple bilateral agreement between the bank and MegaFon. Going forward, though, Altoros’ head of blockchain practice, Oleg Abdrashitov, told The Global Blockchain that the “blueprint” could be used for more complicated derivatives sales that rely on third-party data supplied via a blockchain “oracle.”
“What they’re asking now – new banks – is not only to participate in the same commercial paper issue, in the same use case, but they’re asking whether they can reuse the same nodes and the same network, to build their own smart contracts for some other products and some other businesses.”
Publicity built in
But there’s more behind this demand than the routine promise for faster, cheaper and more transparent financial transactions.
While the NSD’s blockchain developers have long touted these benefits as appealing to international investors, the real driving force behind the demand, according to NSD director Artem Duvanov, is the built-in publicity that comes with blockchain experimentation.
In interview, Duvanov echoed comments made on stage at Sibos last week by NSD CIO Sergey Putyatinskiy, who joked that blockchain’s ability to generate headlines could also disrupt public relations agencies.
According to Duvanev, stock issuers and brokers evaluating the cost of a marketing campaign to attract interest to investment opportunities are increasingly deciding that it’s cheaper to issue something real on a blockchain to attract attention.
The result, Duvanev hopes, could be an entirely new revenue stream for value-added services built around blockchain-based assets.
“What is now offered is just some basic service. You can use us to issue and settle, but that’s a really basic service. We can do it more convenient, more digitized, and to include it in a bigger service, that we would definitely charge money for.”
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Source: The Global Blockchain