Blockchain Bonds to Be Tested for The First Time in Israel

The Israeli government plans to experiment with digital bonds. Blockchain technology will provide the foundation for the tests. It will modernize financial market processes and lower expenses.

Through permission privatized distributed ledger technology, the issuing of bonds will occur. The platform is presently undergoing live testing as part of a team effort. 

Bond Blockchain Testing

The Tel Aviv Stock Exchange (TASE) and the Ministry of Finance’s Office of the AG are working together. Digitalization of a “new series” of public debt will b as part of the proof-of-concept. 

The debt will be available to a select number of primary dealers from domestic and foreign markets. In addition, TASE will work with Fireblocks and VMWare to support the platform’s technological implementation. 

According to a statement, participants will receive tokenized bonds through their digital wallets. 

The payment for the issuing consideration will be made in digital currency, while the wallet will be that of Israel’s government.

Within the following several days, the pilot project will begin. It will be complete by the end of the first quarter of 2023.

TASE’s head of clearance, Orly Grinfeld, revealed some information in an email to Blockworks. With the State of Israel and leading international organizations involved, he said, there is a potential to develop a pilot. 

The trading of Government bonds only takes place on a major exchange in Israel.

This experiment will remain entirely centralized for the time being, in contrast to previous trials using tokenized bonds. However, according to Blockworks, a Fireblocks representative revealed some information. 

According to the representative, the Ethereum Virtual Machine and the permissioned blockchain are interoperable. Therefore, if the Ministry of Finance were to issue digital assets on a public chain in the future, “there would be little difference.”

According to TASE, the creation of the platform will be for the clearance and trading of digital assets. Cryptocurrencies are not part of these assets. Instead, tokenization and smart contracts will be the base for the platform.

Bonds Issued Using a Blockchain

Creating government debt by selling bonds often requires high levels of coordination. There is such cooperation between the many systems at play. 

The reason blockchain technology is so well-liked is that it simplifies financial transactions and gets rid of mediators.

TASE is hoping that this test will demonstrate the utility of the technology. Reduced bond issuing costs, quicker settlement times, more transparency, and simplified processes should all be indicators of such performance.

TASE and the government claimed to have been keeping an eye on happenings in the financial marketplaces. as part of the monitoring, tokenization will take place for several assets. This occurred after issuing the first distributed ledger technology (DLT) bond in the World Bank in 2018.

Both parties mentioned an interest in speeding up test runs of digital money by central banks and other financial institutions.

Using bonds based on distributed ledger technology has begun in many countries (DLT). The goal is to use the debt instrument to generate money for infrastructure. 

The Philippines is one of these countries. The Philippines raised P11 billion ($186 million) earlier this year due to investors’ enthusiastic response to the bond’s inaugural issue.

TASE and the government also predicted a financial instrument digitalization transition. In a statement, TASE CEO Ittai Ben-Zeev made several disclosures. First, he said that the financial markets had seen significant changes in recent years. 

He continued by saying they want to see Israel lead the way in financial technology and be the first to adopt cutting-edge tools and modernize the capital market.