Blockchain – Bond Markets: How blockchain can benefit market participants

Bond issuance and trading platforms built on blockchain can benefit several stakeholders in the bond market. The list of stakeholders includes enterprises, SMEs, investors, stock exchanges, regulators, treasuries, banks, insurance companies among others.

Some of the benefits of using blockchain based bond issuance platforms are:

  • The process of bond issuance can be standardized and made more transparent
  • Reduction in settlement time and associated risks
  • The amount of paperwork and corresponding errors and corruption can be reduced
  • More (smaller) issuers can access the bond markets due to reduced cost and time
  • Better efficiency in the secondary trading market
  • Better regulatory compliance and supervision
  • Rating of bonds becomes more efficient and accurate

Several bond issuance and trading platforms have been tested successfully and are under development. The steady growth in the number of new projects initiated indicates that the excitement around these platforms is increasing. However, before these platforms become commercialized, they need to overcome a few challenges and need to be tested thoroughly which seems to be delaying the launch of these platforms. Also, bond markets are highly regulated and any commercial launch could require regulatory tweaking which is not the easiest and the fastest task. Please contact our research team to learn more about how and in what areas can blockchain disrupt the bond market ecosystem.

Blockchain - Bond Markets

Here are some examples where market participants are using the blockchain to achieve above stated benefits:

  • Securities division of BNP Paribas is working on a blockchain project that would enable retail investors to lend money to businesses using a blockchain platform. This platform will maintain and record details of mini-bonds issued, and will allow all pertinent stakeholders to transparently access this information. This will be immensely beneficial to small businesses, while potentially helping standardize bond management.
  • In early 2017, the Commonwealth Bank of Australia issued a crypto-bond last year, using its capital markets blockchain platform. The bond was a working prototype, was not tradable and did not carry any debt obligation. This bond was created in digital form using smart contracts and could automatically pay coupons to the current holder when due. If commercialized, such a platform will eliminate the need of intermediaries, reduce costs, time and paperwork which further enhance transparency, and eliminates errors.
  • SBI Securities (Japan) has collaborated with IBM to develop a blockchain based bond trading platform. This platform aims to streamline the entire cycle from registering a bond to its reimbursement, by automating operations with shared databases. It reduces the amount of paperwork and human effort involved in the process, while reducing the chances of errors. It also improves efficiency by making the process faster.
  • Daimler AG and Landesbank in collaboration with Baden-Württemberg and 3 other German banks also conducted a pilot for issuing corporate bond using blockchain technology. The entire transaction was digitally carried out in parallel with the process that is required by regulatory authorities. This included various processes such as bond origination, distribution, allocation, execution of the loan agreement, and confirmation of repayment and interest payments. This increased the automation of financial transactions thus making them much faster and cost efficient by eliminating labor intensive manual steps.

About ESG Intelligence

ESG Intelligence enables corporations to embrace emerging technologies to improve their business and sustainability performance. We deliver research-driven insights in the areas of blockchain intelligence and risk management.

Our enterprise blockchain intelligence solutions have evolved after speaking to 100+ senior decision-makers at enterprises and leaders at blockchain technology companies, about how they want to use our intelligence. Our solutions can empower corporate and investment decision-makers to make intelligent and informed decisions, about blockchain use case identification, vendor selection, consortia identification, and at the same time allow you to prepare for challenges that make blockchain adoption difficult.

Our risk management solutions are aimed at identifying and mitigating supply chain risk for corporates. We conduct in-depth supplier risk assessments and monitor your critical supplier to uncover any supply chain disruption before it happens.

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Private Share Trading on Blockchain: Win-win for investors and Start-ups

Blockchain is now losing synonymity with bitcoin and is being acknowledged as an enterprise technology. At the same time, the stakeholders in the private equity trading and startup fundraising ecosystem are now looking beyond the hype of the ICOs to explore how this technology can work for them.

Using blockchain based platforms for private shares trading and SME fundraising can benefit several stakeholders involved in the private and SME fundraising ecosystem – startups and SMEs, angel investors, venture capitalists, private equity firms, crowdfunding platforms, and financial regulators, among others.

Some of these advantages would include:

  • Standardization of the fundraising process
  • Increased and streamlined access to investors for SMEs
  • Better enforcement of regulatory compliance and contracts through smart contracts
  • Reduction in time required to close private equity transactions
  • Reduction in paperwork and associated administrative costs

There are several enterprise blockchain projects that have been initiated by different stakeholders, as they are keen to unearth the benefits that such platforms can bring to the table. While pilot tests in some of these projects have yielded positive results, there are several challenges that need to be overcome, before such platforms see commercialization. We also note that 36% of the projects have been successfully commercialized, 27% of projects have been shelved for various reasons.

