Primary issuance

Why tokenise? i

This example covers bonds only; tokenised funds and stablecoins are covered elsewhere. Issuing a bond directly on a shared ledger can settle the deal on the issue date or within minutes instead of days later, cut some of the agents in the chain and pay coupons from the same record. So far, though, most issues are one-off deals rather than regular programmes.

Improves an existing process Bonds are already issued electronically through securities depositories, and the process works. A digital bond (one created on a ledger from the start) does the same job with fewer steps: it can settle against cash, sometimes central bank money, in one go, and coupons can be paid on the ledger. It is an upgrade to an existing process, not a new market. This case covers bonds only; tokenised funds and stablecoins have their own value cases.

The problem today

• Each bond issue is largely bespoke and handled by hand. Documents, agents and settlement are set up deal by deal, which adds time and cost.^[1]
• After a syndicated bond is priced, it usually takes several more days to settle. In that time the global note is prepared and lodged with the depository, and the issuer waits for its cash.Pre-settlement of three to five days for a typical syndicated issue (ICMA)^[2]
• Coupons and other lifecycle events are mostly processed by hand. The issuer, the paying agent and the depository each keep records that then have to be checked against each other.^[1]
• High minimum sizes and depository costs make small issues uneconomic and keep smaller investors out.Minimum tradable size generally EUR 100,000 in Europe^[1]
• Many early "digital" bonds were first issued in a traditional depository and then converted, which added a step rather than removing one.^[3]

Today vs tokenised (simplified)

End to end: three to five days after pricing → same day or the day after pricing · settlement only; arranging the deal still takes days to weeks

Benefits · 7, of which 3 evidenced

Who it suits

Government, Bank, Non-financial company, Market infrastructure (FMI), Central bank · effort: medium · value depends on counterparties joining

• Issuers: sovereigns, regional and local governments, supranational and agency issuers, banks and large corporates with regular funding needs
• Arranging banks able to run the order book and settle on the chosen platform
• A legal basis for issuing securities on a ledger, such as Germany's Electronic Securities Act (eWpG), Swiss DLT law or English or Luxembourg law structures
• Investors whose custodians can hold the digital bond, directly or through a depository link

Limits and open questions

• Secondary trading is thin. Most digital bonds are bought and held, and liquidity may stay poor until there is a critical mass of issues and investors.^[1]
• Most activity is repeated one-off deals, not programmes at scale. Issuers such as UBS say further digital issues depend on whether investors are ready.^[11]
• Volumes are still tiny. HSBC Orion, one of the larger platforms, reports just over US$3.5 billion of digital bonds issued in total, a sliver of the roughly US$25 trillion of long-term bonds issued worldwide each year.^[12]
• Legal, technical and operating rules differ by country. Germany needed a new law (eWpG) for crypto securities, and other markets use different structures, which makes cross-border programmes harder.^[1]
• Today's process already works smoothly. The bond market's own trade body sees no case for shortening the primary settlement cycle, so faster settlement of a new issue is a modest gain on its own.^[2]