Erik Weijers, a month ago

Siemens issues bond on-chain

Germany's Siemens has issued on-chain corporate bonds for the first time, for a total value of EUR 60 million. According to the company, it is a way to access a wider pool of buyers. Siemens chose Polygon, a layer 2 on Ethereum. 

Could this be the start of a trend? There are several reasons why a good tool for bond issuance could be public blockchains (a market of over a trillion dollars). First, ownership is very clearly visible on-chain: there can be no confusion about who owns what. Second, the issuance process is more efficient. Bond trading is currently a process where intermediaries pocket a lot of money. That can be done much faster and cheaper in smart contracts, Siemens apparently realized...

Israel's pilot with government bonds on-chain

Siemens was not the first party to dive into on-chain bonds. The Israeli government has been running a pilot with on-chain government bonds in recent months. Buyers were paid the tokens of their government bonds in their digital wallet. 

Side note: no public blockchain like Ethereum was used in Israel's case. Instead, the collaborating parties set up their own blockchain. However, this chain is compatible with the Ethereum Virtual Machine, which means that the Israeli government can always switch over. 

What does this mean for decentralized finance?

Aside from the good news for Polygon (MATIC) - how incredibly fast they have been onboarding clients lately! - it is an exciting development for decentralized finance (defi) as a whole.  

Are we entering a future where many more instruments from the traditional financial system - bonds, equities, real estate - go on-chain? Regulators are only going to allow that under strict conditions. The bonds would then have to be traded on a regulated crypto exchange, and you would have to hand over personal data (passport, etcetera), just like at a traditional financial institution.

So, while such a development would be good for the price of coins from public blockchains like Ethereum and Polygon, it would result in a tamed, watered-down version of defi. Indeed, the ideal of defi is that you can join without KYC, without government permission.

It is quite conceivable that part of defi will opt for the regulators' route and another part will want to remain independent: a truly separate financial system, without interference from above. There may be less money to be made in the latter case but it is a more interesting experiment.

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