Private Share Trading on Blockchain

About ESG Intelligence

ESG Intelligence enables corporations to embrace emerging technologies to improve their business and sustainability performance. We deliver research-driven insights in the areas of blockchain intelligence and risk management.

Our enterprise blockchain intelligence solutions have evolved after speaking to 100+ senior decision-makers at enterprises and leaders at blockchain technology companies, about how they want to use our intelligence. Our solutions can empower corporate and investment decision-makers to make intelligent and informed decisions, about blockchain use case identification, vendor selection, consortia identification, and at the same time allow you to prepare for challenges that make blockchain adoption difficult.

Our risk management solutions are aimed at identifying and mitigating supply chain risk for corporates. We conduct in-depth supplier risk assessments and monitor your critical supplier to uncover any supply chain disruption before it happens.

Explore More

Can blockchain regulation keep up with innovation?

blockchain regulation

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2017 has been an year where significant progress has been made in the direction of enterprise blockchain adoption. This has been made possible through concerted innovation efforts of enterprises and IT vendors. There are more than a 120 enterprise blockchain use cases, that are in various stages of their lifeycles. However, what’s not catching-up is the blockchain regulation – a framework to define the rules for the various enterprise applications. This delay can hurt blockchain ecosystem in multiple ways:

  • Several large enterprises in various industries are still sitting on the side-lines, waiting for the rules of the game to be defined.
  • Even for the enterprises that are experimenting with the technology, it might be difficult to implement it on a meaningful scale unless they are clear about the regulatory framework.
  • Unregulated use of the technology by unethical and anti-social organizations, can cause serious economic and social damage to enterprises, consumers, and the governments.

BFSI is where the action is

The BFSI sector currently leads in terms of strategic and technological investments in blockchain. Therefore, the regulators in this sector have also become active and are closely monitoring the progress.

  • In United States regulators like SEC, CFTC (The commodity futures trading commission) and FinCEN (The financial crimes enforcement network) are actively studying and monitoring this technology.
  • Bank of England has also acknowledged the usefulness of this technology and is testing it for a couple of applications.
  • In Canada and Cambodia, central banks are actively involved with financial institutions and technology companies to successfully implement blockchain technology for different applications.
  • In India and China, the central banks are embracing this technology and are contemplating ideas of using the technology for digital currencies.

There are also other sectors such as healthcare, food supply chains, and identity management, where regulators and governments are showing keen interest to understand the technology and its impact.

Challenges for the Regulators

Conflicting characteristics: Many characteristics of blockchain, such as transparency, security and immutability, should attract the regulators. However, these same characteristics are not compatible with the current regulatory set-up, and conflict with many regulations such as data protection and right to be forgotten.

Evolving Technology: The technology is still in development stage and there is lack of clear understanding of its impact on various industries and current the regulatory frameworks. With many companies conducting different pilots and proof of concepts there is a possibility that current regulations need to be amended or additional regulation to be introduced.

Public Blockchains: While it is still possible to draft regulation for a private network as number of parties are limited. However, in case of public blockchains it would be difficult to apply jurisdictional laws due to its nature of free access and international distribution.

The way forward

Regulators need to start by acknowledging the aspects of the new technology which can positively impact existing industry dynamics. Next, they need to define a roadmap for creating a regulatory framework. Finally, they should highlight the aspects of blockchain which are difficult to regulate. This would allow other stakeholders to apply their knowledge and innovation efforts towards these ‘tricky aspects’. We are sure, these steps will enthuse the enterprises and IT vendors and will expedite the process of rolling our the blockchain regulation, for various industries.

About ESG Intelligence

ESG Intelligence enables corporations to embrace emerging technologies to improve their business and sustainability performance. We deliver research-driven insights in the areas of blockchain intelligence and risk management.

Our enterprise blockchain intelligence solutions have evolved after speaking to 100+ senior decision-makers at enterprises and leaders at blockchain technology companies, about how they want to use our intelligence. Our solutions can empower corporate and investment decision-makers to make intelligent and informed decisions, about blockchain use case identification, vendor selection, consortia identification, and at the same time allow you to prepare for challenges that make blockchain adoption difficult.

Our risk management solutions are aimed at identifying and mitigating supply chain risk for corporates. We conduct in-depth supplier risk assessments and monitor your critical supplier to uncover any supply chain disruption before it happens.

Explore More

Top five enterprise blockchain challenges that must be overcome in 2018

blockchain challenges

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Although blockchain is being viewed as the next big thing in technology, its adoption is fraught with myriad risks and compliance concerns. Some of the major blockchain challenges relate to regulatory uncertainty, privacy, high cost of implementation, and lack of standardization and integration. Progress is being made to overcome these hurdles by appropriate stakeholder, even as the pace of progress is only chequered to say the least.

