Israel Eyes Blockchain Bonds To Streamline Debt-based Securities Issuance

The Tel Aviv Stock Exchange (TASE) has recently signaled its interest in exploring innovative use cases for distributed ledger technology (DLT) in financial markets.

Upon announcing its new strategy for the years 2023-27, TASE said that it would work to strengthen its digital, data and analytics offering, which will include creating new digital assets and developing a range of solutions and services for institutional investors and liquidity providers through the TASE Clearing House.

Related: Israel: At the Confluence of FinTech, Cybersecurity Innovation

The stock exchange anticipates blockchain and DLT would play an important role in the new strategy and suggested that it could convert existing infrastructure and develop new platforms to enable the tokenization of various classes of assets.

TASE has previously moved to perform a proof-of-concept pilot for the issuance of government bonds on a blockchain platform.

As announced last month, the blockchain technology company Fireblocks and the cloud infrastructure developer VMware have already been selected to participate in the pilot.

Read more: Blockchain, Crypto Firm Fireblocks Tops $100M Annual Recurring Revenue

The Rise of Blockchain Bonds

The prospect of issuing bonds as tokenized digital assets on a blockchain has gained traction in recent years. Governments, intergovernmental organizations and private financial institutions have all turned to DLT to streamline the issuance and exchange of debt-based securities.

One landmark example was pioneered by the World Bank, which began issuing debt in the form of “bond-i” bonds in 2018. Since then, the international financial institution has upped its platform’s capability by enabling secondary bond trading recorded on the blockchain for bond-i.

At the national level, Thailand and the Philippines issued blockchain-based bonds in 2020, and in both cases for bonds targeted toward retail investors. Poland has also used the technology to track the issuance of some of its treasury bonds, while in the U.K., the prospect was floated by the then-Chancellor of the Exchequer, Nadhim Zahawi back in July.

While TASE has not given any indication as to the specific blockchain, it will use for the pilot, in previous projects either the public Ethereum blockchain or a private version was the most used.

Notable exceptions include the Bank of China’s proprietary blockchain and Société Générale, which issued a tranche of euro medium-term notes on the Tezos public blockchain last year.

Learn more: BNP Paribas Becomes Latest Bank to Embrace Blockchain

Whichever route TASE chooses, its partner in the pilot, Fireblocks, supports 30 different blockchain protocols including those typically used for issuing and tracking bonds.

Beyond the tokenized government bond pilot, Israel’s new strategy suggests an interest in expanding the concept to a greater range of assets in the future. TASE also plays an important role in a range of Israeli markets, including those for privately issued securities such as corporate bonds, shares and warrants.

As the world gets used to the idea of recording important transactions on distributed ledgers, Israel’s stock exchange is certainly preparing to ride the wave all the way.

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