Siemens AG jumps into the blockchain bandwagon by being one of the first to issue digital bonds in consonance with the Electronic Securities Act of Germany (Gesetz über elektronische Wertpapiere or eWpG). The move is seen to pave the way for the company’s quicker and more efficient way of issuing bonds moving forward.
On February 14, Siemens became one of the first companies in Germany to utilize the advantages offered by the blockchain in bond issuance. The digital bond in question comes with a volume worth €60 million and a one-year maturity.
The giant manufacturing company’s press release didn’t disclose the interest rate for the bond. However, it did mention that its key investors included DekaBank, DZ Bank, and Union Investment.
Advantages Presented by Blockchain-Based Bonds
The adoption of blockchain technology in bond issuance presents a lot of advantages for Siemens and for others that are planning to follow in its footsteps. Among the key benefits realized in the process are the following:
- First, the paperwork is greatly streamlined as it eliminates the need for the manual issuance of certificates and a central clearinghouse.
- Second, the bond can be purchased directly by an investor without a third party acting as an intermediary such as a bank or another financial institution.
- Third, the blockchain approach removes regional barriers and provides the company with wider access to a pool of potential investors.
- Lastly, the payments can be made using classic methods using the bank accounts of the parties. This has the potential to be made more convenient once the digital euro is enforced.
Siemens noted that the integration of its bond issuance in the blockchain allowed it to complete the whole transaction in just two days. The length of time for the transaction may be cut down once the digital euro comes to fruition.
The sad news though is that the digital euro may not be in circulation until 2027. The European Central Bank (ECB) said that the concept is still in the “investigation phase”. The “realization phase” may not come until autumn this year. Meanwhile, the extensive testing of the prototypes may last for at least another three years. Finally, some deliberations and a decision will have to be made prior to its implementation and circulation.
The Platform Used for Siemens Bond Issuance
Siemens utilizes Polygon’s public mainnet in managing its new venture in bond issuance. The decentralized scaling solution of Polygon takes advantage of the Ethereum blockchain networks.
With the use of a sidechain, a secondary blockchain that enables quicker and less expensive transactions, it addresses several issues that the Ethereum network is now experiencing. As a result, developers can make decentralized applications (DApps) that are safe, simple to use, and scalable.
Final Thoughts
The experiences gleaned by Siemens in its new process of bond issuance will surely serve as a useful reference for other companies who want to streamline their securities issuance in the future. Aside from the potential advantages for firms, this streamlined solution with lesser barriers will definitely cut investors some slack and has the potential to attract a wider range of institutional and retail investors along the way.