Past couple of months have been ‘very good’ with respect to enterprises (even beyond financial services) coming forward to test this technology. We believe that 2018 can be the year of enterprise blockchains. Several ongoing use-cases should coming to fruition and the vendor landscape should also get more depth and a better structure. However, the enterprise adoption of blockchain might not realise its full potential if the appropriate stakeholders fail to address the following challenges.

Shadow of the ‘coins’

Challenge: The two most popular blockchain implementations thus far – Bitcoin and Ethereum, have not covered themselves in glory when it comes to enterprise level security, trust and transparency. Other cryptocurrency related negative media, generated by the likes of the Tezos and more recently Bitconnect, is not helping the blockchain reputation either. Most enterprise use cases are currently focusing on permissioned private blockchains, which are far more secure and supposedly trustworthy. However, their success stories have not arrived yet, to counter the dark shadow cast by some of the cryptocurrencies.

The way forward: Some positive and successful use-cases related to enterprise use of blockchain technology must come to fore. Also, better regulatory framework for cryptocurrencies and ICOs should help contain more negative surprises.

Regulators’ Inhibition

Challenge: Inadequate regulation and absence of standardization around implementation of blockchain technology also poses a challenge. This is partly because governments and other public institutions such as central banks, utility regulators, etc. are resistant to change. Their reasons are justified to some extent, as they seek clarity on possible and viable use cases, and the cost of change (discussed below). However, it is turning out to be a chicken an egg situation, which if persists will only harm the blockchain ecosystem.

The way forward: Regulators need to shed their inhibition and start a systematic process of drafting regulations to clear the playing field. Meaningful steps in this direction can facilitate the entry of several enterprises who are currently waiting on the sidelines.

Vendor reluctance

Challenge Microsoft, and IBM have played a big role to bring the enterprise adoption of blockchain to its current state. Recently, Oracle has shown positive intent about the blockchain cloud, which is also a positive step. However, many other large IT vendors are not sharing their enthusiasm about the enterprise viability for this technology. Unless there is a consensus among the large enterprise IT vendors, CIOs might find it difficult to give the right mindshare to blockchain.

The way forward: Other IT vendors from across the ICT value chain must buy-in to the blockchain story to create a consensus on the supply-side. 

Beyond Consortiums

Challenge: Building consortia to test the blockchain technology has been the modus operandi of many enterprises experimenting this new technology. This is justifiable because the technology is inherently based on peer-to-peer transactions, and multiple stakeholders in the ecosystem must be on-board for any successful implementation. However, the consortia mode comes with its own set of challenges. Many of these consortia have competing members from the same market, having their own business objectives to satisfy. Now, these objectives might not always be in-line with the objectives of the consortia, creating a friction. This friction is counterproductive in terms of time and investments, and slows down the process implementation. R3, the biggest blockchain consortia yet, has already seen exits of heavy weights such as Goldman Sachs, Morgan Stanley, Santander, and JPMorgan.

The way forward: We hope that some of these consortia can soon deliver something fruitful, else the interest of the participants might dwindle. We also believe that enterprises that go alone, or partner with up-stream or down-stream stakeholders in the value chain, stand a better chance of success.

Cost of change

Challenge: Everything has a price. Also, cost-saving has been the most important driver for technology adoption by enterprises. The blockchain technology currently requires high capital cost, as the proof-of-work algorithm used by most blockchains requires significant computing power to process transactions. However, there remains a lack of clarity on what enterprise implementations can cost, or perhaps will there be any cost-benefit of going with the blockchain?

The way forward: The vendors must provide some clarity on the ‘cost of change’ relative to existing set-up to induce more interest from the enterprises.

With the US and most EU economies on the recovery path, 2018 can be the year, when many CIOs should look to loosen their purse strings. Therefore, if the relevant stakeholders in the blockchain ecosystem can get their acts together to overcome these blockchain chalenges, 2018 can truly be “the year of the enterprise blockchain”.

About ESG Intelligence

ESG Intelligence enables corporations to embrace emerging technologies to improve their business and sustainability performance. We deliver research-driven insights in the areas of blockchain intelligence and risk management.

Our enterprise blockchain intelligence solutions have evolved after speaking to 100+ senior decision-makers at enterprises and leaders at blockchain technology companies, about how they want to use our intelligence. Our solutions can empower corporate and investment decision-makers to make intelligent and informed decisions, about blockchain use case identification, vendor selection, consortia identification, and at the same time allow you to prepare for challenges that make blockchain adoption difficult.

Our risk management solutions are aimed at identifying and mitigating supply chain risk for corporates. We conduct in-depth supplier risk assessments and monitor your critical supplier to uncover any supply chain disruption before it happens.

Explore More

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