Smart bond (finance)

For other uses, see Smartbond (monetary system).

A smart bond (or blockchain Bond) is a specific type of an automated bond contract that uses the capabilities of blockchain databases that can operate as cryptographically-secure yet open and transparent general ledgers. This is sometimes referred to as Distributed Ledger Technology (DLT).[1] It is one of a class of financial instruments known as a smart contract, "a computerized transaction protocol that executes the terms of a contract."[2]

This is in contrast to the traditional issuance process for bonds which can be a lengthy and highly technical process, which involves many intermediaries and stakeholders with sometimes conflicting objectives. A general lack of standardization in the primary markets increases information asymmetry and results in inefficient pricing, high costs, and long settlement times in the secondary market.[3]

Blockchain bonds have the ability to potentially revolutionize financial capital markets by creating a decentralized database of unique digital assets. Securities using blockchain technology will be able to cut out the various middlemen that are present in a bond transaction and lower fees.[1]

Issuers of bonds could be able to completely automate the entire bond issuance process through blockchain bonds. This would potentially result in shortened settlement and transaction times as well as greater transparency for the issuer in transactions. The increased transparency and automation of the process would remove the need for intermediaries and therefore generate increased savings for issuers.[4]

  1. ^ a b "How Blockchain Could Disrupt Banking". CB Insights Research. 2021-02-11. Archived from the original on 2021-08-04. Retrieved 2021-08-20.
  2. ^ Tapscott, Don (2016). Blockchain revolution : how the technology behind bitcoin is changing money, business, and the world. Alex Tapscott. Toronto, Ontario, Canada. ISBN 978-0-670-06997-2. OCLC 919014174. Archived from the original on 2021-08-23. Retrieved 2021-08-20.{{cite book}}: CS1 maint: location missing publisher (link)
  3. ^ Pana, Elisabeta; Gangal, Vikas (2021-04-23). "Blockchain Bond Issuance". Journal of Applied Business and Economics. 23 (1). doi:10.33423/jabe.v23i1.4064. ISSN 1499-691X. Archived from the original on 2021-08-20. Retrieved 2021-08-20.
  4. ^ "Digitizing Bonds on the Blockchain". Goldman Sachs. Archived from the original on 2021-08-20. Retrieved 2021-08-20.